The unexpected success of Italy’s anti-austerity Five Star Movement in the recent general election has left the country in political limbo. No single coalition of either the left or right has been able to take overall control of Italy as the Five Star Movement, led by Beppe Grillo, won 25% of the votes. The deadlock set the stock markets – and Brussels – on edge. At the time of writing, it is still uncertain who will govern Italy but, regardless of who takes power, the likelihood is that it will not be long before another election is called.
Added to this political turmoil, Italy is stuck in a recession, with a further 1% contraction in GDP predicted in 2013 by the Bank of Italy. Public debt remains high, at about 120% of GDP, which also makes Italy vulnerable to the bond markets.
The political and economic uncertainty have not helped the country's FDI appeal. “Another election doesn’t help our situation where growth has stopped, and won’t encourage investors," said Leonardo Simonelli Santi, president of the Italian Chamber of Commerce in the UK. FDI into the country has decreased since 2010, from about 200 projects to 117 projects in 2012, according to greenfield investment monitor fDi Markets.
There are, however, always winners in even the most difficult situations. SumUp, an Ireland-based company that operates points-of-sale systems for mobile phones, has just opened in Milan. It has 14 staff working across the country. “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," said SumUp's managing director in Italy, Christian Nothacker.
Italy's FDI inflows have never been as high as some of the country's neighbours for various reasons such as 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 were around $44bn compared to $64bn in Spain and $71bn in France, according to United Nations Conference on Trade and Development figures.
There still is 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 there 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.
There are also signs that the country's business environment is changing. “Traditionally, Italy has always been known for its lengthy legal processes and stacks of paperwork, but we have had such great local support that we were able to open up the office in less than three weeks," said Mr Nothacker. "Additionally, the government has moved parts of the approval process online in the past few years, which has significantly simplified it.”