Q: EY has been running an investment roadshow to promote Italy’s appeal as a foreign investment destination. What has been the feedback from the investment community?
Investors still perceive Italy as a relatively small, complicated country to do business in, with a high public debt. However, I believe there are ongoing changes that have not been communicated properly to the international community. Italy has gone through challenging times, but it still has annual exports worth more than €400bn, and its trade balance is positive and improving. It’s true that we have a high public debt, but if we factor in all the reforms that have been pushed through in recent years, the debt-to-GDP ratio potentially drops to around 70%, according to the Market Economy Foundation. In any other European country except for Latvia this is going to be much higher. And from an investment perspective, we saw a recovery in FDI inflows in 2015.
Q: Prime Minister Matteo Renzi has breathed new life into Italian politics. Do you think he can restore credibility in the eyes of foreign investors?
A: The international investor community sees Mr Renzi as a committed, young politician who is pushing through reforms. He embodies an element of change in Italy, and can help the country regain a major role on the global stage. We went from an idea that Italy was a country in decay, like another Greece, to a perception that the country still has energy to spare.
Q: Which reforms will have the biggest impact in terms of foreign investment appeal?
A: The reform that makes the labour market more flexible, and the pensions reform that that reduces the risks the country will face in the future. And the reform of the civil justice system, as well as of the penal justice system, that is currently in the works. However, there are still things missing in order to attract more foreign investment, beginning with fiscal incentives. Taxes went down a little bit, but that’s not enough yet.
Q: Is there the financial space for additional cuts?
A: There is the space to lower the cost of public administration, which still make up more than 50% of GDP, by applying new communications technologies. If the government manages to lower those costs, it frees up additional resources for tax cuts. But this needs political courage, because it wouldn’t win the government any votes.
Q: Private equity activity in Italy reached record levels in 2015 as international investors prompted double-digit growth both in fundraising and investment buyouts. What is behind the increasing interest in Italy from private equity investors?
A: The Italian market is an interesting one because it’s characterised by a fabric of small- and medium-sized enterprises (SMEs) that excel in their sectors. These SMEs make up most of the €400bn the country exports every year. These are companies that struggle to become global players, to find new patterns of growth and innovation models. The activity recorded in the private equity sector can be seen from that perspective. All these SMEs needs resources or international management to scale up their businesses. The future of Italy lies in creating value among them. Perhaps that’s the only possible future because big conglomerates are struggling to generate growth beyond mergers and acquisitions.