These have not been the best of times for Italy. Italian football's Serie A – once littered with the world's finest players – is in the doldrums and its prime minister Silvio Berlusconi is alleged to be "feckless, vain and ineffective", according to the WikiLeaks cables. Only recently, Mr Berlusconi scraped through a vote of confidence, winning by three votes and setting off demonstrations across the country. Despite all of this, Italy’s FDI figures have seen healthy increases in recent years, so perhaps its prospects are improving for the long term. 

Traditionally, Italy has not attracted a huge amount of inward foreign investment compared with the big European players such as France, Germany and the UK. In 2007, at the peak of the financial bubble, Italy’s inward FDI stock stood at $360bn, whereas for France and the UK it was closer to $1250bn.

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In the 2008-09 period, Europe’s FDI plummeted as a result of the financial crisis. But Italy bucked the trend, with FDI into the country increasing 75% according to figures released last year by Unctad (the United Nations Conference on Trade and Development).

Has Italy turned a corner?

The question is, however, does this represent real and substantial change? Not really, say many Italians. Tony Falconi, an Italian businessman based in the north of Italy, is surprised by the increases. “This is very counter-intuitive for us. Normally, we are way behind,” he says.

Italy’s modest long-term FDI record has a number of causes, one of which is structural. “One of the main problems in Italy is its low competitive attractiveness compared with other countries," says a source from the Banca d’Italia. "Foreign companies do not want to invest in the same way because of the disadvantages here, such as public bureaucracy and the number of permissions which need to be obtained [to do business].”

Leonardo Simonelli, president of the Italian Chamber of Commerce in the UK, agrees that Italy’s industrial landscape is not investment-friendly because it is made up of “fragmented industries of small to medium-sized businesses which are too small for international standards”.  

Added to which, there is continuing political instability, with changes of governments, fragile coalitions and uncomfortable votes of no confidence negatively impacting on FDI.  

So why the investment surge?

But how, then, have Italy's improved FDI figures come about at a time when the country, like everywhere else, was seeing a huge downturn in growth, and when sectors in which Italy has been traditionally strong, such as automotive and retail, had been particularly hit by the global recession? Certainly, Italy has been badly affected. Fiat closed one of its factories in Sicily, for example, and last year the country was also hit by a fraud scandal, when call centres in the south of the country – which had been set up with EU money – went bankrupt.  

Part of the explanation may be statistical: if a country has modest FDI levels, then one big deal or acquisition can make a huge difference to the growth rate in any given year. And in the relevant period, there was one such deal: Sonatrach, the Algerian state-owned energy company, invested $1.9bn into Sardinia as part of its TransMed gas pipeline project. Although 2008 and 2009 also saw deals involving household names such as Hilton Hotels and Ryanair, and acquisitions from places as wide-ranging as Dubai, Australia and Germany, the Sonatrach deal dwarfed all other activity from that period.  

Playing catch-up

Mr Simonelli believes, however, that the latent growth may be more of “a lag, as Italy’s FDI has been slowly catching up” with its European neighbours, and has started from a low baseline. His views are supported by signs of deep-seated change.

First, there is the role of the emerging markets. Italy is well placed to benefit from inward investment from these expanding economies due to the kinds of industries in which it is strong: automotive, textiles, machinery and home appliances, ie, lots of relatively expensive consumer goods for a growing middle-class market. It also offers huge possibilities for improving the emerging markets’ own production methods of those very same consumer goods. 

China, for instance, does have a kindling interest in Italy. Even though Italy only receives about 4% of China’s FDI flowing into Europe, one academic study argues that Italy and China have the potential for a “reverse Marco Polo” scenario, particularly in the light of Italy’s large, sophisticated domestic market, as well as its know-how, technological and design skills which Chinese companies can use for the domestic Chinese market.

The other point of flux is that Italy’s central government is also changing its tune. Take the Vodafone investment announced in October last year. The telecoms company is investing €1bn into its 1000 Comuni programme, which aims to deliver radio broadband to “1000 municipalities” in Italy over a three-year period. (Italians have been slow to adopt the internet, but the mobile phone market is very strong, so it makes business sense to step up the delivery of them together.) 

But what makes this project interesting is that it has also come about in part thanks to regulatory and legislative reforms introduced by the central government and the Autorità per la Garanzia nelle Comunicazioni (the industry watchdog) to increase efficiencies and simplify radio broadband communication.  

“This project is a response to [those] institutions’ efforts to get private operators to invest in bridging the digital divide,” says a spokesperson at Vodafone. For a country that is embedded in state bureaucracy, this is heartening indeed.

Changing outlook

Italian business people have also started to change their outlook. “Once you start looking outside [of your country], you start to get interest inside as well," says Mr Simonelli. "We are becoming more assertive abroad and seeking new capital too. The mentality is changing. Once it was wrong to take money out of the country and it was wrong to lose control, but now this has changed.”

Even though it is wise not to overplay such evidence of progress in Italy’s FDI, the signs are undeniably positive. Before long, the world's leading footballers may well be flocking back to a resurgent Italy both on and off the pitch.