The International Spectator
Italian Foreign Economic Policy: Challenges Ahead
By Gianni Bonvicini, Isabella Falautano, and Raffaele Farella
It is hard to remember when Italy last witnessed an equally heated foreign economic policy debate, accompanied by the introduction of wide-ranging reforms of the institutions and mechanisms set out to implement it. Yet this development is not surprising for at least three reasons.
First, in major industrialised countries, that is, from Spain to Germany, from France to Japan, foreign economic policy (FEP) has returned to the forefront as a result of growing criticism of the lack of adjustment to the new global market which has thrown the traditional mechanisms of foreign projection of the national economy into question. Therefore Italy has also had to reconsider the competitiveness of it foreign economic policy.
The second reason is that FEP was never considered a policy priority by past governments, which treated it more like an inevitable consequence of the choices and requirements of Italian business abroad than as a decisive factor in the countrys overall foreign policy design. It follows that all Italian foreign economic policy instruments and institutions suffered and that the country now has to face its partners with policies and mechanisms that are largely inadequate in terms of both coherence, homogeneity and functionality with respect to the new tasks.
The third and perhaps most important reasons is that economic policy is becoming increasingly central to the concerns and interests of governmentsabove all but not only Western governmentsto the point that it has taken over the position once occupied by security and defence policy: dealing with economic questions today means considering issues of global security in the new international context. A countrys competitiveness and the internationalisation of its economy are, therefore, essential factors of stability and security. Hence the importance of an effective foreign economic policy.
Although the new intense attention to FEP in Italy must be seen positively, there is still the feeling that the reformist drive does not respond to an overall strategy, but rather to sectoral adjustment requirements, if not the survival of certain bodies that have little to do with FEP. In other words, there is the risk that the necessary updating of the FEP bodies could end up perpetuating the inconsistencies and incongruencies of the past and losing sight of the fundamental objective of a modern foreign economic policy: to internationalise the countrys entire economic system, not only, as was the case with traditional FEP, that part dedicated to business and financial activity abroad.
For Italy, the export-import sector is essential in the formation of GDP, as is attested to by the results of 1995 and 1996, in which related activities accounted for over 50 percent of it, not counting the growing investments of Italian companies abroad. Like Italys major European partners, Italy must dedicate effort to making its financing of FEP coherent and reorganising its administrative bodies.
The Fragmentation of Italian Foreign Economic Policy
Italian FEP is currently characterised by the presence of a number of institutional actors whose activities are not always integrated. The extreme fragmentation of the system and the resulting problems of coordination and definition of priorities are behind a series of proposals for reform of the foreign economic policy sector aimed at making it more efficient and its action more cohesive.
These proposals are set against the background of a more general process of broad reorganisation of the Italian state, undertaken in early 1997 with the so-called Bassanini reform. Consisting of two distinct laws, approved without constitutional reform, it involves a drastic restructuring of the state bureaucracy, regionalising many competencies that previously belonged to the state 1 and simplifying procedures (also for FEP). At more or less the same time, a Two-Chamber Commission ( Commissione Bicamerale) to work on revision of the Italian Constitution was established, which proposes, among other things, a federalised form of state. If the proposals of the Commission are approved, this will complete the overall reform of Italian state institutions.
In order to attempt predictions on future scenarios of Italian foreign economic policy, especially in view of the reforms mentioned above, a brief description will be given of the various institutional bodies and mechanisms currently in place for its management, their competencies and activities, and an evaluation of their performance.
Various administrative actors are currently involved in the definition of Italian foreign economic policy.
The Ministry of Foreign Trade
The Ministry of Foreign Trade ( Ministero per il Commercio EsteroMinComEs) set up in 1946, has undergone a drastic downscaling of its functions as a result of the liberalisation of markets. Currently its competencies include defining Italian foreign trade policy as concerns promoting trade, negotiating trade agreements at the multilateral and bilateral Community levels, and managing contributions for foreign promotion. Furthermore, it is charged with steering and supervising the Foreign Trade Institute ( Istituto per il Commercio EsteroICE), the main public actor providing information and assistance for the internationalisation of enterprises.
The last decade has been a period of uncertainty about the future for the MinComEs, as numerous proposals were put forward to abolish it altogether and bring all foreign economic policy competencies, presently scattered among various ministries, together in one body, either the Ministry of Industry or a totally new super-Ministry of the Economy and Productive Activities. This uncertainty about its future in some way slowed down its operation and hindered long-term planning, indispensable for providing efficient and rational guidelines.
In recent years there has been much talk in government, parliamentary and entrepreneurial circles about the need to adjust public structures to the new rules dictated by market globalisation, as it is not possible to meet the new challenges while being bound to a traditional mercantilist approach, proven to be inadequate in the changed foreign trade environment. The very concept of foreign trade seems to be undergoing redefinition: as a consequence of the prospects opened up by Maastricht with the establishment of a single market, the traditional rules and operational logic of foreign trade are no longer applicable within the Union. To some extent, the MinComEs seems to have realised the need for change and is attempting a drastic and immediate review and reform of its role and functioning.
A first important step in that direction was taken at the beginning of 1997 with the reform of the ICE, a body often at the centre of heated parliamentary debate above all for the inefficiency of its foreign trade offices. The new law simplifies its structure and its operations, reducing the number of management departments and Italian offices and strengthening the network of offices outside of the EU (the working of the ICE is discussed in more detail in the section on instruments and actors).
The MinComEs has also appointed a special work group to draft a Single Text which incorporates and simplifies the many laws regulating the instruments for export support and to draw up internal rules for the ministry that finally enact legislation passed in 1994 streamlining the bureaucratic apparatus. Finally, as charged by the Bassanini reform, the ministry issued a decree law in February 1998 for the structural revision of several agencies, also bringing all services for public support of the internationalisation of enterprise under one roof (a one-stop shop ). This would make it possible for an entrepreneur to find in one location the services for financial (insurance and credit) and operational (assistance, training and information) support to internationalisation now provided by a multitude of public and private actors.
This new activity and drive from the centre has been flanked by a second, only apparently contradictory, trend that puts a greater accent on decentralised agencies and gives them responsibility for directing and managing some foreign economic policy functions. In delegating important export tasks to the regions, the Bassanini reform has made it essential that the MinComEss planning and operational activity be coordinated with the promotional functions of the regional actors. To that end, concertation between the MinComEs, which operates indirectly at the local level through its regional ICE offices, and the regional administrations already exists by means of so-called planning agreements, which compare and coordinate the programs and plans of the two actors. But the poor achievements of those agreements to date make it seem likely that they will not be able to guarantee efficient coordination once the public administration has been completely regionalised.
The Ministry of Foreign Affairs
The Ministry of Foreign Affairs ( Ministero degli Affari EsteriMAE) has the institutional function of safeguarding public and private Italian interests abroad, ensuring a linkage and standardisation between the general policy of the state in the field of foreign relations and sectoral trade policy. The MAE operates in the field of foreign trade mainly through its Directorate General for Economic Affairs ( Direzione Generale per gli Affari EconomiciDGAE) and Directorate General for Development Cooperation ( Direzione Generale per la Cooperazione allo Sviluppo). In recent years, the ministrys activities have been marked by an increasing awareness of and attention to the economic and commercial aspects of international relations. In fact, the drastic change in global political and economic equilibria, manifested in the pervasiveness of economic interests, has forced the MAE, like the foreign ministries of other European and non-European countries, to undertake a new foreign policy course with a stronger accent on economic diplomacy . Following a number of positive foreign examples, the MAE, in conjunction with the MinComEs, is redefining the objectives and organisational criteria of state visits, using them as a new means of penetration and of international promotion of the Italy system. Thus political figures on state visits will no longer be accompanied only by the traditional delegations of institutional representatives; entrepreneurial delegations will have the opportunity to take up contacts and talk business with members of the government and entrepreneurs in the host country.
Another novelty is the establishment of a Council for support of Italian enterprisees abroad ( Consiglio per il sostegno delle imprese italiane allestero), promoted by the DGAE of the Ministry of Foreign Affairs. This special task force is charged principally with helping the Italian entrepreneurs present on foreign markets, ensuring greater collaboration among the various public actors operating in the sector and guaranteeing a more serious business orientation .
At the same time, the MAE is a permanent observer in the Committee for Scientific and Technical Economic Cooperation ( Comitato per la Cooperazione Economica Scientifica Tecnica), the forum for concertation set up by the Italian business community and aimed at bringing together public and private actors ( Confindustriathe confederation of industrialists, professional associations, etc.) on the subject of internationalisation.
Such initiatives, although limited, are indicative of the MAEs intention to play a more active role in the field of foreign economic policy. And this is only part of a more ambitious plan to reorganise the Ministrys executive administrative apparatus. 2 The present pyramid-type organisation divided into six functional general directorates has long been considered, in the ministry itself, inadequate for the needs of national foreign policy. The MAEs technical secretariat recently presented a new scheme for internal organisation which calls for a redistribution of competencies among the current general directorates and the establishment of a General Directorate for European Integration, which is to provide an integrated and consistent approach to the process of building a united Europe. But the crux of the proposal lies in the transition from a structure broken down into general directorates by issue, to one that operates both by geographic regions and by function. The plan is to take the bilateral competencies from the present issue-oriented directorates and assign them to four new general directorates responsible for geographic areas (Europe, the Americas, Africa and the Middle East, Asia and Oceania). According to the reformers, the new arrangement should make foreign economic policy actions more effective and functional, by unifying the activity carried out by the diplomatic offices with the decision making of the General Directorates in Italy, thus introducing the more efficient country concept . At the moment, there is little coordination among these various phases and decisions are taken after time-consuming and deleterious dribbling from one directorate to another.
The continuous changes in both the political and economic aspects of the international situation have made monitoring of the various environments essential for working out the strategic policies informing the foreign economic policy orientation. This function of foreign antenna carried out to varying degrees by ICEs foreign offices and the embassies, also requires rationalisation and coordination. While some ICE offices are directly located inside embassies, thereby ensuring synergy among the services provided. At the same time, diplomatic offices abroad endowed with adequate means and qualified staff can sometimes not ensure strategic services because they are too busy with bureaucratic and administrative work. Hence the proposal to ensure close coordination between embassies and ICE offices. But the problem remains of who is to be ultimately responsible and whether orders from Rome should or should not come from a single ministry.
The Treasury Ministry
The Treasury Ministry ( Ministero del Tesoro) controls the finances for export support and manages the funds linked to the commitments of international financial institutions. Thus the ministry is instrumental in managing the resources (often scarce) earmarked for support of internationalisation of Italian enterprise. The Council of Ministers recently presented a decree law for the merger of the Treasury Ministry and the Ministry of the Budget and of Economic Planning into a super Ministry of the Economy, which is now able to operate in a structurally more coordinated manner, allowing for more profitable and rational use of national resources and often unused EU funds. Concentrating competencies in the sector of economic and financial policy in such a single ministry will no doubt improve management services, but it will probably also cause problems for FEP in the division of labour with the other ministries currently dealing with it: in fact, if the reform aims to unify the planning and implementation stages, one wonders whether a unified economic ministry would continue to be responsible for only the few phases of FEP (accounting-type and budget evaluations) of which it is currently in charge, thereby undermining one of the main objectives of the reform. In fact, the Treasury Ministry is currently in charge of defining and allocating the financial resources for the main credit and insurance institutions in the export sector. These include Mediocredito Centrale, the Italian investment bank whose principle share-holder is the Treasury Ministry, and SACE, the public export insurance agency.
The Ministry of Industry, Trade and Crafts
The Ministry of Industry, Trade and Crafts (Ministero per lIndustria, il Commercio e lArtigianato) has only a few competencies in foreign economic policy and they are limited to disseminating information and promoting support abroad for the crafts. It must be mentioned, however, that as the main decision-making body with regard to industrial policy, the ministry plays a fundamental role in strengthening the entrepreneurial substrate through actions aimed at furthering technological innovation and development, both indispensable premises for the internationalisation of the economy. Consequently, a functional link between this ministry and the others involved in FEP could generate spill-overs at both the planning and management stages.
A number of bills proposing the establishment of a super-Ministry of Industry and Productive Activities were presented in the past legislature. They proposed putting the ministry in charge of laying down overall guidelines for industrial policy and linking internal programmes to outside policies for support for internationalisation of Italian business and industry. Although shelved for the moment, the proposals tended to increase the ministrys decision making capacity in the field of FEP, which includes, in addition to those already mentioned, competencies in some initiatives of economic, industrial and scientific cooperation with foreign countries and support for the organisation of fairs abroad.
As a result of past and current institutional reforms, the regional administrations have taken on a fundamental role in state activity. Indeed, the Bassanini reform has shifted many competencies that were until recently the responsibility of the central administration to the regional governments. Thus, while competencies in foreign trade and foreign policy remain with central national institutions, the regions and their organisations have been assigned the correlated activities of promotion abroad of products made in Italy .
Seen from an overall perspective, the reform seems highly positive in its two objectives: to simplify administrative action, guaranteeing efficiency in services to citizens and enterprises and to make public structures respond more closely to the requirements and demands of the various territorial situations. At the same time, it indubitably involves risks in that it fragments an already serious problem of inefficiency into a number of smaller problems of the same nature but of even greater impact and accentuates the enormous economic, organisational and cultural differences among Italian regions. These risks are reflected in the specific sector of FEP, in which the administrative reform fragments competencies even further and overlaps the tasks of the regional ICE offices with those of the regional administrations.
It is obvious that the Bassanini reform, and even more so the proposals for federal reform of the state must introduce coordination if they are to be successful. Only through concerted policies is it possible to meet the dual requirements of centralising important decisions in order to lay down a single political strategy in the sector, and making operational instruments more effective by decentralising them and adapting them to individual productive contexts.
Analogously, it has become clear that some basic problems must be solved before any kind of institutional reform like the one partially undertaken for public support of internationalisation of the Italian economy can be successful:
qualified personnel in all sectors of the public administration must be trained, endowing the Italian civil service with a high-level bureaucracy, like that of other European countries, able to direct the country system effectively during this time of political and economic transition;
bureaucratic mechanisms must be further streamlined, making them more flexible;
more collaboration and interaction between the individual sectors of the public administration must be provided for, eliminating the corporativism and envy which negatively characterises it today.
Once these basic steps have been taken, it should be less difficult to coordinate the various aspects of FEP. Various attempts to do so have been made in the past, but all have failed; indeed, the Interministerial Committee for Foreign Economic Policy ( Comitato Interministeriale per la Politica Economica EsteraCIPES) was established for that purpose in the seventies and replaced in 1993 by the Interministerial committee for Economic Planning ( Comitato Interministeriale per la Programmazione EconomicaCIPE), but both were failures. Proposals on how to define and supervise the grand systemic strategies are currently being examined.
The Actors and Instruments involved in Management of Internationalisation
The current rethinking and restructuring of the system of public support for the international activity of Italian enterprise is also affecting the implementation policies and instruments mentioned in the previous section. An attempt is being made to turn the traditional situation characterised by a myriad of different export support mechanisms and tools into an integrated system of instruments and policies for internationalisation. This strategic choice is aimed at offering operational support (financial and other) at three levels: trade policy; internationalisation policy and policy for real services such as promotion, assistance, training and information.
The range of instruments, and above all the agencies charged with providing them to Italian enterprise, is extremely varied and fragmented. There are, in fact, the traditional export facilities such as loans and insurance provided for by the Ossola Law, which now, two decades after its introduction, requires updating with respect to the new situation. Other financial instruments have also been added over the years, aimed at supporting growing levels of internationalisation and specifically at setting up joint ventures, seen as the strategic choice, above all for small and medium-sized enterprise (SME). Indeed, greater internationalisation requires qualitatively different kinds of support for enterprises: more complex financial instruments and more articulate real services for the operator abroad. To flank the financial instruments, a network of agencies has been set up to provide real services that accompany the entrepreneur in trade operations and foreign direct investment (FDI) projects, from greenfield operations to joint ventures, from technological transfers to project financing.
Therefore, the Italian system of public support to the international activity of companies can be broken down into two branches: financial assistance and material assistance.
The agencies that provide the various types of financial assistance are: the Special section for insurance of export credit ( Sezione speciale per lassicurazione del credito allesportazioneSACE), insuring export credits and investments; Mediocredito Centrale, for export facilities and FDI financing; the Italian company for joint ventures abroad ( Società Italiana per le imprese miste allesteroSimest), for participation in the foreign joint ventures of all Italian companies; and the Financial Institution for the Promotion of economic cooperation with Eastern European countries ( Società finanziaria de promozione della cooperazione economica con i paesi dellEst EuropaFinest), for participation in the foreign joint ventures of companies from northeastern Italy.
There are still other agencies and offices that support the international projection of enterprise abroad with what has been defined here as real services; most revolve around a central agency, ICE, which has branches on Italian territory and abroad. Alongside it is an intricate web of Chambers of Commerce and sectoral and territorial associations linked to autonomous initiatives of the business community. The result is useless duplication and frequent overlapping, but new attempts are being made to integrate activity, as in the case of the agencies allocating financial facilities analysed below, meant to serve as service centres for assistance during the preparatory and operational steps of activity abroad.
Agencies for financial support
The dual structure of the Italian system for public foreign trade support is manifested in the two distinct agencies charged with providing insurance and export credit: SACE and Mediocredito.
A government agency with its own assets and management supervised by the Treasury Ministry, SACE is charged with the insurance and re-insurance of commercial and political risks and those connected with natural calamities and exchange rates which national operators face during activity abroad. On paper, all types of business activities abroad can be insured, but in reality the maximum sums insurable vary (e.g. 70 percent for FDI). If the country risk is too high, the SACE may adopt a cautious attitude and even suspend procedures. This restrictive policy has been a leitmotif in recent years. Total exposure (the sum of current commitments and outstanding loans) was 57,147 billion lire in 1996, down 10 percent from the year before. At the same time, the number of policies opened yearly has declined drastically: the percentage of total Italian export directly insured by SACE in 1996 was 3.4 percent (including re-insurance), while the figures for 1994 was 4.2. 3 This is far below the performance of the export credit agencies of other countries.
Three factors explain SACEs current behaviour: the attempt to overcome a moment of crisis in direction and management; strong budget constraints; lack of efficient institutional coordination.
The first factor is the result of a new business-like approach to management introduced as a response to the internal crisis, calling for more caution and based on a more prudent evaluation of the cash flows generated by operations and tending to give priority to the need to rebalance the budget. In addition, there is a lack of strategy able to identify the areas of action and the geographic priorities in the broader context of Italian foreign policy interests, which reduces the institutes decision-making activity to no more than an accounting exercise.
Furthermore, small and medium-sized enterprises account for only a small (30-40 percent) share of SACEs activities. Distance is often a factor in discouraging them from taking advantage of the insurance schemes offered (SACE has only one office in Rome), as is red tape. Numerous proposals have been put forward to solve this problem: the re-insurance of political and trade risks could be entrusted to private insurance companies so as to decentralise and bring offices closer to clients; one-stop shops could be opened providing all services connected to foreign trade, from insurance to assistance. SACE could further strengthen its insurance services by linking up with the international ECA network to seek multisourcing financing and collaboration to be able to extend its range and percentage of coverage (above all for larger projects involved in more than one country). At the same time, a deeper reform is under way. SACE is being transformed into a public corporation with greater autonomy in spending and management, which should increase its operativity.
Mediocredito Centrale, which became a joint-stock holding company in 1993, has made export credit its core business (Law 277/77). 4 Export credits allow the exporter to facilitate payment by the foreign customer through fixed rate medium-term conditions. Thanks to these facilities, Italian companies can compete with foreign competitors, who enjoy similar public support.
The public resources earmarked for this purpose ran out in 1996, however, and the importance of the instrument itself came up for discussion. The 700 requests that were blocked caused a loss of 20,000 billion lire in orders, a drop in employment in certain industrial sectors and indirect negative repercussions on the state budget as a result of lower fiscal returns. 5 Consequently, pressure was brought to bear for reinstatement of the instrument, which took place in April 1997. Until this recent refinancing, the funds had always been allocated annually by the budget. In order to get around the financing shortage and at the same time make the mechanism more competitive, the Treasury Ministry and the Ministry of Industry devised two different kinds of provisions: a more technical one (the decree law of the Treasury Ministry) and a more general one (the law of the Ministry of Industry on Urgent actions for the economy) which led to three major innovations:
a reduction in the states financial commitment on the basis of realistic budget predictions, with consequent further limitations on the kinds of operations that can be financed and, as a result, a lesser number of exports that can receive facilities, with the exception of those with short-term payment and consumer products;
the introduction of Treasury allocations that are certain and of small but constant amounts;
the granting of greater autonomy in financing and action to Mediocredito, which will be able to negotiate derivative instruments such as swaps, futures and options for covering risks, and take out mortgages and loans to rebuild the resources destined for easy credit.
In the field of foreign trade support, Mediocredito also provides soft loans for companies, primarily SMEs, that are undertaking comprehensive operations abroad aimed at market penetration with the intention of establishing a permanent position in it (Law 394/81). The instrument is managed in collaboration with the Ministry of Foreign Trade and finances market studies, advertising, the establishment of deposits and samples, permanent representation abroad, offices and networks for sales/assistance. This programme is also the target of reform aimed at ensuring a more regular flow of funds and more streamlined procedures.
Another instrument is aimed exclusively at consortia that export the goods of their associate members, mainly SMEs (Law 89/83). The activities that can be financed include participation in fairs and international missions, advertising campaigns and services connected with export. Priority is generally given to consortia that have a fixed structure abroad and that therefore show interest in greater penetration in those areas. Furthermore, Italian firms may request financing facilities from Mediocredito for presenting tenders for commissions abroad (Law 304/90).
Mediocredito also manages another form of indirect support for Italian companies through its Official Development Aid policy (Law 49/87). Those financial instruments favour, on the one hand, exports and the suppliers of goods and services generally of Italian origin, through aid loans granted directly to the governments of poorly developed countries; and on the other, the establishment of joint ventures with partners of those countries through easy credit to the Italian counterpart. Those instruments of development cooperation (but also foreign trade policy) are managed by Mediocredito Centrale upon authorisation, on a case by case basis, from the Treasury Ministry, after approval by the Ministry of Foreign Affairs.
Mediocredito Centrales real role, however, continues to manifest itself in two directions: as a bank serving the internationalisation of Italian firms and as an agency of industrial policy. This dual role emerges clearly from its function of support for joint ventures, considered to be the most strategic form of Italian participation abroad, providing interconnection with local partners.
So a system that was merely export oriented in the early nineties has become more focused on the new requirements of international competition and the need to be on the market in a stable manner. In this activity, Mediocredito is flanked by the activity of other institutions, such as Simest, which serves all Italian companies (Law 100/90) and Finest, which has a range of action limited to the business community of northeastern Italy (Law 19/91). The direct actions provided for in the financial field include minority share-holding in joint ventures and allocation of easy credit for the partial financing of the risk capital of the Italian partner in the joint venture. Indirect actions include setting up channels of privileged access to alternative or complementary sources of Community or multilateral co-financing and collateral services of information, assistance and promotion of industrial opportunities.
The facilities mentioned above attest to a substantial qualitative improvement in the potential of public support, which no longer offers only financial incentives, but now provides a wide range of technical and economic assistance. Even the financial institutions have tried to turn into service centres offering comprehensive support for internationalisation at various levels.
The three agencies are an integral part of the European Community network for support of the trans-national programmes linking enterprises and joint ventures between SMEs, the Joint Venture Programme (JOP) and the European Community Investment Partners (ECIP). These programmes offer similar facilities, but differ in the areas they serve.
Specifically, for joint ventures abroad, Mediocredito can finance up to 70 percent of the Italian participants share in capital risk in the joint venture. The facilitys main shortcomings are the constraint posed by the obligatory participation in the joint venture of either Simest or Finest (Law 100/90, Law 19/91) and its lack of operability due to the absence of rules of implementation (Law 317/91).
As mentioned, Simest can hold up to 15 percent of the capital of a joint venture equity (this has very recently been increased to 25 percent). Until the recent reform, it was not authorised to allocate soft loans directly, as Mediocredito is allowed to do. In addition to these various financial facilities, it offers services such as prospecting for opportunities for industrial collaboration and providing assistance in the engineering of the project itself. Support to the enterprises is, therefore, at various levels and consists of real specialised services as well as the working out of financial packages.
Another initiative in the field of joint ventures, promoted by Law 19/91, is addressed to border areas around northeastern Italy. Unlike Simest, Finest is bound by the dual constraints of the companies which it can support (only those from the northeast) and the area of destination (Eastern Europe). It can provide up to 25 percent of the shareholding of joint ventures as well as soft loans. Furthermore, it can mobilise financing from Mediocredito to cover 70 percent of the Italian partners share. In this case also, the range of services offered is broad and Finest can act as a catalyst for the allocation of further funds from the network of institutions dedicated to Eastern Europe: the European Commissions JOP and the European Bank for Reconstruction and Development. Finests territorial attention for the companies and their requirements is also manifested in the kind of intermediate funding provided, such as prefinancing for access to Community and multilateral funds and guarantees for joint ventures; collateral services include prospecting for opportunities for industrial collaboration.
On the whole, Finests experience can be judged as positive, for both the large number of services offered to enterprises, and its interaction with the local entrepreneurial world. As such, it can be taken as an effective model for decentralisation.
To summarise, while the characteristics of the various instruments and actors mentioned underline the effort being made by legislators to differentiate the forms of public support to internationalisation, they also point out the risks of overlapping of services which can lead to confusion for the client. Thus, it is to be hoped that some kind of legislation will be approved that adequately updates the various instruments for internationalisation (insurance, financing, joint share-holding) and endows the activity of the bodies (both central and decentralised) responsible for providing incentives with greater flexibility. The aim is to ensure top down coordination of the various actions and to provide bottom up responses to local requirements. Finally, projects other than joint ventures should be worked out for support for internationalisation.
The agencies for real support and technical assistance
In addition to incentives and financial instruments, the internationalisation of enterprise call for a vast range of real services including information, promotion, assistance and training. These services are of growing importance in an era of competition on global markets. In Italy, there has been a proliferation in recent years of services offered and agencies engaged in producing and/or distributing these services, but with scarce overall coordination of actions, which has increased the risk of duplication and overlapping, both obviously very costly.
The agencies that provide these services to Italian business are:
a central public agency, ICE, with regional and foreign offices;
a network of Chambers of Commerce set between public and private interests, distributed throughout the national territory and endowed with foreign offices;
a network of associations linked to producers;
various financial institutes providing facilities for internationalisation, ever more frequently referred to as service centres providing both financial assistance and technical assistance in engineering the projects.
Istituto per il Commercio Estero
The ICE is the main public operator in the field of real services to internationalisation. In addition to the services mentioned above, it is tasked with supporting the process of internationalisation of Italian companies, promoting foreign trade and international industrial and technological collaboration. The institutes network consists of a large central office (in Rome), and smaller decentralised offices throughout the country and abroad, with a total staff of about one thousand persons. It provides all the various kinds of support mentioned previously: information, promotion, assistance and training. Thanks to the reform passed in parliament by a large majority on 25 March 1997, this agency is now being streamlined and rationalised after three years of provisional administration.
From a management point of view, the reform has endowed the ICE with a regulated autonomy, trimmed its organs, and reinforced the principle of concertation among central and decentralised institutions (with a Consultative Committee bringing together ministries, regions, Chambers of Commerce, industrial associations). The peripheral network in Italy and abroad is also being reorganised along the same lines: the number of outlying offices will be drastically reduced and those that remain will be merged with the new bodies promoted by the regional administrations and local authorities in keeping with the Bassanini reform, while ICEs foreign offices will improve their functional linkage with the seats of Italian diplomacy in those countries. The foreign network is also being strengthened, by reducing the offices present in Community countries and increasing those outside of the EU.
The Institute is authorised to enter into agreements and conventions and to form companies with other agencies. The new provisions on coordination are strictly linked to those on annual planning of activity: the reform law establishes that ICE shall work out annual three-year plans according to guidelines provided by the MinComEs and out on the basis of proposals coming from entrepreneurial associations, regional administrations, and the administrations of the autonomous provinces. Furthermore, priority is being given to ICEs promotional activity, in the broad sense, meaning a mixture of promotion, information and training, filling the gaps in knowledge of small and medium-sized enterprises and contributing to the building and strengthening of the Italian business system. Thus, the ICEs transformation is under way; only time will tell whether it will be effective, that is, whether ICE will offer competitive services apace with the needs of business and able to establish a new image for Italy abroad.
Collaboration with other agencies providing financial incentives, such as SACE, Mediocredito and Simest is also being reinforced. Suffice it to recall that Simest not only provides financial support for Italian businesses abroad, but also offers them technical and organisational assistance and prospects for investment opportunities with matching foreign partners. In doing so, Simest works together with ICE to carry out market research, surveys and feasibility studies for setting up joint ventures abroad. A recent novelty is the convention signed between ICE and the new Italian joint share-holding company Itainvest for promotion of FDI coming into Italy.
The Chambers of Commerce
Another system which is often in competition with ICE is that of the Chambers of Commerce, which create an interface between private and public activity. This position and the responsibilities it involves were confirmed in the 1993 reform which defines the Chambers of Commerce as autonomous agencies of public law with general functions for the business system. This autonomy is manifested financially, politically and in the freedom of each Chamber to enter into agreements with other public and private agencies. Thus, the Chambers of Commerce are currently shareholders in more than one thousand companies and consortia, of which 109 are for export, thereby strengthening the already intricate fabric of a national and international network. 6
Thus, the activity of the individual Chambers of Commerce is strictly linked at the local level to those of the business associations and public actors, creating systems that collaborate in various ways to provide services to enterprise. The typology and quality of the services provided by the Chambers of Commerce is not standardised and this makes it difficult to assess their efficacy. Their activities tend to be the same as those of ICE (promotion, assistance, information and training), but each seems to be specialised in a particular sector or clientele.
Finally, there are also a number of private actors, often linked to particular sectors or areas. Examples of the former are sector-specific federations and associations, while examples of the latter include provincial and regional industrial associations and local banks, which provide both financial and accessory services. Consortia are acquiring increasing importance as a means of self-organising the private sector and distributing services for internationalisation.
Attracting Foreign Investment
From the foregoing description of the mechanisms available to Italian FEP, it is evident that one of the fundamental requirements for the internationalisation of an economy is missing: the ability to attract foreign investment. In fact, FEP is now seen as being composed of two equal parts: competitiveness, around which the traditional institutions of foreign trade and direct investment rotate, and attractiveness, towards which competing economies, especially European ones, are orienting themselves.
As regards competitiveness, as we have seen, public mechanisms to support economic activity abroad are now even more important than before. First of all, the concept of globalisation is bringing the nation state back into the foreground as the central actor in the competitive struggle among economic systems. At the same time, a countrys image now plays a leading role in business. This has been well understood by competitors who are increasingly using state visits to promote their national products. But more generally, the management of information in a global system calls for direct action in complex systems which cannot be carried out by single companies.
Secondly, mechanisms for internationalisation are increasingly being addressed at small and medium-sized enterprise (SME); indeed, this orientation underlies much of the reform being carried out by Italys major competitors. Such an orientation is even more important for Italy, as confirmed by the recent successes of the entrepreneurial system in the northeast. It is obvious that for a system like that of SMEs, public support is decisive in giving continuity to and enlarging the base of national export. Above and beyond financial and administrative measures, however, the foreign role of SMEs can also be consolidated through techniques that are apparently of secondary importance, such as the French portage, by which SMEs are transported by larger firms that are already consolidated on the foreign market. 7 In general, directing more attention at SMEs must be a clear priority of reform of FEP in Italy.
But the real challenge of FEP lies in Italys ability to attract foreign investment and companies. An effective attractiveness policy should accelerate the internationalisation of the country, increase its domestic competitiveness and make the economy more flexible. More generally, this aspect of FEP straddles both domestic and foreign policy and therefore involves a range of actions that go beyond mere incentives for localisation of enterprises and investments. It indubitably complicates the system of FEP management, in that it calls for direct government intervention to solve problems that theoretically have little to do with FEP, such as the cost of labour, flexibility, infrastructures and even the fight against crime.
Nevertheless, today, an attractiveness policy is the real complement to FEP, indeed the attention of foreign rivals has long been concentrated on this aspect. In some cases, such as in England and Ireland, the problem was dealt with in a timely fashion and the institutional and administrative structures have long been in place. 8 But even in France, considerable efforts are still being made along these lines, with the nominationin typical French styleof a Monsieur France to make French territories attractive to foreign investors. 9
Italy is still far from dealing with this essential challenge for strengthening and reorienting FEP with the necessary comprehensiveness. Attractiveness policy cannot be an occasional matter, as it was in the past, and must respond to a precise assessment of the countrys economic and social interests. This means that the localisation of foreign enterprise and investment must be guided. In order to achieve that result, however, the institutional structure backing FEP and its relationship with the bodies responsible for domestic economic policy must be reviewed.
The only result obtained to date has been to transform an old agency about to be dismantled into an agency ( Itainvest) which, through operational agreements with ICE, is to promote foreign investment. In parallel, there is talk of transforming the old Institute for Industrial Reconstruction (Istituto per la Ricostruzione IndustrialeIRI), well known in Italy and abroad, into a smaller agency for the development of Italys south. In this case, too, one of its tasks would be to attract investments, above all from the Union, for development of Italys southern economy. One wonders, however, whether these initial steps on the road to attractiveness are part of a broader strategy or whether they are simply ad hoc remedies worked out to save some old state companies from being closed down.
More generally, the question that is still unanswered regarding Italian FEP is whether the overall institutional framework responds to the countrys requirements and whether there is a credible political and institutional strategy in this field. Given the fragmentation mentioned in the beginning and despite the modernisation efforts under way, it does not look like much has been done to correct the shortcomings of the past, starting at the highest level, where the basic foreign economic policy strategy should be worked out.
Defining foreign economic policy strategy is obviously a government function. At the same time, there can be no doubt that in addition to the ministries traditionally involved in FEP, the Treasury Ministry plays a particularly important role in giving substance and concreteness to geostrategic priorities. In the current constitutional configuration (that is, while waiting for the results of reform of the Constitution), one could envisage a unit within the Council of Ministers that lays down the basic guidelines for FEP. This unit would work out the strategy, set the priorities on the basis of country concepts, decide upon the resources and establish a link between domestic reforms and international activity. This could be an alternative to the current model which has proved so inadequate, based on CIPES or CIPE, agencies that lack the flexibility, informality and timeliness needed to implement broad strategies and whose decisions are no more than the terminal stage of one long interministerial negotiation. The trend seems to be towards revitalising CIPE, turning it into the control room for FEP. According to the latest indications, the CIPE should have a permanent secretariat and should meet every three months. 10 Based on past experience, there are serious doubts as to whether this is the right solution.
Of importance, however, is also the time at which the FEP support policy is implemented and the way in which the mechanism is activated. As already mentioned, the Italian case is a bad example of dispersion and fragmentation of competencies among various institutions and agencies. The need for simplification and coordination is obvious. Yet, in spite of the efforts made to date, this need has not been satisfied and there is a paradoxical trend to increase the number of institutions and deal with the problem of coordination afterwards, rather than integrate and simplify.
There are essentially two foreign models for dealing with this important decision-making level. The first involves a single ministry in charge of all of FEP. Generally, as in Germany and France, this is the Ministry of the Economy, in some cases it is the Ministry of Foreign Trade, and in a few cases, it is the Ministry of Foreign Affairs. 11 If that is not possible, in that competencies are widely scattered, then at least the hierarchy and coordination should be explicitly spelled out. This has never occurred in Italy for historical and political reasons; and indeed, all attempts at simplification have failed. Actually, much of the blame for this relative confusion lies with the scarce attention traditionally paid to FEP and the very low level of internationalisation of the public administration. The latter represents a very real curb to the development of an aggressive FEP. The only exception is the Ministry of Foreign Affairs which has internationalised personnel, but it has never had full competency over FEP. These factors must be kept in mind in reforming the institutions for foreign economic policy if the objective shortcomings of ineffective coordination, weakened by the absence of a clear chain of command, are to be overcome.
The other model, the English or Irish one, has a department for foreign economic policy that is not directly dependent on a delegated minister but is in contact with the various ministries involveda kind of super-agency that talks with the various ministries and is in charge of both territorial agencies and financial mechanisms. 12 The advantage of this model is the autonomy of the FEP and the greater flexibility in dealing with changing domestic and international situations.
Similar concepts of simplification and coordination should hold for financial bodies and those that operate abroad. For the latter, this should be achieved to some extent through the progressive unification of the ICE-MAE network. The same cannot be said for the public financial mechanisms which, while differing in role and specialisation, are hard to coordinate. It is not being suggested that foreign models of bringing credit institutions under one roof can be adopted in Italy as they are, but surely cooperation can be improved. Nevertheless, is has yet to be demonstrated that the country can establish a structure that is effective in attracting foreign investment. These are two faces of the same coin which must be strictly coordinated because of the obvious interdependence between foreign projection and foreign investment.
At the regional level, finally, the best foreign examples point towards a single public agency that represents the entire central FEP structure. This is the set-up in England and Ireland. It could even be, as is the case today in Italy, a regional ICE office, as long as it represents all administrative and financial mechanisms available and is responsible for both Italy and abroad. This is the direction in which the aforementioned creation of regional one-stop shops for FEP goes. Possibly, the number of peripheral ICE offices could be reduced, one for each of the five macro-regions, but enlarged so that they can handle greater responsibilities and competencies.
In conclusion, Italian FEP must accelerate its overall plan for internal institutional reorganisation, starting with the FEP management level. This must be tasked with working out priorities and basic strategies for the institutions and operational bodies that are concretely involved in FEP. This reorganisation from the top down is vital to keep globalisation from becoming a factor of disintegration of Italys economic potential rather than an essential element in its internationalisation.
Gianni Bonvicini is the Director of the IAI; Isabella Falautano is a researcher at the IAI; Raffaele Farella is a lawyer and collaborator of the IAI.
Note 1: Laws 59/97 and 127/97 of 15 March and 15 May 1997 respectively. The reform stipulated that competencies will be regulated by a package of implementation decrees, some of which have already been issued. Back.
Note 2: Ministero degli Affari Esteri, Revisione organizzativa del MAE e Regolamento concernente lindividuazione degli uffici di livello dirigenziale generale dellAmministrazione centrale del Ministero degli Affari esteri e delle relative funzioni, Rome, 24 June, 1996. Back.
Note 6: The Chambers of Commerce have 102 offices worldwide, as well as 17 foreign regional Chambers. There are also 59 Italian Chambers of Commerce abroad (represented in Italy by the association of foreign Chambers of Commerce) and 62 European Chambers. Back.