Italy

Originally published: Apr-26-2005

Government

Italy is a Parliamentary Republic established by the 1948 Constitution. The country is divided into twenty Regions which include 103 Provinces and 8,101 Municipalities.

Legal System

The Italian legal system is based on a civil law system. Appeals are treated as new trials. Judicial review, under certain conditions, occurs in Constitutional Court. Italy has not accepted compulsory International Court of Justice (ICF) jurisdiction.

Economy

Currency: euro (EUR)

EUR to USD: 0.7702 (4/25/05)

Economic Indicators

(f) forecast

Leading Markets (2003): Germany (13.8%), France (12.3%), USA (8.5%), Spain (7.0%), UK (6.9%), Australia (0.9%)

Leading Exports (commodities): engineering products, textiles and clothing, production machinery, motor vehicles, transport equipment, chemicals, food, beverages, tobacco, minerals and nonferrous metals, electrical appliances

Leading Suppliers (2003): Germany (17.9%), France (11.2%), Netherlands (5.8%), Spain (4.8%), UK (4.7%), Australia (0.4%)

Leading Imports (commodities): engineering products, chemicals, transport equipment, energy products, minerals and nonferrous metals, textiles and clothing, food, beverages, tobacco

Leading Industries: machinery, iron and steel, chemicals, food processing, textiles, motor vehicles, clothing, footwear, ceramics. Services and tourism accounts for two-thirds of the Italian economy.

Largest Growth Sectors: textiles, clothing, machinery, paper.

General Economic Situation

Italy was one of the founders of the European Union and has been at the forefront of European integration. Over the last decade, Italy has pursued a tight fiscal policy in order to meet the requirements of the Economic and Monetary Unions and, thus, has benefited from lower interest and inflation rates.

Italy, with the fourth largest GDP in Europe, has a diversified industrial economy with roughly the same total and per capita output as France or the United Kingdom. The economy is divided into two areas: a well-developed industrial north, dominated by private companies; and a less developed agricultural south with 20% unemployment.

Most raw materials required by industry, along with more than 75% of energy requirements are imported. Italy is heavily dependent on exports to its largest market, Germany, which has entered a recessionary period. In addition, Italian exporters face increasing competition from lower cost producers in Eastern Europe and Asia

The government has enacted short-term reforms to improve competitiveness and long-term growth. On March 11, 2005, in response to calls from employers, unions and members of the government, the cabinet approved a long-awaited package designed to increase competitiveness. The plan, unfortunately, does not tackle some of Italy’s most deep-rooted structural problems including: an over-generous pension system; reducing the high level of government debt; reducing unemployment; and improving public administration and the infrastructure.

Business Climate

Potential Markets: Italy has close to 60 million consumers, who are noted for their sophistication and high levels of brand awareness. And, thanks to its strategic location, it can reach out to a further 396 million consumers in the other EU countries, and 240 million in North Africa and the Middle East.

In Europe, Italy ranks first as a location for the Biotech sector and second for R&D product testing (after Iceland), Chemicals (after Luxembourg), and Electronics (after the UK). Other good opportunities for business include: equipment, technology and expertise in computer software and hardware; management consulting; telecommunications equipment and expertise; equipment and services in the energy sector; some agricultural products.

Foreign Investment: Foreign companies have access to the same types of investment opportunities and guarantees that are offered by any leading developed countries. Foreign investors generally find no major impediments to investing in Italy, although bureaucratic requirements can be burdensome. One hundred percent foreign ownership of Italian firms is allowed. However, foreign investment into Italy is weak, well below that of France and Spain. Analyses of the business climate routinely cite excessive bureaucracy, high and complex tax structure, inadequate infrastructure and a rigid labor market as disincentives for foreign investment.

Free Trade Zones: There are two free trade zones in Italy, located in Trieste and Venice, where foreign goods can be brought into the country without payment of taxes or duties as long as the material is to be used in the production or assembly of a product that will be exported.

Tax Issues: The Italy-U.S. tax treaty contains provisions to avoid the double taxation of income for firms with operations in both countries. Royalties from patents and like properties are exempt from tax withholding under this treaty.

Regulatory System: Italy is subject to single market directives mandated by the European Union, which are intended to harmonize many regulatory structures across EU countries. This includes mutual recognition of agreements negotiated between the EU and other countries.

Commercial Law: Following a thorough reform of Italian business law in early 2003, the legal framework for companies is now on a par with the most modern and dynamic in Europe. Laws governing physical property are adequate and enforced. Italy has an anti-piracy law and law enforcement efforts against piracy, copyright and trademark infringement have been improving.

For more, in-depth information on the business and investment climate (from a mainly U.S. perspective), visit www.buyusa.gov/print/italy/en/investment_climate.html.

Credit and Collections

• Collection Experience: Fair to Good
• Exchange Delays: 3+ months
• Preferred Credit Terms: Sight Draft
• Minimum Credit Terms: Sight Draft

Methods of payment: Signed bills of exchange are a fairly secure means of payment but are rarely used due to high stamp duty and a somewhat lengthy cashing period. Use of checks is widespread but, to be cashed abroad, they must bear the wording “non-transferable” and include the date and place of issue. Bank transfers, in particular SWIFT transfers, are used in 90% of payments from Italy. It is a cheap and secure means of payment once the contracting parties have established mutual trust.

Collection process: Out of court settlements are preferable to legal action. Demands and telephone dunning are generally effective, as are on-site visits. Where there is no contractual agreement regarding default interest, the rate applicable (after August 8, 2002) is the six-monthly rate set by the Ministry of Economic Affairs and Finance, increased by seven basis points.

In the case of bills of exchange, promissory notes and checks, creditors may obtain a writ of execution in the form of a demand for payment delivered by a bailiff prior to attachment of the debtor’s property. Creditors can obtain an injunction to pay, by way of a fast track procedure, if they can produce written proof of their claim. This allows them to avoid taking ordinary legal action to establish their right to payment. Ordinary proceedings can take up to two years.

 Risk Assessment

Country Risk Rating: A2 (watch-listed with negative implications since June 2003). Default probability is still weak even in the case when one country’s political and economic environment or the payment record of companies are not as good as A1-rated countries.

Other Financial Ratings = (stable, minimal risk, excellent financial security):

• Standard & Poor's: AA
• Moody's: Aa3
• Fitch-IBCA: AA-

According to Coface: (Reprinted with permission)

After two years of stagnation, economic activity improved slightly in 2004. Despite the euro appreciation, exports benefited moderately from more buoyant world demand and improved competitiveness due to easing inflation. However, cancellation of the income tax reductions, necessitated by the deterioration of public finances, contributed to keeping consumption down. The investment recovery registered in the first half proved to be only temporary.

Growth should only improve slightly in 2005. Despite reduced tax schedules, household consumption should remain sluggish, particularly due to persistent uncertainty about the outlook for the social safety net. The euro appreciation and stabilization of European and world demand will hamper exports, especially in the traditional textile segment. In that lackluster context, productive investment will increase at a rate not sufficient to remedy the obsolescence of equipment. Only construction investment should maintain relatively high growth due to the firmness of the residential property market. Meanwhile, the size of the fiscal deficit, which has reached 3.5% of GDP, will limit any possibility for the authorities to stimulate the economy.

The Coface payment incident index for Italian companies has remained above the world average and, moreover, has continued to deteriorate, reflecting the increased bankruptcy rate of nearly 9% in 2004. Absent prospects for improved economic conditions, the level of risk should remain high in 2005 with companies in the textile, electronics, and printing/publishing sectors remaining weakest.

Sources for further information on doing business in Italy

Invest In Italy, the Italian organization for investment promotion created by Sviluppo Italia, the National Agency for Enterprise and Inward Investment Development, and ICE, the Italian Trade Commission: It is a single point of entry for advice and assistance, both to current and new investors, along every phase of investment and business development: project evaluation, location scouting, site visits, business set up, management of the relationship with local and national authorities, provision of incentives, equity and after care services. These services are completely free and strictly confidential for investors.

U.S. Commercial Service Italy: Extensive information and statistics on Italian economy, trade, investment opportunities, political environment, trade regulations, customs and standards.

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This information is provided by ABC-Amega Inc. Providing international receivable management and debt collection services for exporters to more than 200 countries including Italy. For further information, contact info@abc-amega.com.

This report represents a compilation of information from a wide variety of reputable sources including: the U.S. Commercial Service, CIA World Factbook, Federation of International Trade Associations, and Economist Country Briefings.

Risk Assessment information: Provided with permission by Coface Country Rating.

Information on credit terms and the probability of prompt payment are provided, with permission, from Overseas Press and Consultants (OP&C) as published in IOMA's Report on "Managing Credit, Receivables & Collections," February 2005.