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Italy Country Brief

Australia and Italy enjoy a warm and long-standing relationship underpinned by strong community ties. Trade and investment and the development of cultural and educational links continue to grow. Australia has been invited to participate in a range of high-level meetings hosted by Italy in 2009 as part of its G8 Presidency. According to the 2006 census, 852,418 Australians claimed Italian ancestry with 199,124 Australian residents having been born in Italy. At least 30,000 Australians are estimated to live in Italy.

Political Overview

The constitution of Italy was adopted in 1947, following a referendum on 2 June 1946 that abolished the Italian monarchy and established Italy as a parliamentary republic. The constitution came into effect on 1 January 1948 and established a bicameral parliament (Chamber of Deputies and Senate), a separate judiciary, and an executive branch composed of a Council of Ministers headed by the President of the Council (Prime Minister). The constitution also created the position of President to fulfil the ceremonial roles of the Italian monarchy. Giorgio Napolitano was elected as the eleventh President of the Italian Republic in May 2006. Silvio Berlusconi was appointed Prime Minister following elections on 8 May 2008.

Both houses of parliament are directly elected and are of equal authority. The electoral system in the Senate is based upon regional representation. The Chamber of Deputies has 630 members and the Senate 315 elected senators; in addition, the Senate includes former presidents and several other persons appointed for life according to special constitutional provisions. Both houses are elected for a maximum of five years, but either may be dissolved before the expiration of its normal term. Legislative bills may originate in either house and must be passed by a majority in both.

In the 2006 elections, Italians living abroad (about 2.7 million people), were eligible to vote for the first time, and elected 12 members of the Chamber of Deputies and six Senators representing four overseas divisions: Europe; South America; North and Central America; and, Africa, Asia, Oceania and the Antarctic.

Italy is divided into regions, provinces and municipalities. The constitution lists 20 regions, which are further divided into 95 provinces. Of the 20 regions, five enjoy special constitutional status: Friuli-Venezia Giulia, Sardinia, Sicily, Trentino-Alto Adige and Valle d'Aosta. The regions are responsible for electing their own regional parliaments that exercise substantial autonomy.

Economic Overview

The Italian economy has changed dramatically since the end of World War II. From an agriculture-based economy, Italy has developed into an industrial state ranked as the world's seventh largest economy. The country belongs to the Group of eight (G8) industrialized nations; it is a member of the European Union and the OECD.

Most raw materials needed for manufacturing and more than 80 per cent of the country's energy sources are imported.

Italy's economic strength is in the processing and manufacturing of goods, primarily in small and medium-sized enterprises. The majority of these enterprises are family-owned and are focused on the domestic market. Italy's major industries are tourism, precision machinery manufacturing, textiles, chemicals, pharmaceuticals, food processing, motor vehicles, electrical goods, furniture, clothing and footwear.

Italian GDP growth averaged 0.6 per cent a year in the period 2001-05, recorded levels around 2 per cent in 2006 -2007 and then the country slumped into recession with a 1% contraction in GDP in 2008. A further contraction of between 2 and 3 per cent is currently forecast for 2009.

Since 1995, Italy’s share of world trade has fallen from 4.6 per cent to around 3.6 per cent, although its recent export performance has been robust, especially compared to other industrialised countries. Italy’s balance of payments situation is not helped by its significant dependence on energy imports, especially oil and gas. Foreign Direct Investment in Italy remains well below the levels achieved by its benchmark competitors and likewise Italian FDI overseas is limited. Unemployment stood at 5.7 per cent at the end of 2008, a 25-year low, but also a figure which hides a disparity between the near full employment enjoyed in the north and double-digit rates in the south.

Italy has a rapidly aging population and was the first country in the world to record more people over 65 than under 15. There are concerns that the current social security system, which is heavily skewed towards pension provision, will not prove sustainable. Pensions accounted for around 14 per cent of Italy's GDP in 2008. The Italian Government has introduced some reform of the pension system in an attempt to reduce this burden.

Bilateral Relationship

Australia and Italy have concluded bilateral agreements covering culture, double taxation, air services, economic and commercial cooperation, reciprocal social security and health care benefits, and film co-production. The two countries have also signed a number of Memoranda of Understanding (MOUs) covering science and technology cooperation, defence materiel, defence industry, motor vehicle safety certification, sports cooperation, game meat exports and trade cooperation. A bilateral Working Holiday Maker Arrangement became operative on 2 January 2004. Many state governments have signed MOUs with Italian regional governments to promote cooperative activities and exchanges between the two parties.

There are a range of Australian business groups in Italy, including the Italy-Australia Business Council, Australian Business in Europe (ABIE) in Milan and the Australian Business Network in Rome.

High-Level Visits

(Note: Positions indicated in the list below were held at the time of the visits)

To Italy

2009

2008

2006

2005

2003

2002

To Australia

2009

2006

2005

2003

2002

Ms Margherita Boniver, Undersecretary of State for Foreign Affairs,

2001

Bilateral Economic and Trade Relationship

Italy is the world’s seventh largest economy and a significant market for Australia. It is our third largest export market in the European Union (EU) after the UK, and the Netherlands. Italy is ranked sixteenth overall as a trading partner for Australia. Australia is now Italy’s seventh largest export market outside the EU and twentieth overall as a trading partner (ISTAT figures).

Italian investment in Australia is relatively weak, reflecting Italy’s generally low Foreign Direct Investment (FDI) abroad, most of which is directed within the EU and Mediterranean area. There is, however, growing interest in Australia as a base for expansion into Asia. Total stock of FDI from Italian companies in Australia is around AUD$500 million, making Italy the fifteenth largest direct investor in Australia.

The main Italian companies with investments in Australia are Parmalat (dairy product manufacturers), Ferrero (confectionery), Iveco Trucks (motor vehicle manufacture and service), Permasteelisa (construction, aluminium, glass), and Pirelli (Prysmian Telecom Cables and Systems Australia Pty Ltd for cable manufacture). In 2003, Luxottica took over the OPSM Group, the leading eyewear retail company in Australia. ENI, the Italian energy producer, is also active in offshore gas and oil exploration in Australia, often in partnership with other companies.

Trade Successes

Major Australian investments in Italy include Po Valley Energy, which has bought gas exploration and production licences in Northern Italy, and NewsCorp which wholly owns Italy’s most popular pay-TV company, SKY Italia. In 2006, Macquarie Bank opened a mortgage-lending business in Italy. Cochlear, C3 and ERG are other Australian companies doing business in Italy. A number of other Australian companies are starting to invest in the energy sector in Italy which offers interesting opportunities in both traditional energy sources and renewables. Macquarie and Babcock & Brown have both invested in Italian infrastructure projects.

Export Opportunities

Australian exports to Italy have dropped slightly over the past two years continuing a period of relative decline. Two-way merchandise trade in 2007-08 totalled A$6.3 billion. Commodities such as coal, wool, wheat, nickel, zinc, alumina, iron ore, leather and hides and skins dominate the mix of Australian exports, making up over 80 per cent of total Australian exports, and will continue to do so for the foreseeable future. Non-traditional exports such as fast ferries, motor vehicle parts, processed food, wine, medicaments and defence materiel are growing. Italian imports are highly diversified and dominated by specialised manufactures. Major Australian imports from Italy in 2007-08 included medicaments, telecommunications equipment and specialised machinery.

The Australian Trade Commission (Austrade) is the Federal Government agency that assists Australia in selecting, entering and developing international markets. Austrade’s Opportunities Online website is a valuable starting point for information on export opportunities to many countries, including Italy. Austrade maintains offices in both Milan and Rome. For further information please contact Austrade on 13 28 78 or email info@austrade.gov.au

In addition, Australian Wool Innovation Ltd has opened an office in Treviso in northern Italy to look after the Western Europe market (Italy continues to be the world’s second largest wool processor and manufacturer of woollen clothing after China).

TradeWatch Contacts

If you would like more information on the trade and economic conditions in Italy, please email the Department of Foreign Affairs and Trade.

Last reviewed date: 11/06/2009