Invest in Italy
Making an Investment in Italy
Learn more about investing in Italy in free International Living Postcards
A founding member of the European Union, Italy is a full participant in the single market. It is also a member of the Group of Eight (G8), the Organization for Economic Cooperation and Development (OECD), the International Monetary Fund (IMF), the United Nations (UN), the World Trade Organization (WTO), and the North Atlantic Treaty Organization (NATO).
According to the latest statistics issued by the OECD, Italy’s economy is the sixth largest in the world and GDP per capita is $27,700. Italy’s strength is primarily derived from family-owned small- to medium-sized companies whose presence seems most effective on the local and regional level. Major international Italian companies use the stock markets and a program has been implemented to privatize state assets. However, the majority of Italian companies are not driven by share price.
The outlook is enthusiastically European and the strongest commercial links are with Germany. The economy is basically divided into a highly developed industrial north, where private companies dominate, and a less developed agricultural south. The entrenched public sector, the largest in the E.U., accounts for around 40% of the economy.
In early July 2004, Standard & Poor’s downgraded Italy’s long-term credit rating from AA to AA-. This was in response to financial figures indicating that Italy’s public debt was certain to breach the Euro-area stability pact limit. The debts are expected to exceed yearly output resulting in a forecast annual deficit equivalent to 3% of GDP.
Italy has an open attitude toward foreign investment, and there are a number of development agencies on both the national and regional level as well as numerous trade associations that provide help in approaching potential Italian partners. However, bureaucracy at all levels—local, regional, and national—is notorious for delays and inefficiencies. And, as the U.S. Country Commercial Guide for Italy states, “Bureaucratic requirements can be burdensome.”
Admittedly, the national government does have a policy aimed at reducing bureaucracy. The plan is to devolve many statutory responsibilities for business to local and regional levels, but the intransigent public sector is resistant to change. This is making the policy quite difficult to implement.
Taxes in Italy remain high; the ordinary corporate tax rate is currently 33%. The Italian government plans to reduce this further, but foreign investment flows into Italy are weak.
The 2004 U.S. Country Commercial Guide estimated a surplus net flow of $14.3 billion in 2003. That would be equal to about 1.2% of GDP, well below France (3.4%), Spain (3.2%), and Germany (1.9%). The guide concluded that although the situation is improving, “analysts and surveys routinely cite excessive bureaucracy, inadequate infrastructure, and a rigid labor market as disincentives for foreign investment in Italy.”
Italy’s labor laws are slanted in favor of the employee. Local employment tribunals tend to side with employees in dismissal, premature retirement, or redundancy cases. Labor costs are relatively high at an estimated $14.94 per hour, and the penalties for worker dismissal are seen as a disincentive to permanent job creation. Not surprisingly, entrepreneurs often prefer to invest in technology before manpower. Nevertheless, some investors are taking advantage of the availability of the pools of well-trained but immobile skilled labor, particularly around university towns in southern Italy. Here, financially attractive government assistance is available.
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