The unexpected success of Italy’s anti-austerity Five Star Movement led by Beppe Grillo in the recent general election has thrown Italian politics into disarray. No single coalition of either the left or the right was able to take overall control, as Mr Grillo won 25% of the total votes. The deadlock set the stock markets – and EU politicians – on edge. At the time of writing, who will govern Italy has yet to be resolved. But whoever does take the reins, most predictions are that it will not be long before another election is deemed necessary.
Added to which, Italy is currently in recession and a 1% contraction of GDP is predicted by the Bank of Italy for 2013. Public debt remains high, at about 120% of GDP, which also makes Italy vulnerable to the bond markets.
It is plain to see there are good reasons not to invest in Italy right now. Indeed, FDI into the country has dropped since 2010, from about 200 projects to 117 projects in 2012, according to the crossborder investment monitor fDi Markets. As Leonardo Simonelli Santi, president of the Italian Chamber of Commerce in the UK, states, political uncertainty is bad for business. “Another election doesn’t help our situation, where growth has stopped and won’t encourage investors,” he says.
Worth the risk
There are, however, always winners in even the most difficult of situations. SumUp, an Ireland-based company that operates point-of-sale systems for mobile phones, has just opened operations in Milan, and has 14 staff working there and across the country. Its managing director in Italy, Christian Nothacker, says: “Italy is in a difficult position... which is precisely what makes it such an interesting market for our business. SumUp enables small businesses to take debit and credit card payments [with mobile phones] and thus help to improve cash flow.”
It is also the case that Italy has never attracted the same levels of FDI as some of its western European peers, for reasons that include the small-scale nature of many of its industries and services, and the perceived problems of bureaucracy and corruption. Even at its peak in 2007, FDI flows into Italy were about $44bn, compared with $64bn in Spain and $71bn in France, according to UN Conference on Trade and Development figures.
There is still a continued slow trickle of FDI business into the country and this may be because Italy still has a strong domestic market. fDi Markets data shows that businesses looking to invest in the country are not put off by bureaucracy as long as the customers are there: 50% of projects cited domestic market growth potential as their investment motive.
It is possible, too, that the situation with regards to Italy's onerous bureaucracy is improving, as Mr Nothacker notes: “Traditionally, Italy has been known for its lengthy legal processes and stacks of paperwork, but we’ve had such great local support that we were able to open up the office in less than three weeks. Additionally, the government has moved parts of the approval process online in the past few years, which has significantly simplified it.”