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.
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.
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. 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. Around half of Italy's trade is with the EU, particularly Germany, France, the UK, Spain and the Netherlands.
Italian GDP growth averaged 0.6 per cent a year in the period 2001-05, but recorded levels around 2 per cent in both 2006 and 2007. Inflation remained steady at around 2 per cent in 2007.
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 in the key markets of Asia, although it is healthier in the Balkans and Eastern Europe generally.Unemployment stood at 5.7 per cent at the end of 2007, 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, with the IMF estimating that by 2020 all Italy's earned income would be needed to pay the pension bill. Pensions accounted for 13.65 per cent of Italy's GDP in 2007. 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.
Former Foreign Minister Alexander Downer visited Rome in September 2006 for a series of bilateral meetings. An Australian Parliamentary Delegation headed by the former President of the Senate, the Hon Paul Calvert, visited in 2005 and met with the Italian Presiding officers.The former Speaker of the House of Representatives, Neil Andrew, met his Italian counterpart Pierferdinando Casini in Rome during the summer of 2003. Former Prime Minister, John Howard, visited Italy in July 2002, meeting then President Ciampi and then Prime Minister Berlusconi. State Premiers and a range of Federal Cabinet ministers visit Italy regularly.
On the Italian side, the Deputy Foreign Minister for Italians Abroad, Senator Danieli, visited Australia in October/November 2006 to meet with Italian communities in major capital cities. Other high-level visits to Australia have included: a delegation of the Italian Senate led by the President of the Constitutional Affairs Committee, Senator Andrea Pastore, to research voting by Italians abroad in January 2005; and an Italian Parliamentary delegation which visited at the invitation of the Australian Parliament in 2003. Then Undersecretary of State for Foreign Affairs, Margherita Boniver visited in December 2002 and then Foreign Minister Dini in February 2001. There are also regular institutional and trade missions to Australia organised by Italian regions, provinces and towns, as well as by trade organisations.
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.
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 fifteenth 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 shown modest growth over the past two years after a period of relative decline. Two-way merchandise trade in 2006-07 totalled A$6.6 billion. In 2006-07, Australian merchandise exports grew by 12 per cent to $1.74 billion, due mainly to increased sales of coal, wool and nickel. In 2006-07, imports from Italy grew by 16.3 per centto $4.86 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 85 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 2006-07 included medicaments, telecommunications equipment and specialised machinery.
The Australian Trade Commission (Austrade) is the Federal Government agency that helps Australian companies win overseas business for their products and services by reducing the time, cost and risk involved 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: 15/01/2008