Tuesday, 19 Feb 2013
Overseas Business Risk - Italy
Political and Economic
Brief Political Overview
Founding member of the North Atlantic Treaty Organisation (NATO) in 1949 and of the European Community (precursor of the European Union) in 1957, a member of GATT/WTO, OECD, G7 as well as OSCE and Council of Europe, Italy is a democratic country. The Italian Republic came into existence in June 1946 after the end of the Second World War. Under the 1948 Constitution, the Head of State is the President, who is indirectly elected for a 7 year term. The current President, Giorgio Napolitano, was elected in May 2006 and became the first former Communist to fill the post. Parliament has legislative powers and is composed of a Senate and a Chamber of Deputies, both directly elected and with equal authorities.
Silvio Berlusconi, who had been re-elected Prime Minister at the last parliamentary elections in April 2008 and had led the centre-right coalition called Partito delle Libertà (Party of Freedom), resigned on November 12, 2011 after Parliament approved the 2010 Budget Statement. His government coalition had experienced a series of political setbacks in the previous months when Italy also suffered the consequences of the turmoil on international financial markets with related sovereign debt strains. A new government led by economist Mario Monti was formed on 16 November 2011. Monti, who was European Commissioner from 1995 to 2004, also retained for himself the position of Finance Minister. He now leads a “technical” government of experts in their own fields who are not members of political parties. The key issues facing the government include trying to tackle the large public debt and driving forward the stagnant economy, in order to regain the confidence of foreign markets. On 23 December 2011 the Parliament approved the €30bn austerity package proposed by the Monti government to reduce the deficit and balance the budget in 2013. If summed up to the measures approved by the previous Berlusconi’s cabinet in summer 2011, the plan envisages corrections for almost €76bn in 2013 and €81bn in 2014. It contains budget cuts and growth-boosting measures. Other measures approved and made law in January 2012 aim at the liberalisation of trades, professions and services. The following phases of the package will focus on further cuts of public spending and red tape for citizens and businesses. They will be followed by new regulation and stimulus for the labour market.
One key element that will be welcomed by British companies is the will to reduce the time taken for payments of government contracts down to 60 days.
In its Financial Stability Report No. 3, April 2012, the Bank of Italy wrote that ”the fiscal consolidation measures taken since mid-2011, the provisions curbing pensions and progress with reforms to raise the economy's growth potential have restored confidence in the sustainability of the public finances. The yield spread between Italian and German government bonds is nevertheless still large, owing to the cyclical economic weakness and to speculation that has driven German interest rates down to exceptionally low levels. It is essential to forge rapidly ahead with the vast programme of structural reforms that can influence expectations of future growth, without which it would be more difficult to strengthen the fiscal consolidation process and seize the opportunities offered by the global economic recovery.”
According to IMF’s World Economic Outlook issued in April 2012, the Italian economy will shrink by 1.9% in 2012 and by 0.3% in 2013. Growth projections from the European Central Bank and the European Commission for Italy were more optimistic than the IMF. The IMF also estimates that Italy’s budget deficit in 2012 will be 2.4% and will drop to 1.5% in 2013. IMF estimates that public debt, which was about €1,905bn in November 2011, will be fairly steady compared to GDP, at 123.4% and will rise slightly to 123.8% in 2013. As to foreign balance, IMF’s projections for Italy are 1.4% in 2011, 1.6% in 2012 and 0.7% in 2013 (expressed as a percent of GDP in the preceding period). IMF’s forecasts for consumer prices are 3.7% in 2011, 1.8% in 2012 and 0.8% in 2013.
Italian government sources declared in April 2012 that the objectives set for the deficit/GDP ratio will remain unchanged and the budget will be balanced in 2013.
The list of government priorities to foster economic growth and reduce the deficit include measures to eradicate tax evasion and submerged economy. Both are long-term problems for Italy and for foreign companies that operate in the country, since they expose them to unfair competition. According to the Italian Inland Revenue (Agenzia delle Entrate), in 2011 around €50bn worth of earnings were not reported. In 2011 VAT evasion was estimated at about 22%. However the fight against evasion is giving good results and it generated €11.5bn for the state in 2011. A new system which should be operative in the 2nd half of 2012 will trace individuals’ expenditure in 100 different categories to find anomalies between spending and declared income.
UK – Italy Trade in Goods
Italy is a key trading partner of the UK and a valued partner in the EU. In 2011 UK/Italy bilateral general trade in goods was worth £23.99bn. UK exports in goods to Italy in 2011 were valued at 9.888 billion pounds, a 12% increase on 2010. In the same year Italy was UK’s 7th largest export market.
More political, economic and general information for businesses about Italy is available in the Doing business in Italy guide prepared by the UKTI Italy team (updated April 2012).
Brief Information for UK-based Businesses
Italy does not present major challenges to UK companies wishing to develop trade. However there may be some specific issues which should be considered, namely as far as terms of payment are concerned. Payment terms in Italy are generally longer than in the UK and can vary between 60 and 120 days or even longer in the present period of economic uncertainty. Letters of credit are not normally entered into by Italian companies dealing with EU countries and, as with all contact with new customers, methods of payment and terms of contract should be well defined and agreed in writing.
Appropriate trade and bank references should be sought before consigning goods. In the case of distribution and agency contracts, sound legal advice should be sought on all aspects of the agreement.
In the unlikely event of having to pursue a debt in the Italian jurisdiction, the process is extremely lengthy and expensive and millions of court cases run out of time. The British Chamber of Commerce for Italy can provide details of their members who can offer a credit collection service.
More information on political risk, including political demonstrations is available in FCO Travel Advice
Bribery and Corruption
Useful Links to Italian Government’s websites:
Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world.
In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.
The Bribery Act came into force on 1 July 2011 and British businesses and exporters should ensure they comply to the new regulations.
As far as Italy is concerned, the Italian Government has actively been working to tackle the problem of bribery and corruption. The fight against corruption is one of the main commitments of the Monti government, which appointed a dedicated commission in December 2011. According to Italy’s Corte dei Conti (state accountancy court), corruption is a major problem that costs the country around €60bn a year. Italian courts have been investigating a number of public officials and politicians on corruption charges in recent years and have imposed some to prison sentences or fines. Public tenders are generally regarded as the most at risk from corruption, particularly those associated with procurement, waste management, construction, health and defence. To prevent corruption, businesses participating in public tenders are required to produce very detailed information and documentation.
Read the information provided on our Bribery and corruption page.
There is a general threat from terrorism. Attacks could be indiscriminate, including in places frequented by expatriates and foreign travellers.
Read the information provided on our Terrorism threat page
Protective Security Advice
The Centre for the Protection of National Infrastructure also provides protective security advice to businesses
Crime levels are generally low but there are significant levels of petty crime in big city centres. Take care at railway and bus stations, on public transport and in crowded areas where pickpockets and bag snatchers can operate.
British citizens who lose their passports should contact the nearest British Consulate for advice. They should report the loss of passport to the local police initially and obtain a copy of the police report (denuncia). Other general advice about living and working in Italy can be found on the consular pages of the Embassy’s UK in Italy website.
Read the information provided on our Protective security advice page
To protect their intellectual property rights (IPR) abroad, exporters should obtain professional advice about protection for patents, designs and trademarks in any country where they have a potential market.
Italy is at the forefront of European IPR developments and has adopted modern and up-to-date intellectual property practices. Recent innovations include introducing new measures to combat counterfeiting, protection for internet-related intellectual property, merging and simplifying patent and trademark rules.
Foreign companies investing in the Italian market can rely on the same legal protection of IPR granted to Italian companies. These rights extend to patents, trademarks, copyright and designs. Italian authorities are also seriously committed to the fight against traders of counterfeited goods.
Read the information provided on our Intellectual Property page.
Organised crime still has a strong foothold in Italian society and although the authorities have had a number of successes against some of the major criminal gangs, large projects and contracts are still dogged by media reports of corruption scandals or of tales that organised crime gangs have managed to get their tentacles around parts of the contracts.
The extent of organised crime activity may in some cases be exaggerated but it is still a problem and one that is unlikely to disappear in the foreseeable future. That said, most organised crime syndicates tend to avoid contact with non-Italian companies.
Read the information provided on our Organised crime page.
More information is available on overseas business risk in a range of markets.