Dr. Amedeo Scarpa, Trade Commissioner, Italian Trade Agency |

Having lost almost half a decade to the European sovereign debt crisis, the Italian economy is striving hard to get back on its feet. What’s remarkable about the economy though is the fact that even during the worst days of the crisis, it rode along with a trade surplus. To figure out how the Italian economy managed the feat, The Dollar Business caught up with Dr. Amedeo Scarpa, Trade Commissioner, ITA

Interview by Vanita Peter D’souza | July 2015 Issue | The Dollar Business

TDB: How much has the Italian economy recovered from the dark days of the European sovereign debt crisis? Are Italian bond yields reflecting a true picture of the economy or are they a function of the quantitative easing that ECB did a few months ago?

Dr. Amedeo Scarpa (AS): The latest news is that the plus sign is back, not only for the Italian economy, but also for the entire eurozone. Economists say that we are finally out of the W-shaped crisis. It went deep and then, just as we started to recover, it went deep again. And now we are coming out of it. As per projections, the Italian economy is expected to grow around 1% or more in 2015. And this growth is not just because of economic cycles, but because the efforts of the government have started to show results. The employment rate has also improved due to the steps taken by Mr. Renzi’s government. This, together with lower prices of raw materials, oil and a weaker euro, has helped us come out of the crisis.

Hence, I think Italian bond yields are reflecting a true picture. They are not just a function of the quantitative easing that the European Central Bank (ECB) had to do a few months back. The Italian government’s deeds started more than a year back. The yields are reflecting the real economic situation of the country.

TDB: How has the recent weakness in the euro helped Italy’s exports? Have Italian exporters managed to fully utilise euro, currently trading at its lowest in a decade against the US dollar?

AS: I think, given the state of the two economies, 1 to 1.2 is the ideal level for the EUR-USD pair. However, let me make it clear that we don’t believe in a war between currencies. We also don’t believe that over-depreciation of the euro is good for the long-term strength of our industry in foreign markets. In fact, since Italy is a manufacturing country, if we bet on a weaker currency, sooner or later we will face inflation and higher cost of production. This, since we need to import raw materials to manufacture ‘Made in Italy’ value added finished products. That’s why, we never rely on a depreciated currency. Instead, we work on strengthening the structure of the economy and a fair equilibrium between euro and US dollar.

TDB: The total value of Italy’s trade has remained more or less stagnant for the last four years. Tell us what your government is doing to break the shackles.

AS: I don’t agree with this. Italy’s Ministry of Foreign Trade (MoFT) and Ministry of Foreign Affairs (MoFA), together, have constituted a standing committee to suggest the best policies for enforcing ‘Made in Italy’ in foreign markets. Italy has a very long tradition of exports, which are supported by medium and micro companies. They do not have enough strength to stand in foreign markets on their own, but have wonderful products and flexible technological answers in terms of machinery and so on. This is due to the Italian industrial structure, which is dominated by MSMEs. That’s why policymakers have insisted on reinforcing trade promotional organisation like us, so that these companies get the push to aggregate themselves. They, on the other hand, are stressing on promotional initiatives to strengthen their uniqueness in foreign markets. As a matter of fact, Italy’s exports are expected to grow 4% in 2015 and we are expecting an additional €50 billion of exports by 2017.

To promote ‘Made in Italy’ all over the world, the Italian government has just approved the ‘Extra Ordinary’ plan. As a part of this, the government is investing €220 million in the next three years on promotional activities all over the world, including India. One of the targets of the plan is also to help companies that have the right products to be in foreign markets, but are too small for it. We are trying to achieve this by offering training courses; taking help of export managers; educating them about instruments of MoFT and MoFA; and also providing financial help, i.e., in order to have 20,000 more stable exporters, we plan to train export managers, who could be shared by five-six companies.

 

 

TDB: India-Italy trade is struggling to cross the $10 billion/annum mark for the last few years. What do you think is its real potential and the roadblocks it faces?

AS: This time I agree with you. When it comes to the potential, let me first tell you that India is the one of the world’s biggest and most expressive markets. I really think protectionist temptations refrain the exploitation of India’s potential. After China, India is coming up as the biggest market in the world.

Italy-India bilateral trade continued to grow exponentially till 2011. Of course, it would have continued to grow by a growing economy in India and not a crisis in Europe. But we didn’t have any of these conditions. We were facing a crisis for six long years, which also led to a deflation. That’s why the ECB had to do quantitative easing. On the other side, India was in a standby mode until last year. Hence, the $10 billion/annum mark of total trade remains untouched. However, the situation is changing on both sides.

I have already told you about the Italian government’s initiatives, while on the other side, we can see a season of policy reforms in India. So, we are confident that the roadblocks can be removed in the next few years.

TDB: Tell us how Italy managed to have a trade surplus even during the crisis years. What do you think Indian policymakers should do to reduce India’s trade deficit?

AS: The performance of the ‘Made in Italy’ brand in foreign markets is neither invented nor created over the last few years. It’s a result of at least six decades of intervention in and providing assistance to small and flexible companies. In the 1960s, there was boom in Italian companies because of an innovative idea – these SMEs were structured in such a way that allowed them to stay together and kept them dedicated to a consortium. Together, these clusters became the best practice all over the world. In the 70s and the 80s, even the most well known economists around the globe were surprised by their performance. And till today, even during the crisis, these companies that operate inside such specific districts, performed better than the best European country.

Also, we consider branding and quality to be our assets. So, we focus a lot on marketing and branding. At the same time, we never compromise on quality. For a consumer, 100% ‘Made in Italy’ means something luxurious and unique. For equipment and machinery, it means flexibility and the best possibility of adaptation to the final user’s needs. That is why the ‘small’ Italy is the world’s third largest producer of technology, after Germany and Japan.

Indian policymakers should consider Italy as a great partner. We could spread our best practices and policies that can help your MSMEs and provide a fertilising environment for clusters. I believe Indian policymakers are also aware of this. When I go to conventions and seminars, I realise they are conscious that MSMEs account for 90% of the jobs in the country. So, if India wants to win the battle against poverty and unemployment, it should not only focus on multinational giants, but should also try to fertilise its own internal environment for MSMEs. India should also invest in marketing and branding.

I have been living in India since two years and I have discovered that India has its own uniqueness, but it is not well promoted either inside or outside India.

 

 

TDB: While India’s top export to Italy – high speed diesel – must be a surprise to many, Italy’s top export to India is the usual suspect – Italian marbles. Which other goods/ commodities do you think have the potential to give a big boost to India-Italy trade?

AS: Italian marbles are among our top export products to the world, including India. But 40% of our exports is represented by technology and equipment. What we call the four Fs – Food, Furniture, Fashion and Fun/Ferrari – are our assets, which you could play with. While if India starts promoting its own uniqueness like Rajasthan’s handicraft, Indian food, or its fashion, then even Italy could be penetrated more. I cannot list any specific product though.

TDB: Given the fact that India doesn’t feature even among your top 20 trading partners, tell us how important India really is in Italy’s scheme of things.

AS: India is the most important potential market for the next 20 years. The expectation is very high and like you said, our trade is yet to touch $10 billion/annum. I don’t look at Italy’s first 20 trading partners. I prefer looking at the margins. And talking about margins, there is no country that offers the same huge opportunities as India.

TDB: The proposed India-EU FTA has made a lot of headlines, but there has hardly been any progress. What’s your take on where things stand? If it becomes a reality, how much will India-Italy trade benefit?

AS: The India-EU FTA seems a little bit far from the signatures. We do believe in free markets and both the parties must consider it because the final result will be positive. We have to look at the final result. In fact, EU is already India’s biggest trade partner. It can be a win-win situation for both the partners.

I cannot quantify the benefits of India-EU FTA to India-Italy bilateral trade. It might get doubled. At least!

TDB: Given the beauty of Venice and other Italian cities, how happy are you with the number of Indian tourists visiting Italy? Like some other European nations, are you also trying to use Bollywood to woo more Indians to Italy?

AS: As much as Indians are attracted to Italy, Italians are also attracted to India because of the similarities we share. The feeling that I have seen in the eyes of Indian tourists in Florence or Rome is the same that I have seen in the eyes of Italian tourists in Kerala or in Rajasthan. We are very happy with this kind of curiosity, which is helping tourism on both sides.

We invest a lot in the fun and entertainment sector. The Italian government has signed an agreement of cooperation with the Indian government for the promotion of co-productions in cinema on both the sides. Several Bollywood movies are shot in Italy and thanks to these films, we receive a lot of travel requests to Italy. Moreover, a lot of wealthy Indians choose locations of Indian movies in Italy as their wedding destination. So yes, Bollywood has helped us a lot.

TDB: What’s your take on the Indian government’s ‘Make in India’ initiative? Do you really think the world has space for another manufacturing exporter other than China?

AS: Let me tell you that India is no more in the standby mode as it was when I had arrived. I think ‘Make in India’ could be a great opportunity for your country, especially if its plans are integrated with a global market equilibrium. Again, don’t listen to protectionist sirens. It could protect you in the short term, but in the medium-long one, you could be affected by the distortive effects of protectionism, which are inflation and products not coherent with international standards, so ‘not exportable’.

In fact, recently, I have noted a change in attitude and specific attention and awareness in India at this point. Policymakers are now conscious that India as a manufacturer/exporter should be inside a global system and must be in equilibrium. Figure out where you can fit in the global value chain. Once you identify this, you can be a great player in the international market.