analysis  › Business and economy

The Long Read: The three engines to drive development in Italy’s South

by Alberto Quadrio Curzio

24 Exclusive content for IT24

The clear improvement in the climate of consumer and business confidence is a good companion for the Stability Law, which will also have to tackle serious, long-standing problems. Among these is the situation of the less-developed South. Following a recent meeting in Taranto (site of the ILVA, whose rebirth is of Italy’s national interests) the Confindustria General council increased its commitment, highlighting for Prime Minister Matteo Renzi some of the measures that should be included in the “master plan” he had announced in August, and the Stability Law.

Crises and glimmers

There is no doubt that the situation in the South worsened significantly with the great crisis over the past seven years. To this effect, it suffices to note that the GDP of the South dropped nearly 6 percent more than that of Central and Northern Italy, and its employment decreased six times more than in the center of the country or the North. That said, it is useless to consider all the other economic variables whose negative signs confirm the need for an urgent and on-going intervention.

According to Svimez, the crisis caused a structural gap between the Mezzogiorno (Southern Italy) and Central and Northern Italy; a gap due to the difficulties the South experienced in trying to latch its exports to the foreign demand engine, to a strong decrease of infrastructural and industrial investments, and to the migration of skilled labor. Conducting a long-term analysis, Svimez indicates that the Mezzogiorno’s population will decrease significantly due to a “demographic tsunami” with unpredictable consequences for Italy. In sum, we believe that Svimez considers the last seven years to be the worst the South has experienced since the end of WWII.

July’s Mezzogiorno Check-up conducted by Confindustria (territorial cohesion division) and the Studies and Investigations for the Mezzogiorno (SRM) reveals a worried perspective, but also offers some glimmers.

Foremost, it indicates that if the South were to start growing now at the same rate estimated for Italy (very unlikely, given its present conditions), it would take until 2025 for the Mezzogiorno to return to its 2007 GDP.

There are, however, also some glimmers. The first is problematic, and consists of the strong selection process for southern businesses. Specifically, many small businesses left the market, whereas many medium sized businesses strengthened their positions, without however compensating for the economic system’s loss.

The second hopeful glimmer comes from the fact that the South still has a desire to start businesses. In fact, between 2013 and 2014, the balance between businesses entering or exiting the market was +6,000 (due partly to the decreased number of businesses exiting the market); approximately 40% of the Mezzogiorno’s businesses are headed by young adults; and there is an increase in the number of businesses that insert themselves into network contracts (more than 2,800 in July 2015) and who adopt pro-active strategies (turning into limited companies and internationalizing).

The third, very positive, glimmer pertains to tourism that, in 2013 to 2014, recorded an increase of 700,000 foreign visitors—for a value of €1.5 million and a strong characterization in the fruition of the cultural heritage sector that counts 120,000 businesses. Finally, we note that the total employment in the South has recovered 110,000 jobs between the second quarter of 2014 and 2015. These are by no means glaring figures, but they do indicate that the Mezzogiorno is not lacking in terms of intelligence or the ability to do business.

Businesses, investments and infrastructure

We must then fuel these three engines for the South’s recovery and the reduction of the gap with the North. In Taranto, Confindustria stated that the South’s productive network is alive and well, and it is vital that it be protected and promoted by leveraging on the upturn in public and private investments.

This type of statement must be followed by some action, considering that both Svimez and Confindustria-SRM predict a dramatic decrease in investments. Between 2008 and 2014, there was a 38% decrease in total investments, a figure that rose to nearly 60% when considering only the strictly industrial investments. All public spending has been greatly reduced, and spending for public investments decreased by €5 billion between 2009 and 2013, returning to its 1996 level.

It is on this backdrop that Confindustria’s Piano per il Sud (Plan for the South), which lists all necessary measures, is born. It entails three-year tax credits for new capital goods and for R&D investments, of training contracts to attract medium and large businesses, of warranties to favor access to credit (liquidity abounds while credit is scarce), of internationalization vouchers, and the consolidation of decontributions for new hires.

Of no less importance, and they were also considered in Confindustria’s plan, are the investments on infrastructure in collaboration with the Development and Cohesion Fund—both in terms of its endowment as well as as to accelerate the paying out of dividends for the 2014 to 2020 period—and with the cohesion policy, also concretizing the Control Room with the Regions and the Agency.

We therefore await the Stability Law in the hope that it will take these suggestions into account. Even now, however, we must positively note that the Piano Strategico Nazionale della Portualità e Logistica (Strategic National Plan for Ports and Logistics) presented by Minister Graziano Delrio in July is a powerful ingredient to revive the South with the four Ten-T (Trans-European transport networks) that pass through Italy. At the time, the DEF had already proposed an increase in public investments in the South by 1.9 percent in 2015 and 4.6 percent in 2016. Finally, we note that there is a notable increase in the tenders for public-private partnerships in the South.

An Italian-European conclusion

In the end, the availability of resources will depend on two conditions. Regarding the first, it is encouraging that Economy Minister Pier Carlo Padoan and the Ministry of Economy and Finance are working on the flexibilities that the EU will allow on the clause pertaining to investments for infrastructure in the South and the tax breaks, among which it seems an IRES (Business Tax) reduction for SME’s would not incur into the European obstacle of state aids.

The second pertains to the ability to realize projects, considering that the quality of government index (calculated by the European Commission) ranks the South’s regions among the lowest in the EU. This means that the Mezzogiorno, too, must also (considerably) help itself.