INVESTMENT CLIMATE STATEMENT 2006

UNCLAS SECTION 01 OF 14 ROME 000263

SIPDIS

TREASURY PLEASE PASS TO OIA/EB/IFD/OIA
SECSTATE PLEASE PASS TO USTR

E.O. 12958: N/A
TAGS: EINV EFIN ETRD ELAB KTDB PGOV IT OPIC USTR
SUBJECT: INVESTMENT CLIMATE STATEMENT 2006

REF: STATE 202943


1. Summary. Italy continues to court foreign
investors by actively seeking to implement the 2003
legal reforms designed to lift the Italian economy out
of its malaise. In 2003 Italy successfully reformed
its civil code and made important modifications to its
Unified Rules on Financial Intermediation, including
specific provisions for listed companies. In addition,
at the end of 2005 Italy approved the financial market
oversight reform and a new, more favorable bankruptcy
law. However, stumbling blocks that discourage
investment appear stubborn, such as the inefficient
delivery of public services and bureaucratic red tape.
The upcoming 2006 April elections and the installation
of a new government are unlikely to spur significant
change in the investment climate. Yet Italy remains
competitive with other developed countries in offering
guarantees and opportunities for investment.


2. Italy has a diverse and industrial economy, the
sixth largest market economy in the world, with the
highest proportion of manufacturing jobs among the G-7.
Small- and medium-sized firms dominate the Italian
economy. Germany, France, and the U.S. remain the most
important export markets. Industrial activity is
concentrated in the north, one of the most
industrialized and prosperous areas in Europe. By
contrast the center and particularly the south are less
developed, with unemployment in some areas three times
that or the north, and per capital incomes much lower.
The Italian government does provide incentives for
investing in the South, in accordance with European
Union (EU) regulations, in an effort to counter the
regional economic divide.


OPENESS TO FOREIGN INVESTMENT
--------------

3. Foreign direct investment in Italy is generally
welcomed and encouraged without discrimination. The
Italian Government has launched initiatives to identify
and reduce deterrents to investing in Italy. The
government has also pinpointed several sectors of
opportunity for investors, including aerospace,
automotive, biotech, chemicals, food and beverages,
information and communication technologies, regional
transportation and logistics hubs, pharmaceuticals, and
tourism.


4. As an EU Member State, Italy is bound by EU treaties
and legislation, some of which have an impact on
business investment. Prospective investors should also
consult the investment climate statement for the EU at
www.state.gov/e/eb. As specified under the right of
establishment set forth in the EU Treaty (1957 Treaty of
Rome),Italy provides national treatment to foreign
investors established in Italy or in another EU member
state, except in a few instances. Exceptions include
limited access to government subsidies for the film
industry, added capital requirements for banks domiciled
in non-EU member countries, and restrictions on non-EU-
based airlines operating domestic routes. Italy also
has restrictions in the shipping sector.


5. The government does have the authority to restrict
foreign investment in some areas or in some cases. The
government can block mergers involving foreign firms for
"reasons essential to the national economy" or, if the
home government of the foreign firm applies
discriminatory measures against Italian firms. Industry
sectors, such as defense and aircraft manufacturing, are
either closely regulated or prohibited outright to
foreign investors. EU and Italian anti-trust laws give
EU and Italian authorities the right to review mergers
and acquisitions over a certain financial threshold.


6. The 2005 World Competitive Survey by the Swiss-
based Institute for Management Development (IMD) ranked
Italy fifty-third among the world's sixty most
competitive economies. The 2005 World Economic Forum
(WEF),"Global Competitiveness Report" ranked Italy
forty-seventh among the 117 countries surveyed; Italy's
economy was judged only better than Poland's among the
twenty-five EU Member States.


7. Foreign investors are not prevented from investing
in firms to be privatized, except in the defense sector.
Privatization strategies have included private
placement, worker shareholdings, management buy-outs,
and public stock offerings. Often the government
establishes a core group of shareholders who agree to
keep their shares for a minimum period or retain a
"golden share" (modest government stake, but with
controlling authority). The European Commissioner for
Internal Markets asked Italy to modify its golden share
regulation by December, 2005, or face an infringement
proceeding and potentially a case before the European
Court of Justice. Italy is the only EU member country
to keep wide-ranging golden share regimes for privatized
companies, however, it plans to eliminate the golden
share and introduce a measure to avoid hostile takeovers
when the Italian Government's stake in the company falls
below thirty percent. This measure is designed
specifically for key energy and defense companies such
as ENI, Enel, Terna and Finmeccanica. A recent study of
the EU Commission highlights that in the EU there are
twenty companies in which Member States hold golden
share, five of which are Italian (Eni, Enel,
Finmeccanica, Terna and Telecom).


CONVERSION AND TRANSFER POLICIES
--------------

8. In conformance with EU directives, Italy has no
foreign exchange controls. There are no restrictions on
currency transfers, only reporting requirements. Banks
are required to report any transaction over _12,500
($15,000) due to money-laundering and terrorism
financing concerns. Profits, transfers, payments, and
currency transfers may be freely repatriated. Residents
and non-residents may hold foreign exchange accounts.


EXPROPRIATION AND COMPENSATION
--------------

9. The Italian constitution permits expropriation of
private property for "public purposes." Compensation
is guaranteed and must adequately compensate the
legitimate proprietor for losses. Lenders are not
covered by the same constitutional guarantee as
proprietors. The Constitution also authorizes the
nationalization of enterprises that provide essential
public services or are deemed indispensable to the
national economy. There exists a few longstanding
disputes in Italy involving U.S. citizens who assert
that municipal governments unjustly expropriated their
real property or inadequately compensated them.
However, this does not reflect any Italian Government
discrimination against U.S. investments, companies, or
representatives in any specific sector of activity.


DISPUTE SETTLEMENT
--------------


10. Italy's judicial system may serve as a deterrent
to foreign investor as civil trials average seven years
in length. U.S. investors in Italy can choose among
different means of dispute resolution and the method
chosen should be specifically set forth in the
contract.


11. Italy is a member of the World Bank's International
Center for the Settlement of Investment Disputes
(ICSID). Italy has signed and ratified the Convention
on the Settlement of Investment Disputes Between States
and Nationals of Other States, and is a signatory of the
New York Convention of 1958 on the Recognition and
Enforcement of Foreign Arbitral Awards.


12. Though extremely slow, the Italian legal system is
consistent with generally recognized principles of
international law, with provisions for enforcing
property and contractual rights. Italy has a written
and consistently applied commercial law and bankruptcy
law. While the Italian judiciary is considered
independent of the government, Italian judges may engage
in political artisanship. Italian courts accept and
enforce foreign judgments only upon request.


13. At the end of 2005 the Italian Government passed a
new bankruptcy law that reforms the 1942 law. The new
law, analogous to U.S. Chapter 11 re-structuring,
provides more flexibility between parties to reach a
solution before declaring bankruptcy. The judicial
role in bankruptcy procedures has been drastically
limited to simplify and speed up the process. The new
regulation will go into effect in June 2006.


PERFORMANCE REQUIREMENTS/INCENTIVES
--------------


14. The Italian Government is in compliance with WTO
Trade-Related Investment Measures (TRIMS) obligations.
Foreign investors face specific performance requirements
only in the telecommunications sector, however that has
not deterred investment in this sector. For example in
2005 Weather Investments, owned by an Egyptian
financier, bought Wind, Italy's second largest telecom
company, and Vodafone, Italy's second largest mobile
operator, is foreign-controlled. New entrants in fixed-
line services must file with the government company a
statement that they are operationally capable.


15. The Italian government offers incentives to
encourage private sector investment in economically
depressed areas, particularly in southern Italy. .
Foreign investors may participate in government research
and development programs. Recently the Italian
government began efforts to strengthen research and
development by linking up basic and applied research.
The Ministry of Education and Research has identified,
funded, and signed Framework Program Agreements with
seven "Technology Districts" and approved an additional
twelve Districts. Technology Districts, created to
facilitate co-operation between public and private
researchers and venture capitalists, serve to support
research and development of key technology, strengthen
industrial research activities, and promote innovative
behavior in small- and medium-sized enterprises.


16. The Italian tax system does not discriminate
between foreign and domestic investors. In 2003, the
Italian Parliament passed a law to broadly reform the
tax system, a law known as Law No. 80 of April 7, 2003,
the "Reform" or "Law of Reform"). The law simplifies
the tax legislation and creates a more favorable tax
environment for domestic and foreign investments.


17. The new tax law entered into force on January 1,

2004. For corporations, the main characteristics of
the reformed tax system are:
-- A ceiling of 33% on the corporate income tax rate.
-- Exemption from capital gains taxes of profits
resulting from selling interests in Italian and foreign
corporations.
-- Abolishment of the dividend tax credit, and the
introduction of a 95% exemption on dividend
distributions (provided dividends are distributed to
corporations).
-- Introduction of a group taxation regime for
Italian/foreign corporations belonging to the same
group to consolidate their tax base at the level of the
Italian parent.
-- Introducing the so-called 'thin capitalization rule'
whereby a debt/equity ratio aims to avoid thin
capitalization of Italian corporations. Thin
capitalization is defined as when the overall debt
exceeds four times the value of the company assets.

RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT
--------------


18. There is no limitation in either the Italian
constitution or civil law on the right to private
ownership and establishment. The Italian Government
announced in September 2005 plans to dispose of real
estate assets with an estimated value of three billion
euros, a move designed to help reduce the national
budget deficit. As part of this initiative in
December 2005 the government set up Patrimonio 1, a
real estate fund which includes real estate for sale,
with an estimated value of 800 million euros.

PROTECTION OF PROPERTY RIGHTS
--------------


19. Italy is a member of the Paris Union International
Convention for the Protection of Industrial Property
(patents and trademarks) to which the United States and
about 85 other countries adhere. U.S. citizens
generally receive national treatment in acquiring and
maintaining patent and trademark protection in Italy.
After filing a patent application in the United States,
a U.S. citizen is entitled to a twelve-month period
within which to file a corresponding application in
Italy and receive rights of priority- the benefit in
Italy of the first U.S. filing date. Patents are
granted for twenty years from the effective filing date
of application and are transferable. U.S. authors can
obtain copyright protection in Italy for their work
first copyrighted in the United States merely by placing
on the work, their name, date of first publication, and
the symbol (c).


20. In August 2000, the Italian Parliament enacted a
long-awaited "anti-piracy" law, providing for higher
criminal penalties, including prison sentences of up to
four years, for Intellectual Property Rights (IPR)
violations. Italy has since been moved from the U.S.
Trade Representatives Special 301 IPR "Priority Watch
List" to the "Watch List." Copyrighted works sold in
Italy generally must bear a sticker issued by SIAE, a
royalty collection agency operating under authority from
the Ministry of Culture. While the music and film
industries are largely satisfied with the stickering
system, software industry associations have complained
the system remains overly burdensome and fails to
provide adequate protection from piracy. In January
2003, the Italian government approved exemptions for
business software from the SIAE sticker requirement.


21. In 2005, Italy's parliament passed legislation
that some copyright industry associations believe
weaken Italy's IPR legal framework. Italy's Internet
piracy statute was revised to reduce criminal sanctions
for on-line piracy conducted without a profit motive.
While illegal file sharing technically remains a crime,
only those who engage in piracy for monetary gain now
face jail time while all others face administrative
fines only. Parliament also passed a broad-sweeping
legal reform bill (known as the "ex-Cirielli" law),
which places new limits on the statute of limitations
in many criminal cases. While the law's supporters say
the reform is necessary to speed the slow pace of
trials, IP industries fear the new restrictions will
discourage Italian prosecutors from pursuing IPR cases.


22. Enforcement of IPR remains a serious problem in
Italy and falls below the standards of other developed
Western European countries. Relatively few IPR cases
are brought to trial. Even when prosecutors win a
conviction, judges are generally reluctant to sentence
offenders to prison. The Customs Police is actively
seizing pirated and counterfeit goods along the border,
and Italy's national financial police force, the Guardia
di Finanza, has grown steadily more effective in IPR
enforcement. However many local governments do little
to stop the sale of pirated and counterfeit goods by
street vendors. In April 2005, Italy enacted a new law
empowering police to fine consumers of pirated and
counterfeit items up to _10,000. Several
municipalities, such as Florence, have undertaken
aggressive publicity campaigns to alert Italians and
foreign tourists of the new law. Pirated optical discs,
in addition to counterfeit items, continue to be openly
sold in most Italian cities.


TRANSPARENCY OF THE REGULATORY SYSTEM
--------------


23. Italy is recovering from the collapse of Parmalat,
and allegations that the Governor of Italy's Central
Bank actively supported Italian banks to the detriment
of foreign banks in takeovers, explicitly illegal under
EU regulations. In an effort to improve accountability
and competition, Italy's President approved a law
December 28, 2005 to overhaul the Bank of Italy and
improve corporate governance and oversight. Italy is
subject to single market directives mandated by the
European Union, which are intended to harmonize many
regulatory regime among EU countries. Harmonization
of standards relating to labeling, content, production,
safety, etc., can reduce development costs and
contribute to economies of scale for companies that wish
to operate in Italy.


24. The 12th edition of the "Index of Economic Freedom"
published by the Wall Street Journal and Heritage
Foundation gave Italy a 3 on a 1 - 5 scale for its
regulatory environment. It cited red tape and
regulations that vary from region to region and are
inefficiently implemented as contributing to a non-
transparent system.


EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT
-------------- --------------


25. Financial resources flow relatively freely in
Italian financial markets, and credit is allocated on
market terms. Foreign participation in Italian markets
is not restricted; foreign investors are able to get
credit on local market and have access to variety of
credit instruments. The Italian stock exchange has
fewer than 300 companies, and according to the
Organization for Economic Cooperation and Development's
2005 Economic Survey of Italy, new listings have
decreased since 2000, especially in the Nuovo Mercato
segment specializing in innovative companies. In
response, Borsa Italiana established two new segments
of the market devoted to smaller companies: STAR and
Mercato Expandi launched in 2001 and 2003,
respectively. Nuovo Mercato has been reshaped and
given a new name (Techstar). Despite this effort, the
number of listed companies continues to decrease. The
2004 budget law introduced a reduction in the business
tax rate from 33% to 20% for newly listed companies
during its first three years. Moreover, taxation of
capital gains from mutual funds specialized in small
listed companies has been reduced from 12.5% to five
percent.


26. Financial services companies incorporated in
another EU member state may offer investment services
in Italy without establishing a local presence. U.S.
and other firms based in non-EU member states may
operate under authorization from Italian Companies and
Stock Exchange Commission (CONSOB),the oversight
authority for securities markets, corporate governance,
and company audits.


27. There is a growing competitive equality between the
public and private sectors. Previously, Italian
government bonds absorbed a large share of available
domestic investment, but this share declined as interest
rates on those bonds dropped as Italy prepared for EU
economic and monetary union. Even with lower yields,
the Italian government bonds are considered a safe haven
for domestic investors burned by defaults on
Argentinean, as well as Parmalat and Cirio, bonds.


28. Authorization by the Bank of Italy is required to
acquire more than five percent of a financial
institution's capital (or to gain effective control of
a financial institution, regardless of the amount of
capital acquired). Non-bank companies (either Italian
or foreign) may not acquire more than 15 percent of a
bank's capital. Complex cross-shareholding has been
used to fight off takeover attempts in the financial
sector. Foreign banks are part of "stable shareholder"
arrangements of Italian largest bank. Recently the
Dutch Bank ABN-Amro obtained complete control of an
Italian medium sized bank, Banca Antonveneta.


29. The Italian banking sector remains sound despite
the recent allegations of favoritism by the Bank of
Italy. The ratio of outstanding bank credit to GDP
rose to 86 percent in 2004 and only 4.7 percent of
total lending is estimated non-performing. The banking
sector in the last decade has undergone significant
consolidation, with about 60 percent of total Italian
banking assets involved. From 1994 to 2004, 331
mergers and acquisitions took place, with the number of
banks decreasing from almost 1,000 to less than 780 at
end-2004. Country's largest banks are Intesa-Bci, San
Paolo-IMI, Capitalia, Unicredito Italiano, and Banca
Nazionale del Lavoro and Monte dei Paschi di Siena.
The total assets of Italy's six largest banks is equal
to 54.6 percent of total assets. Retail banking fees
in Italy are the highest among EU Member States. For
example, the price to provide a basic payment service
related to a bank account is eight times higher in
Italy than in the most efficient EU Member State.


POLITICAL VIOLENCE
--------------


30. Political violence is a low threat to foreign
investments in Italy.

CORRUPTION
--------------


31. Italy is a signatory to the 1997 OECD Convention
on Combating Bribery, ratified in September 2000.
Italy has signed, but not ratified, the United Nations
Convention Against Corruption, which was adopted in
2003 and came into force on December 14, 2005.


32. Recent charges of favoritism leveled against Bank
of Italy's Governor Fazio eventually led to his
resignation and helped encourage parliament to push
through a law designed to make the Bank both more
accountable and transparent. Although the scandal
initially negatively impacted Italy's image, it may
result in a more transparent and investor-friendly
framework for the banking industry.


33. According to Transparency International's (TI) 2005
Global Corruption Barometer Survey, Italians perceive
sectors related to investment as corrupt. When Italians
were asked, to what extent do you perceive the following
sectors in this country/territory to be affected by
corruption? (1: not at all corrupt, . 5: extremely
corrupt),they assigned 3.5 to the categories of
Business/Private Sector, Tax Revenue, and Registry and
Permit Services, well above the average for Western
Europe of 2.5. More than 50% of Italians felt that
business had been adversely affected by corrupt
practices.


34. TI's Corruption Perceptions Index 2005 ranked
Italy the fortieth least corrupt country in the world.
While a slight improvement over its 2004 ranking, it is
still perceived as being more corrupt than most EU
member states (ranked eighteenth out of twenty-five).
In January 2003, Italy enacted a law creating a High
Commissioner to prevent and combat bribery within
public administration.


35. Corruption is punishable under Italian law. As in
all judicial processes, much discretion regarding
punishment is left to the presiding judge. Most
corruption in the recent past has involved government
procurement or bribes to tax authorities. Bribes are
not considered deductible business expenses under
Italian tax law.


BILATERAL INVESTMENT AGREEMENTS
--------------


36. As of June 2005, Italy has bilateral investment
agreements with the following countries:

Albania
Algeria
Angola (signed, not enforced)
Argentina
Armenia
Azerbaijan
Bangladesh
Barbados
Belarus
Bolivia
Bosnia and Herzegovina (signed, not enforced)
Brazil (signed, not enforced)
Bulgaria
Cape Verde (signed, not enforced)
Chad
Chile
China
Colombia (signed, not enforced)
Congo
Cte d' Ivoire (signed, not enforced)
Croatia
Cuba
Czech Republic
Ecuador (signed, not enforced)
Egypt
Eritrea
Estonia
Ethiopia
Gabon (signed, not enforced)
Georgia
Ghana (signed, not enforced)
Guatemala (signed, not enforced)
Guinea
Hong Kong, China
Hungary
India
Indonesia
Iran, Islamic Republic of (signed, not enforced)
Jamaica
Jordan
Kazakhstan
Kenya
Korea, DPR of (signed, not enforced)
Korea, Republic of
Kuwait
Latvia
Lebanon
Lithuania
Macedonia, TFYR
Malawi (signed, not enforced)
Malaysia
Malta
Mauritania (signed, not enforced)
Mexico
Moldova, Republic of (signed, not enforced)
Mongolia
Morocco
Mozambique (signed, not enforced)
Nicaragua (signed, not enforced)
Oman
Pakistan
Paraguay (signed, not enforced)
Peru
Philippines
Poland
Romania
Russian Federation
Saudi Arabia
Slovakia
Slovenia
South Africa
Sri Lanka
Syrian Arab Republic (signed, not enforced)
Tunisia
Turkey
Uganda
Ukraine
United Arab Emirates
Tanzania, United Republic of
Uruguay
Uzbekistan
Venezuela
Vietnam
Zambia (signed, not enforced)
Zimbabwe (signed, not enforced)

Additional information on bilateral agreements can be
found at http://www.unctad.org


OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS
--------------


37. The U.S. Overseas Private Investment Corporation
(OPIC) does not operate in Italy. However, in March
2003, OPIC signed a Memorandum of Understanding with
SIMEST (Societa Italiana per le Imprese all'Estero),
its Italian counterpart, to expand cooperation in a
number of areas, particularly on projects in third
countries. Italy, through its Export Credit Agency,
SACE, has signed a memorandum of understanding with the
World Bank's Multilateral Investment Guarantee Agency
(MIGA).

LABOR
--------------


38. Unemployment in Italy is moderate at 7.1 percent
(third quarter 2005),but below the average of 8.7
percent among euro zone countries (November 2005).
Italy's unemployment rate is currently at the lowest
level since 1992. Traditional regional disparities
remain unchanged with the southern third of the country
having a 13.2 percent unemployment rate compared to 3.9
percent in the northern third and 5.8 percent in central
Italy. Despite these differences, internal migration
within Italy remains modest. Labor shortages in the
North are being filled by unskilled and semi-skilled
immigrants. The Bossi-Fini law, enacted in 2001,
provides for the legalization of 650,000 undocumented
foreign workers and grants a residence permit to
immigrants who are legally employed.


39. Italy's labor force is fairly well-educated, with
just under 36 percent of people aged 19 to 25 enrolled
in university/tertiary level of education for the 2001-
2 academic year. According to the 2001 census, 7.9% of
adults hold university degrees. However the drop-out
rate is high; the OECD cites just over 40 percent of
students who matriculate actually complete their
degree. According to the OECD 2005 Economic Review of
Italy, the private internal rate of return, which
measures incentives to invest in human capital, is much
lower for tertiary education (6.5 per cent) than the
OECD average (11.8 per cent),indicating there may be
little incentive for Italians to pursue higher
education. This is because persons with tertiary
educations do not earn substantially more than persons
with upper secondary educations, and because the
unemployment risk is comparable for people at both
levels of education. Therefore, firms interested in
investing in Italy may have difficulties finding highly
specialized Italian employees.


40. Like many western EU Member States, Italy has been
known for legal obstacles to hiring and firing workers.
Companies may bring in a non-EU employee only after the
government-run employment office has certified that no
qualified, unemployed Italian is available to fill the
position. Work visas are subject to annual quotas,
although intra-company transfers are exempt from quota
limitations.


41. Recently the Italian labor market has become
somewhat more flexible. A series of legal reforms has
encouraged the hiring of part-time employees by reducing
employer social security contributions for these
workers. New laws have also created opportunities for
outsourcing, job-sharing and use of private employment
services. New types of contracts now exist that allow
for reduced labor costs. U.S. companies in Italy
increasingly are satisfied with labor flexibility.
However, high costs and legal obstacles associated with
laying off workers remain a disincentive for adding
employees.


42. Italy is an International Labor Organization member
country. Terms and conditions of employment are also
periodically fixed by collective labor agreements in
different professions. Most Italian unions are grouped
into four major national confederations: The General
Italian Confederation of Labor - CGIL; the Italian
Confederation of Workers' Unions - CISL; the Italian
Union of Labor - UIL; and the General Union of Labor -
UGL. The first three organizations are affiliated with
the International Confederation of Free Trade Unions
(ICFTU),while the UGL has been associated with the
World Confederation of Labor (WCL). The confederations
negotiate national level collective bargaining
agreements with employer associations, which in effect
are binding on all employers in a sector or industry.
As the result of a tripartite agreement among employer
groups, the government, and unions, the confederations
accepted wage moderation in exchange for participation
in formulating national economic policy.


FOREIGN TRADE ZONES/FREE PORTS
--------------


43. There are two free trade zones in Italy, located
in Trieste and Venice, both in the northeast. Goods of
foreign origin may be brought in 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. The free-trade zone law also allows a
company, of any nationality, to employ workers of the
same nationality under that country's labor laws and
social security systems.

Benefits of a free-trade zone include:

- customs duties deferred for 180 days from the time
that the goods leave the free trade zone to enter
another EU country;

- the goods may undergo transformation free of any
customs restraints;

- absolute exemption from any duties on products coming
from a third country.

U.S. Companies in Italy
--------------


44. The largest U.S. companies in Italy, based on
number of employees, are:

IBM
General Electric
Pfizer
Whirlpool
EDS Electronic Data Systems
Accenture
Lear
United Technologies

FOREIGN DIRECT INVESTMENT STATISTICS
--------------


45. While Italy provides a reasonably attractive
environment for investment, there is a growing
recognition in both the Italian public and private
sector that Italy lags behind many of its fellow
European Union (EU) member states in attracting and
maintaining foreign investment. According to UN
figures, net foreign investment into Italy in 2003
totaled USD 16.4 billion (equal to 1.1 percent of GDP),
well below that of Luxembourg (USD 87.6 billion) France
(USD 47 billion),Belgium (USD 29.5),Spain (USD 25.6
billion),Ireland (USD 25.5) but slightly above that of
Germany (USD 12.9 billion).


Table 1: Italian Foreign Direct Investment Inflows by
Economic Sector (Net) 2001-2004 (USD Millions) (1) (*)

2001 2002 2003 2004

Agriculture 171.6 -95.6 108.5 234.8

Energy 922.3 435.2 1993.8 4463.3

Industry 4758.1 4942.9 5933.1 2016.2
of which:
Machine 1125.8 1942.1 2023.9 3690.7
Chemical 358.9 623.4 1066.8 -3535.4
Food 991.2 504.2 2483.5 362.7
Textiles 240.1 394.5 353.4 513.0
Mineral/Metal 334.4 311.2 468.5 687.0
Other 1707.7 1167.5 -463.0 298.2

Building and
Public Works 146.6 168.4 363.0 125.7

Services 8185.9 8812.9 6634.2 9576.4
of which:
Banking/
Insurance 1761.8 4011.0 2972.2 5749.1
Trade 845.5 525.0 410.4 36.0
Transportation/
Communication 1119.3 544.0 -412.6 516.8
Other Services
(Not For Sale)4459.3 3732.9 3664.2 3274.5

T O T A L 14184.6 14263.8 15031.9 16416.2


Table 2: Italian Direct Investment Outflows by Economic
Sector (Net) 2001-2004 (Millions Of Dollars) (1) (*)

2001 2002 2003 2004

Agriculture 8.8 8.5 38.0 21.1

Energy 8313.1 2376.4 3450.7 5336.7

Industry 4834.9 3321.4 1332.9 7573.9
of which:
Machine 1393.2 1428.5 -1393.3 4234.8
Chemical 651.7 321.6 721.2 1730.4
Food 557.4 99.3 295.2 151.6
Textiles 151.7 469.2 336.6 287.0
Mineral/Metal 774.3 158.0 274.0 246.0
Other 1306.7 844.8 1099.2 924.1

Building And
Public Works 105.5 -35.0 223.6 85.7

Services 7891.3 9848.8 1935.7 5037.3
of which:
Banking/
Insurance 708.6 4140.6 5492.6 2636.0
Trade 428.3 852.3 485.3 1060.9
Transportation/
Communication 2661.9 338.7 -8217.6 -923.0
Other Services
(Not For Sale)4092.5 4517.2 4175.4 2263.4

T O T A L 21153.6 15520.1 6980.9 18054.7


Table 3a: Stock Of Foreign Direct Investment In Italy by
Major Investors; Year End 2001-2004 (USD Millions) (1)

2001 2002 2003 2004

United States 13781.5 15373.7 19458.1 22448.3

EU 67574.5 80358.0 113750.9 140705.8
of which:
EU15 67574.5 80358.0 113750.9 140300.8
of which:
France 14273.7 17071.0 21294.1 24618.1
Netherlands 14033.8 17444.7 26882.4 39024.4
United Kingdom 12791.7 14692.1 22266.6 26624.2
Germany 8868.0 9959.3 13797.2 14317.9
Luxembourg 10703.7 13171.2 18354.2 22345.1
Sweden 2208.8 2431.2 2967.5 3343.1
Spain 853.9 936.3 1279.1 1941.8
Other EU (3) 3840.8 4652.3 6909.9 8086.2
Other EU25 (4) N/A N/A N/A 405.0

Switzerland 13899.7 15375.8 18481.9 21881.1
Liechtenstein 1334.7 1438.4 1824.8 2106.7
Japan 1984.8 2315.2 2991.2 3596.6
Argentina 119.1 129.4 185.3 257.7
Brazil 54.7 58.5 78.8 128.7
Other 5740.8 6182.7 7330.4 9736.8

T O T A L 104,489.8 121,231.7 164,816.0 200,456.7


Table 3b: Stock Of Foreign Direct Investment In Italy
By Major Investors; Year End 2001-2004 (Percentage Of
Total)

2001 2002 2003 2004

United States 13.2 12.7 11.8 11.2
EU 64.7 66.3 69.0 70.2
of which:
EU15 64.7 66.3 69.0 70.0
France 13.7 14.1 12.9 12.3
Netherlands 13.4 14.4 16.3 19.5
United Kingdom 12.2 12.1 13.5 13.3
Germany 8.5 8.2 8.4 7.1
Luxembourg 10.2 10.9 11.1 11.1
Sweden 2.1 2.0 1.8 1.7
Spain 0.8 0.8 0.8 1.0
Other EU15 (3) 3.8 3.8 4.2 4.0
Other EU25 (4) N/A N/A N/A 0.2

Switzerland 13.3 12.7 11.2 10.9
Liechtenstein 1.3 1.2 1.1 1.1
Japan 1.9 1.9 1.8 1.8
Argentina 0.1 0.1 0.1 0.1
Brazil 0.1 0.1 0.0 0.1
Other 5.4 5.0 4.4 4.8

T O T A L 100.0 100.0 100.0 100.0


Table 4a: Stock Of Italian Direct Investment Abroad by
Major Recipient; Year End 2001-2004 (Millions Of
Dollars)(2)

2001 2002 2003 2004

United States 18799.9 17390.4 18420.5 18858.5

EU 106956.2 118190.0 147956.2 182591.9
Of which:
EU15 106956.2 118190.0 147956.2 180360.5
Netherlands 29154.3 32087.7 48455.6 63292.5
Luxembourg 20457.4 24228.6 21755.9 26373.4
France 15487.5 16131.5 20921.2 24353.9
United Kingdom17437.9 18715.0 20270.3 24167.5
Germany 9505.8 9272.4 13065.1 15764.8
Spain 6204.9 7125.3 9871.1 10886.2
Sweden 602.5 600.2 748.4 866.3
Other EU15 (3) 8708.4 10029.3 12868.6 14655.9
Other EU25 (4) N/A N/A N/A 2231.4

Switzerland 8975.6 9321.5 11176.5 10563.1
Brazil 4056.9 2486.4 3473.1 3956.0
Argentina 2133.0 1633.6 2127.7 2179.1
Japan 965.0 954.1 1137.7 1240.4
Liechtenstein 141.1 144.1 169.0 194.4
Other 17761.7 19552.1 23107.6 24921.1

T O T A L 159789.5 169672.0 208635.8 244504.5


Table 4b: Stock Of Italian Direct Investment Abroad by
Major Recipient; Year End 2001-2004 (Percentage Of
Total)

2001 2002 2003 2004

United States 11.8 10.2 8.8 7.7

EU 66.9 69.7 70.9 74.7
of which:
EU15 66.9 69.7 70.9 73.8
Luxembourg 12.8 14.3 10.4 10.8
Netherlands 18.2 18.9 23.2 25.9
France 9.7 9.5 10.0 10.0
Germany 5.9 5.5 6.3 6.4
United Kingdom 10.9 11.0 9.7 9.9
Spain 3.9 4.2 4.7 4.5
Sweden 0.4 0.4 0.4 0.4
Other EU15 (3) 5.1 5.9 6.2 6.0
Other EU25 (4) N/A N/A N/A 0.9

Switzerland 5.6 5.5 5.4 4.3
Brazil 2.5 1.5 1.7 1.6
Argentina 1.3 1.0 1.0 0.9
Japan 0.6 0.6 0.5 0.5
Liechtenstein 0.1 0.1 0.1 0.1
Other 11.2 11.5 11.1 10.2

T O T A L 100.0 100.0 100.0 100.0

Table 5a: U.S. Investment In Italy by Economic Sector
Outstanding End-Year 2001-2004 (Millions Of Dollars) (2)

2001 2002 2003 2004

Agriculture 21.2 29.2 36.3 40.2

Energy 404.0 434.2 545.7 627.6

Industry 8712.8 9236.0 11812.3 13607.1
of which:
Machine 2067.7 2098.1 2635.8 2979.7
Transportation
Equipment 586.6 621.1 782.2 902.5
Chemical 2303.2 2487.5 3162.7 3689.1
Food 1223.5 1306.9 1667.1 1920.3
Textiles 165.8 179.5 230.3 273.6
Minerals/Metals 240.8 272.4 395.5 451.9
Other 2125.0 2297.5 2938.7 3390.0

Services 4643.5 5647.2 7063.8 8173.4
of which:
Trade 643.2 690.0 853.6 987.0
Banking/
Insurance 2248.5 2910.2 3505.6 4008.2
Transportation/
Communication 419.9 456.2 582.0 666.5
Other Services 1340.8 1590.8 2122.7 2511.7

T O T A L 13781.5 15373.7 19458.1 22448.3


Table 5b: U.S. Investment In Italy by Economic Sector
Outstanding End-Year 2001-2004 (Percentage Of Total)

2000 2001 2002 2003

Agriculture 0.2 0.2 0.2 0.2

Energy 2.9 2.8 2.8 2.8

Industry 63.2 60.3 60.7 60.6
of which:
Machine 15.0 13.7 13.6 13.3
Transportation
Equipment 4.3 4.0 4.0 4.0
Chemical 16.7 16.2 16.3 16.4
Food 8.9 8.5 8.6 8.6
Textiles 1.2 1.2 1.2 1.2
Minerals/
Metals 1.8 1.8 2.0 2.0
Other 15.5 14.9 15.0 15.1

Services 33.7 36.7 36.3 36.4
of which:
Trade 4.6 4.5 4.4 4.4
Banking/
Insurance 16.3 18.9 18.0 17.9
Transportation/
Communication 3.1 3.0 3.0 3.0
Other Services 9.7 10.3 10.9 11.1

T O T A L 100.0 100.0 100.0 100.0


Table 6a: Italian Investment in the U.S. by Economic
Sector Outstanding End-Year 2001-2004 (Millions Of
Dollars) (2)

2000 2001 2002 2003

Agriculture 54.7 48.0 51.3 52.3

Energy 1971.6 1727.6 1816.0 1831.8

Industry 7349.0 6749.5 7061.3 7254.8
of which:
Machine 2759.3 2484.3 2732.2 2777.2
Transportation
Equipment 843.3 775.6 863.6 950.8
Chemical 507.2 494.8 261.6 205.2
Food 263.8 249.5 264.1 273.6
Textiles 723.3 670.1 724.7 741.6
Minerals/
Metals 1548.1 1440.5 1541.9 1589.1
Other 703.9 634.7 673.3 717.3

Services 9424.7 8865.3 9491.9 9719.6
of which:
Trade 1175.9 690.0 1142.7 1177.4
Banking/
Insurance 4433.6 4179.5 4434.3 4615.7
Transportation/
Communication 284.9 456.2 274.1 232.0
Other 3530.3 3539.7 3640.8 3694.5

T O T A L 18799.9 17390.4 18420.5 18858.5


Table 6b: Italian Investment in the U.S. by Economic
Sector Outstanding End-Year 2000-2003 (Percentage Of
Total)
2001 2002 2003 2004

Agriculture 0.3 0.3 0.3 0.3

Energy 9.0 10.5 9.9 9.9

Industry 39.5 39.1 38.8 38.3
of which:
Machine 14.0 14.7 14.3 14.8
Transportation
Equipment 4.5 4.5 4.5 4.7
Chemical 2.8 2.7 2.9 1.4
Food 0.9 1.4 1.4 1.4
Textiles 4.1 3.9 3.8 3.9
Minerals/
Metals 8.7 8.2 8.3 8.4
Other 3.3 3.7 3.6 3.7

Services 51.2 50.1 51.0 51.5
of which:
Trade 6.4 6.3 4.0 6.2
Banking/
Insurance 24.1 23.6 24.0 24.1

Transportation/
Communication 0.6 1.5 2.6 1.5
Other 20.1 18.7 20.4 19.7

T O T A L 100.0 100.0 100.0 100.0


Table 7: Direct Investment by Origin And Destination
Outstanding End-Year 2004 (Millions Of Dollars) (4)

Foreign Italian Net
Investment Investment Italian
n Italy Abroad Position

EU 140705.8 182591.9 41886.1
of which:
EU15 140300.8 180360.5 40059.7
Of which:
United Kingdom 26624.2 24167.5 -2456.7
Netherlands 39024.4 63292.5 24268.1
Germany 14317.9 15764.8 1446.9
France 24618.1 24353.9 -264.2
Spain 1941.8 10886.2 8944.4
Luxembourg 22345.1 26373.4 4028.3
Belgium 3336.4 5310.4 1974.0
Sweden 3343.1 866.3 -2476.8
Other EU15 (6) 4749.8 9345.5 4595.7
Other EU25 (4) 405.0 2231.4 1826.4

Non-EU 59750.9 61912.6 2161.7
of which:
USA 22448.3 18858.5 -3589.8
Switzerland 21881.1 10563.1 -11318.0
Liechtenstein 2106.7 194.4 -1912.3
Japan 3596.6 1240.4 -2356.2
Canada 866.3 1170.7 304.4
Argentina 257.5 2179.1 1921.6
Brazil 128.7 3956.0 3827.3
Other 8465.7 23750.4 15284.7

T O T A L 200456.7 244504.5 44047.8

(1) Annual net investment flow data compiled by the
Economic Section of the Embassy based on Bank of Italy
data and converted at the following end year exchange
rates:

2001 2002 2003 2004

Euro/Dollar 1.117 1.057 0.894 0.805

(2) Compiled by the Economic Section of the Embassy
based on Bank of Italy data and converted at the
following end year exchange rates:

2001 2002 2003 2004

Euro/Dollar 1.134 0.958 0.799 0.746

(*) Net = New Investment Less Disinvestment. The
volatility and huge changes from year to year in some
sections can be explained in part by the fact that
listed data are "Net": New Investment Minus
Disinvestment.

(3) Belgium, Austria, Denmark, Finland, Portugal,
Greece, Ireland

(4) Cyprus, Czech Republic, Estonia, Hungary, Latwia,
Lithuania, Malta, Poland, Slovakia, Slovenia (members
since May 1, 2004).

(5) Original data in euro and converted at the end-2004
exchange rate, one dollar equals 0.746

(6) Austria, Denmark, Finland, Portugal, Greece,
Ireland

Sources: Italian Exchange Office And Bank Of Italy
Annual Report 2005.

SPOGLI