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New public/private alliances to encourage innovation and attract investment

  • Rome
  • 27 November 2024

        Investments and innovation are the essential pillars of sustainable development and economic growth in Italy. The national scenario has its upsides and downsides, with a significant gap to be filled compared with other European economies as well as some strongpoints to be leveraged. Among these latter is an industrial solidity that maintains Italy at second place in European manufacturing and export capacity, with more than 625 billion euros reported in 2023. However, the data on investment attraction – 24 billion in foreign capital – could be better, especially when compared with the performance of an economy such as France’s, Europe’s topmost investment magnet.

        Italy needs to work harder on some longstanding problems: excessive bureaucracy; the stability of the legislative and regulatory framework; timeframes for judicial and permit procedures; infrastructure upgrading; and the education of human capital, especially as regards science and digital skills. Italian creativity combined with advanced technologies could be the perfect driver for boosting competition.

        Nevertheless, Europe must shift gears as it strives to meet the challenge of major economies such as China and the United States. In 2023, Europe registered an overall drop of 10% in foreign investments, while the Asian-Pacific reconfirmed its growth trend with an upswing of 23%. Various factors have contributed to this, but it is important to note that, given the highly competitive global scenario, the European Union is the only macro-area with a truly pervasive regulatory framework, which is an element that often penalizes competitiveness.

        Intervention in this sphere means making the continent attractive again, allowing it to find the resources it so desperately needs. According to the Draghi Report, Europe needs investments of 800 billion euros – the equivalent of 4.5% of Eurozone GDP – to confront the dual challenge of the ecological and digital transitions. Most of those resources – 650 billion – must be earmarked for strategic sectors such as innovation and sustainability that call for public/private collaboration. 

        At national level, the national recovery and resilience plan (PNRR) offers some unique opportunities to stimulate foreign investments. Italy has allotted over 50% of the available funds to date, placing second in Europe for objectives achieved; yet only 26% of those resources have actually been spent. This is not only something that falls under public administration authority; indeed, the country lacks a private component with the skills and capacity to sustain projects essential to its future. This situation is exemplified by the difficulty of the country’s many small and medium-sized enterprises to participate in and reap the benefits of PNRR projects. 

        Such limitations are evident also in the ability to invest in innovation. The national panorama is filled with small companies operating in low-intensity knowledge sectors, which means fewer investments in research and development than its main global competitors. Despite boasting a higher percentage of public investments than other advanced economies, Italy allots a mere 1.3% of GDP to R&D, compared with the OECD average of 2.8% and the more than 3% of Germany and the US. Closing that gap would require an additional structural commitment of 4 billion dollars a year for 10 years. 

        Necessary at the same time is a critical reflection on investments in research. Western world trends are showing a shift toward applied science at the expense of pure research, which creates the risk of compromising long-term innovation. Thus, in addition to the necessary efforts to improve technological transfers, the focus needs to remain on the basic research conducted by universities.

        In any case, the presence in Italy of foreign economic operators is an important stimulus. While accounting for only 0.4% of the total companies operating in the country, foreign companies cover 32% of overall R&D spending – clear proof of the pivotal importance of attracting foreign resources to stimulate innovation. Recent foreign investments in various sectors – from the highly innovative and export-intensive pharmaceutical industry to a tobacco industry working on new technologies and sustainability – show that the country has a strong base for future development. In that regard, the possibility of channeling the substantial private savings of families toward strategic investments is not to be underestimated. The goal remains that of creating an ecosystem that makes the most of Italian entrepreneurialism, that attracts foreign capital and that generates sustainable innovation, thereby laying the foundation for an economically competitive and socially inclusive future.