It’s easy to be negative about Italy, and the country is receiving quite a lot of bad press at the moment, what with potentially repressive laws designed to restrict press freedom, and the odd scandal or three. All the furore leads to this question, possibly: Could Italy’s tarnished image be damaging the countries foreign direct investment prospects?
The answer, according to the UNCTAD – the United Nations Conference on Trade and Development appears to be a big yes. In fact, in the UNCTAD’s World Investment Prospects Survey for the period 2009 to 2011, Italy does not even figure in the top 15 countries in terms of ‘The 15 most attractive economies for the location of FDI’ – page 65 of the UNCTAD survey, if you are interested (link to the survey below).
The top five countries of the world which are most attractive to foreign direct investment are: China, the USA, India, Brazil and the Asian Federation. France sits at the bottom of the top 15, incidentally.
What could be putting off foreign direct investment in Italy?
Everything
With its spiralling public debt problem, increasing levels of corruption and overly restrictive employment legislation, Italy is not doing itself any favours. Such a shame, for if Italy played its cards right, it could attract investment to its sluggish research and development sector, which would give intelligent Italians less of an excuse to run away from Italy, and might even, shock horror, promote more meritocracy in this ‘who you know’ Living Museum.
Shuffles Afoot
OK, so there are moves, or better, there are shuffles afoot to make it easier to set up a business in Italy, but that is only part of the story. Once you have a nice shiny new business in Italy you still have to contend with a tax burden which is the fifth highest in Europe, after such welfare efficient countries as Denmark, Sweden, Belgium and Austria. Aside from crippling, and complex, taxes, there is the small matter of getting paid, which is not all that easy in Italy. No talk of reforms in this area though. No, that would be far too practical.
Cuts!
Italy’s Economy and Finance Minister, lawyer, Guilio Tremonti, is pushing for huge cuts in public spending, but is not, it seems, exploring alternative ways of boosting Italy’s income – such as making Italy more attractive for foreign investors. Italy’s already shaky welfare system and wobbly public services are likely to take a big hit if these cuts actually happen, and this is unlikely to do much good for the smooth running of Italy’s already rocky economy, alas. While I write this, Italy’s regions are slamming Italy’s central government over the proposed cuts, and have even threatened to devolve back, if one can do such a thing, powers which were devolved to them in a former government reform designed to de-centralise certain government functions. In the face of pressure from Italy’s irate regions, Berlusconi is making noises to the effect that he is prepared to talk about the cuts.
Cuts to be Cut?
A potential result of the discussions on the cuts, is that the cuts may be cut, if you follow me. This, of course, will leave Italy with the same problems as the government is trying to resolve. With a little constructive thought though, Italy’s well-paid masters could introduce some real reforms which would encourage foreign investment and thus bring growth to Italy’s all but stagnant economy. Italy, by the way is one of Europe’s PIIGS – BBC The Case Against the Euro.
Feeling Lucky, Foreign Investor?
Then again, you’d have to be a pretty brave foreign investor to pour money into a country in which one of its senior political leaders is threatening violent revolution if he does not get his way. If you had not guessed, that political leader is Northern League chief, Umberto Bossi, Italy’s Second Most Important Politician. Moreover, kicking off a business in Italy’s eternally depressed south is not too attractive either, unless investors budget for mafia handouts, that is.
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Alternative Foreign Investment in Italy
Funny the subject of mafia should come up, as yesterday in Florence, an investigation culminated in the seizure of 73 companies which were involved in money laundering for the Chinese mafia. Sums of three billion Euros are being bandied around by Italy’s press, and it was not just sunny Tuscany which has attracted this form of alternative foreign investment, but also another seven other Italian regions, including, surprise, surprise, Sicily.
In Summary – FDI Prospects for Italy
The north of Italy- threats of violent revolution.
The central midriff of Italy – Chinese mafia got there first.
The South of Italy – the mafia has been there for years.
Grim, isn’t it?
World Bank FDI Figures
Now take a look at this World Bank Chart which shows Foreign Direct Investment net in-flows up to 2008 into Italy, China, France, USA, UK and Spain. Notice, first, the exceedingly low level of FDI in Italy when compared to Spain and France, and note the dip from 2007 to 2008. Hover your mouse over the lines on the chart to see the total levels of FDI for the years shown:
From: Foreign direct investment, net inflows Italy, China, France, USA, UK and Spain – World Bank
Italy does not look too attractive, now does it?
I wonder if UNCTAD also carries out a survey into the countries of the world which are most attractive to organised criminal foreign investment? I doubt it, but if it did, Italy, one suspects, would make it into the Top 15. Very sad.
UNCTAD’s World Investment Prospects Survey for the period 2009 to 2011 – .pdf file
About Alex Roe
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Hi Alex,
Although I understand what you are getting at, this 2009-2011 top 15 list came out some time ago so your comments about any recent news don’t really have any impact. Notice that countries like Belgium, The Netherlands, Luxembourg, Austria, Spain, etc. didn’t make the top 15 either. The only European countries that made the list were the UK, Germany, France (as would be predicted) in addition to Poland. Although I couldn’t find the list for the top 30 countries for 2009-2011, I did see that Italy had made the list for the top 20 countries attractive to foreign investment for 2007-2009 so hopefully things aren’t quite as bleak as you’ve made them out to be… and the threat of violent revolution in the North is a bit of a stretch, don’t you think? There are many great Italian companies that are worthy of foreign investment and I just don’t want potential investors to succumb to believing some of these sensational stories or traditional (especially Anglo-Saxon) stereotypes when Italy is not so far down the list.
Cheers,
Kris
Kris,
I have added some World Bank FDI net inflows data to the post above. You might find it interesting, even if it only shows up to 2008.
Best,
Alex
Hi Kris,
The list was published in late July 2009, so it’s not that out of date. Belgium, The Netherlands, Luxembourg, Austria, are not really powerhouse economies in the European scheme of things. Only Spain is more or less similar to Italy, but does not have the range of world brands Italy’s boasts, and is generally lower down the roll call than Italy. Anyway, this was more about Italy.
As for UK, Germany, France, yes, I would have expected to have seen them where they are, even if militant France is at the tail end. The UK, and Germany, have always been more far sighted than Italy, and appreciate that FDI can help reinforce their economies – provided it is managed competently.
I would not be too surprised to hear that Italy had dropped off the 2007-2009 list, but even if it hasn’t with the problems it has, it should not be beaten by Poland. No disrespect to Poland meant or intended.
“the threat of violent revolution in the North is a bit of a stretch” – I hope so, but that is what Umberto Bossi has been insinuating very recently – such words are likely to worry those thinking of investing in Italy, at least I imagine they would – and might well have people looking to more attractive countries.
I agree that there are plenty of great Italian companies, and it is words like those of Bossi which might damage them when they seek some foreign finance.
Italy’s economy is in a mess, and FDI could, possibly, help it out of the mess, maybe by helping kick start the country – but Italy’s government thinks otherwise, by the looks of things.
Thanks for commenting – and if you do find more up-to-date info, drop a link to it here – I’d be pleased to be proved wrong.
Best,
Alex
Just dropped by, following blog’s links, good visibility job. lets get now to the point, and to be sure you get the feel of my comments, lets start with your statement :
—
The north of Italy- threats of violent revolution.
The central midriff of Italy – Chinese mafia got there first.
The South of Italy – the mafia has been there for years.
Grim, isn’t it?
—
North. Italy, violent revolution?
lets put it this way, you must be joking or have a very low understanding of Italian (language and languages), Italians (people and communities ), Italy (country and Italian peninsula history), civilization (3000+ years of leadership in all directions, starting from the language(s) we use to express ourselves here and else!)
For anyone reading us, “violent revolution” doesn’t belong to “Italian” behaviour, you have to go back quite a while before you can even find a bloody revolution! Not even the Risorgimento which delivered 150 years ago the country called Italy was a “bloody revolution”.
Central. mafia
you perform a poor mix using the word “mafia” which refers to something everyone knows the origins (everyone???) and end up with Chinese criminals, triads and alike.
You just forget to mention a “little” detail, that “middle” as you state has been a “red” and “commies remixed” district for ages. So you end up saying that left-wing administrations are linked to criminality, favour black-labor and whatever stincky you may find suitable!
Some of the above statements are not so far fron the truth!
South. mafia 4 years
It’s like saying, they are dead ducks! If I understand well. Which is really first class for the millions of people that live and work like (and better) that many other places in our “smart” Europe. But… to know better about south means a throughout investigation on how things really are beside the idiocies that are conveyed by people that manipulate facts to their own purpose or as “not so special agents”.
Somewhere you state that healthcare and half another dozen services are poor. Well, you need an update. I have experience on 4 continents and 7 European countries, as a resident, not beach comber. Italy’s performance was poor by Swedish, German and French standards, 30 years ago!! Poor because slow (public) and costly (private). Performing well compared to UK (That great Mr. Wilson’s years! and magnificent Mr. Heath). Definitely “human” when put side by side with US way of health!
The fact that you’ve been pinned on the chart concerning international investments, is probably another hint of what you are getting. That is: giving a poor image of Italy, using clichés that belong to the culture of people that were told to hide their own dirt talking false, foul and loud of neighbours. Off course it’s not your fault, Italy has a characteristic which is unknown to other Europeans and westerners: self derision. Italians love to “wash their dirty laundry” having the world for audience! whatever the topic, weather and time. No restrictions. On the main street, not just speaking in a corner.
The recent “news” in Europe shows that Italy was wiser, much wiser than the bloaters, that Italy is where French & German banks saved their neck. That it is the country with the highest private savings, making the one with lower public debt and no private savings look like fools (but who dares to mention this little “finesse”?)
That Italy is tricky is known, but reporting it making it look worse, using outdated (manipulated?) material is “no news”, bad news, poor job.
Living in a living museum ? Get the tags right. Black on white, red is off limits.
Hi Jean-Louis,
First, your comment:
““violent revolution” doesn’t belong to “Italian” behaviour”
– I agree, only for someone who does not know Italy so well, a potential foreign investor, for example, who has not yet done extensive homework, may be put off by statements from senior Italian politicians which appear to incite violence, would you not agree?
Now,
“So you end up saying that left-wing administrations are linked to criminality, favour black-labor and whatever stincky you may find suitable!”
While you could read an that I was making a comment on ‘red’ Italian administrations, I was not. No criticism of Tuscany was meant. It’s not so much Italian regions which are may have provoked what is happening, as those towards the top.
I find the fascination, which borders on paranoia, with the perception of a communist threat which still exists in Italy to be something very odd and outmoded. Italians would never put up with true communism – the country is inherently and endemically capitalist. I suspect ‘communism’ is used as a device to persuade people to vote for the other side. Communism did not work, cannot work, and will not work – until mankind becomes civilised. This might happen in the next 300 years or so.
The south:
“It’s like saying, they are dead ducks!” – to all intents and purposes, this is true – for the moment. Educated southern Italians still move to the north in droves in the hope of finding decent jobs – as they know full well that they cannot find good jobs in the south. The mafia problem, as writers like Saviano know well, runs very deeply. It is to be hoped that the large number of arrests that have been taking place will make a difference – but this remains to be seen.
“healthcare and half another dozen services are poor” – overall, this is true too. However, the central/northern areas tend to be better than the south, but excessive and mysterious expenditure besets Italy’s healthcare and other services throughout the country. Money is thrown away. I imagine you have read about Italian doctors inventing patients and illnesses to increase the cash they get from the State – this indicates poor leadership and management. Italians have been ripping off their own state for many years – remember Craxi? Yet not much seems to be done about this, and funds from the EU tend to disappear too. In relation to the amounts being spent, all Italy’s services and healthcare should be as good as or better than Denmark or Austria’s – but this is not the case.
I do recommend the Italian documentary program, Report – you can find past episodes on the WWW. Report is very revealing.
Yes, Italy’s healthcare system is better on paper than that of the USA. In some aspects it is better in practice too (cancer treatment is excellent in Italy). But this is not about Italy’s healthcare and services, it is about Italy seemingly not wanting to attract FDI.
“The recent “news” in Europe shows that Italy was wiser” – Partly true – but see the PIIGS link above. And note that many Italian authorities, big and small, have got themselves in huge trouble as a result of playing with overly complex debt re-structuring packages – which instead of reducing debt levels, have increased them dramatically. Nobody is sure how Italy will manage to cope with this – hence the PIIGS membership.
Again though – things could be better for Italy if it had attracted FDI. And things can become better in Italy if it does work to attract FDI.
For the moment, Italian families do appear to have low levels of debt – but I wonder if the same will be true after Maria and Mario have used up all of the savings mum and dad have accumulated, as a result of not being able to find jobs. There are quite a number of Marias and Marios in Italy at the moment – but Italy seems to overlook this – FDI could help.
Thanks for commenting.
Best,
Alex
Interesting that you mention Italy’s Finance Minister — there’s an excellent book about him that you might find interesting: “Il grande bluff. Il caso Tremonti. Vita, opere e pensiero del genio dell’economia italiana”
Quite a surprising read, and probably explains a lot as to why Italy is where it is fiscally.
Great blog, btw!
Keith
Hi Keith,
I shall get hold of a copy of that book about Tremonti. Thanks for the tip! “Il grande bluff” – well, it is interesting to hear that others suspect there are problems…
The book might help me understand why Italy won’t move forwards.
Glad you like the blog! Thanks for saying so
Best,
Alex
I bought the “Il grande bluff. Il caso Tremonti. Vita, opere e pensiero del genio dell’economia italiana” book, Keith.
It makes for interesting reading. Tremonti is not painted in a great light, from what I’ve read so far.
Must find out more about the author.
Thanks again for the tip off.
Best,
Alex