* Return to growth must be priority, businesses say
* Red tape, legal uncertainties, taxes must be tackled
* Inconclusive vote would increase risks to growth
By Danilo Masoni and Lisa Jucca
MILAN, Feb 22 Italy's new government, after
elections this weekend, must cut bureaucracy and taxes and
reform an ineffective legal system if the shrinking economy is
to be jolted back to life, businesses and foreign investors say.
Italians vote on Sunday and Monday for a successor to Mario
Monti's technocrat government whose austerity policies saved
Italy from a Greek-style debt crisis but did nothing to pull it
out of deep recession.
Italy's economy has contracted for six consecutive quarters,
shrinking 2.2 percent last year, and companies say it is time to
pull down the barriers that have hampered Italian businesses and
put foreign investors off Italy for years.
"I would like a government that truly thinks about growth
and that could bring Italy out of the quicksand," said Massimo
Scaccabarozzi, CEO of pharmaceutical company Janssen-Cilag SpA,
a unit of Johnson & Johnson.
"It's no secret that we are bottom of the list when it comes
to ease of business."
Net foreign direct investment, a measure of a country's
attractiveness, has averaged $23 billion from 2005 to 2011,
equivalent to just 1.1 percent of Italy's gross domestic
product, according to data from U.N. economic think-tank UNCTAD.
That is half of the investment into France, a quarter of
Britain's and well below all other major European economies, in
"(Foreign) companies find it's a more bruising experience
than they expect. They complain about bureaucracy, contract
enforcement and late payments," one Western diplomat said.
It takes on average 1,210 days to enforce a contract,
according to the World Bank's "Ease of Doing Business" index,
twice the OECD average, as Italy's creaking judicial system
makes it one of the least efficient in the world for business.
Another diplomat said things were getting worse.
"Competitiveness in Italy is going down. The Spanish and even
the Greeks have done more in regaining competitiveness quicker
Italy ranks 73rd out of 183 countries as a place to do
business, according to the World Bank index.
"The new government must simplify procedures, make the
system more transparent and figure out how to cut labour costs,"
said Fabio Gianisi, a Milan lawyer who advises Chinese and
Russian investors with an interest in Italy.
The total tax rate for companies, including tax on profit
and labour taxes, comes to 68.3 percent - one of the highest in
On top of that, layers of complex bureaucracy cause endless
frustration to foreign companies, causing many to turn their
backs on Italy. Royal Dutch Shell dropped plans for a
liquefied natural gas (LNG) plant in Sicily in November after
seven years spent on paperwork.
"Foreign investors are scared as they fear being sucked into
a red tape maelstrom," said Harvard economist Alberto Alesina.
Italian pharmaceutical companies, for example, need to
satisfy each of Italy's 20 regions before they can sell a drug,
even after winning national approval. That adds an extra year to
Those doing business in Italy also struggle with chronic
payment delays from the state and can get trapped for years in
legal disputes over building permits, as a myriad of authorities
have veto powers, giving locals the opportunity to tell
industrialists: "not in my backyard".
"A big project, the expansion of a building site, should not
be subject to local interests that are not aligned with the
general country interest," said Sandro De Poli, chairman of
General Electric in Italy.
The most likely election winner, the centre-left Democratic
Party (PD), has said the best way to cut public debt is
increasing economic growth, and has made streamlining the
notoriously inefficient public sector a priority.
But, with the possibility of an unstable coalition where the
hard left may have to work with members of Monti's centrist
grouping, few people are counting on any rapid change.
"The risk exists that after the Feb. 25 elections, there may
be a loss of momentum on important structural reforms to improve
Italian growth prospects," said Standard & Poor's.
The credit rating agency said failure to revive growth,
rather than fiscal performance, was now the main risk for Italy,
especially if the winning coalition fails to secure a majority
in both houses of parliament.
Businessmen like Lorenzo Stanca of Mandarin Capital, a
private equity fund that invests in small Italian and Chinese
"If the election results in an unstable context, then I
think we can be very pessimistic about Italy's capacity to
attract foreign investment," he said.