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Italy’s FDI skyrockets 50% to $30bn in 2015

Interview - March 2, 2016

Domenico Arcuri, CEO of Invitalia, stresses that “it is the right time to reach out to the business community.” With Invitalia’s 173 initiatives financed and €1.98 billion of investments activated, Italy has never been so appealing to national and international investors.

 

DOMENICO ARCURI, CEO OF INVITALIA
DOMENICO ARCURI | CEO OF INVITALIA

What is your personal outlook on Italy’s performance in 2015?

2015 was a year of transition: after seven years of no or negative growth, Italy is back in the saddle. GDP is finally on the rise, although insufficient to return rapidly to the pre-crisis levels. However, it is important to note that we have registered a change in the sign of the trend.

The IMF estimates GDP to grow by 1.3% in 2016 and 1.2% in 2017, significantly higher than the 0.8% of 2015. More importantly, other indicators are showing positive figures and this will eventually translate into more sustained growth.

Look at unemployment, for instance. In 2015 the unemployment rate fell to a three-year low of 11.3%. Full-time jobs increased by 141,000 units in 2015. According to the INPS – the Italian social security agency – in the first two months of 2015 around half a million new full-time, stable jobs were created in the private sector.

 

Is Italy’s recovery a consequence of exogenous factors or positive domestic reforms?

Both really. It is difficult, I dare say impossible, to disentangle the two effects. The reform agenda of the government seems to be starting to produce returns. The quantitative easing and the oil price drop do help. These effects are more short term though.

Reforms, on the contrary, produce their effects over longer periods of time and require more patience. I am sure we will see the full positive consequences of reforms such as those regarding the labor market, the banking system as well as the simplification of the legislative process.

 

Would you say that with the 2016 stability law and ‘Unlock Italy’ bill there has been a crucial shift from austerity to investment? What are the main challenges that still need to be addressed to create a more conducive environment for foreign companies to invest in Italy?

FDI increased in 2015 by 50%, reaching $30 billion. This is good news. Of course the absolute levels of these investments is still not completely satisfactory and below the potential of our economic system. Yet, this testifies the return of confidence by foreign investors after the dramatic years of the euro crisis.

In the last three years, Italy has simplified its bureaucratic apparatus, sped up the justice system, and aligned new labor legislation with the expectations of a foreign international investor. Also, new rules regarding tax agreements with investors and dedicated business courts for foreign investors were created. Overall, the whole system has become more business friendly.

From my point of view, there are two areas where improvement is still possible and certainly urgent. The first is time. Competition between economic systems is as much on resources, both physical and intellectual, as it is on time. Setting up a business; resolving a legal dispute; obtaining all required authorizations for an investment; dealing with red tapes; resizing a company boundaries: these are all examples of activities where time is of the utmost importance. We have a significant margin of improvement in these areas.

The second is to do a better marketing of Italy as an investment opportunity. The government has this objective high on its agenda and this is the right time to reach out to the business community.

 

How does Invitalia facilitate access to credit for SMEs?

Italian companies, and in particular SMEs, face obstacles to access finance. Frankly, EU policies do not help. Credit rationing is still very high and domestic demand is compressed by austerity policies. On top of that the euro exchange rate does not favor our exports.

To improve access to finance by SMEs and to sustain innovation and investments, Invitalia manages a comprehensive set of tools ranging from microfinance to venture capital.

We manage measures for creating new business targeted at those who want to become self-employed or start up their own new company in Italy. Over the years, such measures have proved very effective. Under such grant schemes, more than 2,000 companies were set up and 32,000 jobs were created.

There’s more: with Smart&Start we support the creation and the development of high-tech innovative start-ups (641 projects financed and 2,800 jobs created in just over two years) and with the Development Contracts we support large investments in the sectors of manufacturing and tourism. In the last four years, 61 large investments where financed for a total investment of over €2 billion and 29,000 jobs were created or maintained. Foreign investors realized around 36% of the investments.

 

Invitalia intervenes in industrial areas hit by the economic crisis. Is it possible to turn the crisis into a new economic opportunity? What would you say are main achievements so far?

Before talking about areas affected by industrial crisis, we must take a step back: the measurement system for the re-industrialization of areas or districts in industrial crisis began in 1989 and the legislation has undergone several updates.

On behalf of the Ministry of Economic Development, Invitalia operates in these areas through industrial reconversion and requalification projects (PRRI), such as Rieti, Piombino, Trieste, Murgia, Campania, Anagni-Fiuggi, and Merloni. The national measure managed by Invitalia to promote productive investment in ‘industrial complex crisis’ areas is the New Law 181/89 (decree 9 June 2015).

In summary, the updated results and key figures as of January 1, 2016 are: 173 initiatives financed; €1.98 billion of investments activated; and approximately 10,000 jobs created.

Invitalia acts as coordinator for the deployment of joint actions between central government and the regions aimed at revitalizing industrial activities; safeguarding employment levels; supporting development programs; attracting new investments; creating environmental redevelopment and restoration.

 

Undeniably, Italy still faces a north-south divide. What are the major projects, investment opportunities, and sectors in focus to put southern Italy on the map?

It is well known that southern Italy – Mezzogiorno as we call it – still lags behind the rest of the country in terms of per capita GDP. What is perhaps less known is that it holds terrific opportunities for investment.

A number of large multinationals have invested there in the past and are currently expanding productive capacity. Avionics, mechatronics, pharma, automotive, and energy are all examples of sectors in which foreign investors are present.

Tourism is another great opportunity. In 2015 almost half of Italian tourists chose Mezzogiorno for their summer holidays, and the presence of international tourists increased to record high levels.  As I mentioned earlier, Invitalia manages the Development Contracts which support investments above €20 million with a mix of grants and soft loans up to 75% of the size of the investment.

We are currently analyzing 123 proposals in Mezzogiorno for a total investment of over €4.2 billion. Business is making a return to southern Italy.

 

Would you say there is a shifting trend in terms of the “Made in Italy” from traditional to high-value added and innovative products? Can Italy become a hotspot for innovative start-ups?

Italy still suffers a lack of investment from the venture industry in start-ups compared to its main European competitors. In 2014, only €100 million had been invested in 75 operations.

Venture capital, innovation, and entrepreneurship are the main tools to realize a renewed Italian ability to compete globally. In accordance with this proposition and in order to enhance investments in innovation, the Italian government has decided to accelerate the development of highly innovative enterprises (tech start-ups and SMEs) through new favorable legislation aiming at boosting the start-up ecosystem. 

Italian law has identified a new kind of company, namely innovative start-ups and SMEs, which can benefit from incentives packages comprising tax credit, equity crowdfunding, and dedicated support in the internationalization process.

Smart&Start is the first incentive designed following this new approach. The incentive is aimed at supporting the creation and the development of high-tech innovative startups. Our main objectives are: to foster technology transfer; leverage the results of public and private research; and revert the brain drain and bring back our talent. The total budget is approximately €220 million and we have financed more than 640 start-ups so far.

The Italian ecosystem for innovation and start-ups is gaining momentum. All the essential ingredients are present. Italy boasts very high quality research. Moreover, a network of incubators and accelerators operates across the country. The business angel community counts over 3,000 active investors and new capital is being added to specialized VC (venture capital) funds. 

In the second semester of 2015, Invitalia launched Invitalia Ventures, the asset management company that manages the closed-end investment fund Italia Venture I with a target size of €100 million. Half of that amount is already committed and we have finalized our first VC investment with a network of co-investors from around the globe.

 

What are the main reasons why American investors should look at Italy as their next investment destination?

Italy is the 11th foreign trade partner when it comes to American imports, with a share of 1.8%. Italy is the second manufacturing powerhouse in Europe after Germany. We have an excellent industrial ecosystem in northern Italy: the widest region with top GDP in Europe. In southern Italy there are leading multinationals playing a key role in cooperating with a local R&D system.

Italy is design, creativity and ‘lifestyle.’ But there are obviously other reasons: we possess unique brands that are globally scalable. Italian quality is so difficult to find elsewhere; and we are leading niche players, with proprietary technologies and know-how that is not replicable. Last but not least our skilled workforce is comparatively low cost, 60-70% lower than the European average.

 

Let’s consider the TTIP: is it a positive agreement or an unbalanced trade-off for US companies to acquire a dominant market position?

We cannot fear more competition. Competition is good for the consumers and over the long run increases efficiency and growth. Unfortunately, we live in a second-best world so we have to take care of the details of such agreements and look carefully at the possible exploitation of the rules set by the agreement by powerful oligopolists.

The TTIP mainly deals with tariff barriers and has consequences on national legislation. There are opportunities and challenges with it. There will be implications for the global governance towards a new economic architecture. The TTIP is a sui generis agreement because it consists of two already highly integrated economies such as the EU and US; so it is certainly an agreement to add value to the businesses of both Italy and the US. A great opportunity to be handled with great care. 

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