The FDI angle:
- Italy's new eight special economic zones (SEZ) are gaining traction among investors.
- The country's top banks, UniCredit and Intesa Sanpaolo, have earmarked more than €10bn to support the SEZs and their tenants.
- The big picture: The SEZ programme aims to spur economic development in the country's underdeveloped south and leverage its position in the middle of the Mediterranean by expanding its role in global value chains.
Italy has cemented itself as a leading player in the global economy. It is part of the G7, the EU’s second-biggest manufacturer after Germany and the world’s seventh biggest exporter. But long-standing economic divisions between the country’s industrial north and its sun-drenched, less developed south means the benefits are not shared equally. As of the end of 2021, unemployment in the south was at 15.8% compared with between 5.5% and 6% in the north. Data from fDi Markets shows that 55% of greenfield FDI projects over the past two decades targeted four of the country’s 20 regions, all of them in the north.
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Weak infrastructure, high levels of perceived corruption and bloated bureaucracy are among the manifold reasons behind chronically low industrial capacity in the so-called Mezziogiorno. But the recent rollout of eight special economic zones (SEZs) that stretch from Abruzzo in the country’s centre to Calabria at the tip of the boot, encompassing the islands of Sicily and Sardinia, has sparked new hope.
“We now have an industrial programme for the south of Italy, which has been missing for many years,” says Remo Taricani, deputy head of Italy at UniCredit. “I strongly believe it has a strong chance of success.”
We now have an industrial programme for the south of Italy, which has been missing for many years. I strongly believe it has a strong chance of success.
‘SEZ light’
The SEZ programme has been dubbed a New Deal for the south, as with the US’s post-Depression recovery plan in the 1930s. It aims to attract domestic and foreign investment to boost regional productivity, spur economic development and further integrate Italy’s south into global value chains.
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On paper, the SEZs – or ZES in Italian – have existed since 2017 when parliament approved their establishment. But the real starting gun sounded last year when all eight launched their digital one-stop-shops, which for investors replace the 30-plus authorisations normally required to establish new industrial projects. Cutting Italy’s famous red tape is the first of two benefits granted to all SEZ tenants. The second is investment tax credits ranging from 20% for small firms to 10% for large firms, up to a maximum of €100m for each project.
To qualify for these benefits, firms must invest in municipalities on the EU’s regional aid map which are scattered across each SEZ’s catchment area. The capital must also be injected into activities that create positive spillovers such as manufacturing, logistics and scientific research. Beyond that, the investor must satisfy the SEZ commissioner that the project generates enough new jobs and local economic development to warrant free zone status.
In accordance with the EU’s historic limits on state aid, Italy’s SEZ benefits may be limited compared with those in free zones outside the bloc. But the scheme has been embraced by the SEZ commissioners who are focused on exploiting their area’s natural advantages. Alessandro Di Graziano, commissioner of ZES Sicilia Orientale, is pushing the island’s location in the middle of the Mediterranean. “The island is a natural logistics platform,” he says, pointing to the fact that 12% of global trade passes through the Suez Canal. “If just 10% of this volume moves through Sicily, we change the idea of southern Italy.”
ZES Ionica Interregionale Puglia-Basilicata is leveraging its existing transit hubs. “As our ZES includes the port of Taranto and Grottaglie airport, investment to date has very much been related to logistics,” says its project manager Angela Scianatico. Going forward she expects more investment in automotive, technology and aerospace, for which Puglia is an established centre.
Meanwhile, ZES Adriatica Interregionale Puglia-Molise is seeking expressions of interest from businesses regarding the development of customs-free zones, which exempt SEZ tenants from VAT and import duties within their SEZ. “We are determined to develop strategic infrastructure to support the development of the ZES,” says commissioner Manlio Guadagnuolo.
Early progress
The eight SEZs are backed by significant public and private resources. Italy’s government has earmarked €630m in EU recovery funds to improve ports and rail infrastructure serving the eight zones. In March, the EU announced that it was mobilising an extra €3.4bn to modernise a 178km stretch of Sicily’s railway connecting Palermo and Catania. “For Sicily, this will be a completely different infrastructure situation to what we’ve had in the past, as the railway will finally be at European level,” says Mr Di Graziano.
Meanwhile Intesa Sanpaolo and UniCredit have pledged up to €5bn and €6bn respectively to improve local infrastructure and finance tenants’ investments. The latter is also roadshowing the SEZs to corporate clients. “We started doing this because we realised that in Italy, and even among entrepreneurs in the south, there was a lack of knowledge about the benefits coming from the SEZs,” says Mr Taricani. Following successful events in Naples and Milan, the bank is now planning roadshows in Austria and Munich.
Project numbers are already picking up. As of July, ZES Ionica had approved 11 projects worth a total of €32m and ZES Sicilia Orientale 14 projects worth €100m. Of the 113 projects lodged with ZES Adriatica, which are collectively valued at more than €1bn, 43 have been approved, one within just six days.
One of the programme’s unsung spillovers is increased discipline within the government and companies alike. If a local authority does not respond within 45 days to an SEZ’s authorisation request on behalf of an investor, it is considered approved. Tight controls on projects’ implementations can also promote good business practice, which is important in areas with a historical problem of perceived corruption.
“The ‘cleanest’ and most advanced entrepreneurs who can deliver complex projects are the ones that are approved, because they are the ones able to satisfy all the controls,” says Tommaso Fiorentino, a lawyer at Belvedere Inzaghi & Partners.
Bureaucracy bites
Less than a year into their operation, minister for southern Italy Raffaele Fitto has already proposed uniting the eight zones into a single ZES. The European Commission has welcomed the idea, according to a government statement, although official EU approval is still lacking.
But before thinking bigger, some cracks in today’s programme need smoothing out. Maurizio D’Amico, secretary-general of the World Free & Special Economic Zones Federation, laments that Italy’s SEZ regime is underpinned by just two clauses within a law that has been expanded by a “series of subsequent, fragmented regulations”. Italian firms have dominated SEZ investments to date, and Mr D’Amico is calling for a consolidated regulation to ease the path for foreign investors.
He also echoes warnings from the country’s Court of Auditors that unless SEZs speed up the assignment of their €630m in EU funds, they risk missing Brussels’ deadlines and having to return the money. “It shows that Italian bureaucracy is still a weight, even for SEZs,” he says.
This article first appeared in the August/September 2023 print edition of fDi Intelligence