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Italy - RIO Country Report

RIO Country Report Italy 2015

The annual RIO Country Report offers an analysis of the R&I system in Italy, including relevant policies and funding, with particular focus on topics critical for EU policies. The report identifies the main challenges of the Italian research and innovation system and assesses the policy response.

R&I Challenges
Unfavourable framework conditions and low level of business R&I activities
Challenge description: 

The Italian economic fabric is characterised by a production specialisation model still focused on traditional labour-intensive sectors with limited intensity of research, development and innovation, and by the small size of Italian firms. A small set of innovative firms coexists with a large majority of small and micro enterprises with low productivity. The low level of research and development (R&D) activity is both a consequence and a cause of Italy’s relative specialisation in low- to medium-technology products.

The intensity of business expenditures for research and development (BERD) in Italy is 0.72%, much lower than in other large EU economies such as France (1.46%), Germany (1.93%) or the UK (1.11%). The BERD in absolute values was €10.9b in 2013, a slight decline from €11.1b in 2012.

It is worth noting that two firms alone – FIAT in the automotive and parts sector and Finmeccanica in the aerospace and defence sector – accounted for 60% of all R&D investment by Italian firms included in the EU top 1,000 Scoreboard ranking (edition 2013).
Other indicators point to the low innovativeness of Italian businesses. For example, in 2014 only 18% of large companies were selling online, just over half the EU average (35%). Small and medium-sized enterprises (SMEs) were even less active, with only 5.1% of them selling online — the worst performance in the EU, and far lower than the EU average of 15%. In addition, Italy ranks 20th among the 34 countries analysed by the Innovation Union Scoreboard in terms of ‘non-R&D innovation expenditures’. The rankings for ‘Sales of new-to-market and new-to-firm innovations as % of turnover’ (17th) and ‘Knowledge-intensive services exports as % of total services exports’ (21st) are also not outstanding.

The tight lending conditions and the small scale of the venture capital market – Italy ranks 18th in terms of venture capital as a percentage of GDP – are also hampering innovation activities, especially for new, small, innovative companies. Over 80% of firms’ R&D spending is internally funded in all four large EU countries, according to the Bruegel Institute. However, in Italy the second biggest source of financing is bank loans (which fund slightly less than 10% of R&D spending), whereas in the UK this proportion is much lower (1%) and equity plays a more important role. Indeed, the role of venture capital funds or business angels, private investors operating on a smaller scale with respect to venture capital funds, is extremely limited in Italy.

Policy Response: 

In March 2013, MISE reformed the system of firms’ incentives, to target innovation for competitiveness and support investments in enabling technologies. Firms’ incentives are financed by the Fondo per la Crescita Sostenibile (FCS), which includes all the resources for technological innovation.

The MISE has also developed a support strategy based on three pillars: promoting investments, access to capital markets and innovative entrepreneurship.

A new tax credit scheme, available for 2015-2019, has been operational since summer 2015. It allows a 25% tax credit for incremental investments in R&D, up to a maximum annual amount of €5m for each beneficiary. The tax credit is increased to 50% in the case of R&D activities performed in collaboration with HEIs, PROs or other businesses. Incrementality is calculated upon the average of investments made in 2012-2014, and the annual expenditure should be at least €30,000. The forgone tax revenues have been estimated at about €2.5b for the 5 years of validity of the measures.

Italy also introduced a patent box for the first time in 2015, which allows the deduction of 50% of the revenues originated from direct/indirect use of intellectual property (IP) rights (patents, trademarks, industrial designs and models).

Moreover, a MISE–European Investment Bank (EIB) agreement, which allocates €100m of the MISE Guarantee Fund for SMEs to cover the risk of losses in R&D projects of SMEs and Mid-Caps, is expected to trigger a loan portfolio of at least €500m by the EIB. In addition, liberalisation measures have been taken on the capital markets, allowing bond issuing by unlisted companies and lending to firms by securitisation (SPV) and insurance companies. It is worth noting that Italy was the first EU country to set up rules for the collection of risk capital through online crowdfunding platforms in 2013.

Italy also established the legal definitions of innovative start-ups (2013) and innovative SMEs (2015). These companies are defined on the basis of their R&D expenditure (15% of costs for innovative start-ups and 3% for innovative SMEs), qualified personnel (proportion of personnel holding a PhD and/or a master’s degree) and IP ownership/licensing. Innovative start-ups and innovative SMEs benefit from reduced red tape, tailor-made labour law, tax relief, the possibility of raising investments through equity crowdfunding, etc.

Policy assessment: 

With the recent measures, Italian policy-makers have been trying to establish a consistent and stable framework to support R&I activities carried out by Italian businesses, whereas past support measures were characterised by their limited timespan and uncertainty in terms of budget availability.

There is also some anecdotal evidence that R&D activities by Italian businesses are under-reported; the new tax credit scheme might have a positive impact on the emergence of the non-reported R&D.

Finally, the recent measures show a shift towards a support system dominated by indirect funding, which might not be entirely suitable for young companies. As recently recommended by the Organisation for Economic Co-operation and Development, Italy should try to implement an appropriate mix of direct and indirect funding to business R&I.

The public sector funding of R&I
Challenge description: 

The Italian public sector’s R&D intensity is 0.53%, well below the EU average of 0.72%. The tight public budget conditions have led to cuts in the public sector support to the higher education system and R&D. Italy is actually amongst the Eurozone countries that have cut R&I budget more rapidly than other public expenditures.

The government budget appropriations or outlays on R&D (GBAORD) recorded a continuing fall from €9.548b in 2010 to €9.161b in 2011, €8.822b in 2012, €8.444b in 2013 and €8.145b in 2014.
In 2013, the budget for universities was 20% lower than in 2008, and the low turnover rate for university full and associate professors caused a significant reduction in their number, which fell by 22% between 2006 and 2012.

Funds for competitive calls have also been drastically reduced: resources for Progetti di interesse nazionale (PRIN) decreased from €100m in 2009 to €38.2m in 2012. Resources for the Fondo per gli investimenti nella ricerca di base (FIRB) amounted to €29.5m in the call launched at the end of 2012. In 2013 and 2014, MIUR did not launch any new FIRB or PRIN call. In January 2014, MIUR published the competitive funding call Scientific Independence of Young Researchers (SIR) with a budget of just €47m. Only in November 2015 was a new PRIN call launched, with a budget of €91.9m. A 2013 study by the Bank of Italy argues that ‘Cuts to the ordinary funding of universities (about €750m in nominal terms between 2008 and 2013) do not appear, for instance, to be coherent with the Europe 2020 commitments for an expansion of the share of young graduates, nor do they seem to be based on a clear strategy in the field of research and innovation’.

For these reasons, the Country Report issued by the European Commission in the framework of the 2015 European Semester invited Italy to ‘implement a growth-friendly fiscal adjustment based on the announced significant savings [...], while preserving growth-enhancing spending like R&D, innovation, education and essential infrastructure projects’.

Notwithstanding the limited budget resources, the performance of Italian public research has been improving in recent years, as shown by different recently published benchmarking analyses. Italy has a growing proportion of top publications, and ranks at the top in terms of university research productivity, measured by the number of articles per €1m spent on R&D and by the citations per €1m spent on R&D. A second study on Italy’s research output has been carried out by the Bank of Italy. After a wide-ranging survey of available databases on scientific publications – including SCImago, Science Watch and the French OST – it concludes that, in terms of number of publications by public and private researchers, Italy ranks fourth among EU countries, after the UK, Germany and France, with about 3.4% of all scientific publications and citations, while outside Europe only the USA, China and Japan have larger scientific outputs than Italy. If scientific publications are divided by the number of researchers, Italy emerges as the leading country.

Preserving the quality of its research base is a big challenge for the Italian R&I system, in particular in a context of budget cuts and limited job opportunities for researchers in the public sector.

Policy Response: 

On the policy level, Italian policy-makers have been taking steps towards a more open and competitive research system to get the highest value from the public research funds. In 2013, for the first time, 13.5% of institutional funding was distributed on the basis of the results of the Valutazione della qualità della ricerca (VQR), the research evaluation exercise carried out by ANVUR, the state agency responsible for the evaluation of universities and research. This proportion will progressively increase up to 20% in 2016.

The strategic document Horizon 2020 Italia (HIT2020) set the basis for a new 7-year national research programme in line with the European Framework Programme Horizon 2020, in terms of both main strategic areas and timeline. It also aims to increase the proportion of EU funding awarded to Italian researchers/organisations.

Unfortunately, the National Research Programme 2014-2020, which is the national strategy for R&I, presented as a draft in early 2014, has not been approved yet.

Policy assessment: 

The public budget constraints faced by Italy have had a considerable impact on public R&I expenditure. The European institutions have recommended safeguarding the investments in R&I, but this has not yet been done. Despite the improved performance of the Italian research base, the country is facing a serious risk of brain drain, given the limited labour opportunities for researchers in the public sector and low absorptive capacity of the business sector (see Challenge 1). It is estimated that about 50,000 Italian researchers are already working abroad.

In addition, ‘betting’ on the availability of EU (Horizon 2020) funds as a substitute for the reduced national resources would mean that Italian applicants in H2020 should significantly improve the performance recorded during the Seventh Framework Programme (FP7) phase. In fact, Italy ranked fifth in terms of total FP7 funding in retained proposals (€11.257b), but the success rate of Italian applicants was only 18.3%, compared with 25.1% in France, 24.1% in Germany and 22.4% in the UK.

The first results of Horizon2020 show that the success rate of Italian applicants is the fifth lowest in the EU.

Governance and management of the R&I system and policies
Challenge description: 

The Italian R&I system has been characterised by a number of issues affecting the management of R&I policies: fragmentation of strategies, with a great many initiatives at both national and regional levels; delays in the implementation of measures; and instability and uncertainty regarding budget availability and allocations.

The R&I policy governance is the responsibility of MIUR together with MISE. Regions can also develop their own science, technology and industry initiatives on the basis of the concurrency principle.Other ministries (health, agriculture, defence, etc.) manage research funds and PROs in their specific fields. These PROs with specific missions fall outside MIUR’s sphere of control and they are not concerned with the PRN.

The R&I policies in the four Convergence regions (Calabria, Campania, Puglia and Sicily) were jointly managed by MIUR and MISE through the National Operational Programme for Research and Competitiveness (PONREC) 2007-2013. During the 2007-2013 programming period, southern regions also showed a dramatically low absorption capacity of their Structural Funds.

Delays are also affecting the approval and/or implementation of recent measures developed by MIUR: the PRN 2014-2020, the main strategic pillar of the national R&I policy, is still under approval (see Challenge 2); the procedure for hiring university professors on the basis of the National Scientific Qualification (Abilitazione Scientifica Nazionale, ASN) was stopped in the second year of implementation (2014) by MIUR in view of its reform, which is still ongoing. Funds for the SIR and the National Technology Clusters calls were distributed to the awarded projects years after the launch of the calls.

Business R&D support has also been characterised by a high degree of uncertainty; for instance, tax credits for R&D, first introduced in Italy with the 2007 Budget, have gone through frequent changes in terms of budget availability, regulations and procedures.

Policy Response: 

Actions have been taken by the Italian policy-makers to streamline and rationalise the system of PROs. For example, in January 2015, a new PRO, the National Council for Agricultural Research and Analysis of the Agricultural Economy (CREA), was created by merging two organisations, the Istituto Nazionale di Economia Agraria (INEA) and Consiglio per la Ricerca e la Sperimentazione in Agricoltura (CRA).

The first attempt at tackling the dramatic delays in the management of Structural Funds in the southern regions led to the launch of the Cohesion Action Plan in November 2011, in which PONREC funds were merged with Structural Funds. Building on this legacy, Italy announced in August 2013 the creation of the Agency for Territorial Cohesion, which is in charge of the efficient management of Structural Funds for the programming period 2014-2020.

The National Smart Specialisation Strategy identified 12 areas of specialisation14 across Italian regions (which are consistent with the ones addressed by the upcoming PRN) in order to stimulate cross-fertilisation and reduce fragmentations and duplications.

The measures launched by MISE in support of business R&I (detailed in Challenge 1) have provided a more stable framework for investments in R&I by Italian companies, which can count on, for example, the R&D tax credit for the 5-year period 2015-2019.

Policy assessment: 

Italy is still suffering from governance issues, which are affecting strategic pillars of its R&I system. For instance, the delay in the approval of the 2014-2020 PNR, which was planned to be aligned with the timespan of Horizon 2020, has left Italy without a national research strategy for nearly 2 years. In addition, the fact that the PROs outside MIUR governance are not concerned with the PNR is hampering the development of a comprehensive and consistent national research strategy. On a more positive note, the reformed system for firms’ incentives aims to provide a stable and consistent package addressing the different phases of the R&I cycle, from investments (R&D tax credits) to IP revenues (patent box). However, no ex-ante assessment exercise on the additionality of the new schemes was performed, with a risk of a negative impact on the state budget in terms of tax expenditures.

Addressing territorial inequalities
Challenge description: 

Italy has long suffered from large divergences between the north and the south with respect to key socio-economic factors such as unemployment, female participation, household incomes and many types of crime, especially violent crime. The recession’s impact on both economic activity and employment has been more severe in the south than in the north.

The divergences between northern and southern regions also emerge when looking at R&I activities and indicators. For instance, there are very huge gaps in R&D intensities between leading regions such as Piedmont (1.51%), Emilia-Romagna (1.09%) and Lombardy (0.94%) and the four Convergence regions, Campania (0.54%), Calabria (0.01%), Puglia (0.19 %) and Sicily (0.23%).

The indicator on the total number of innovative start-ups as a proportion of the total number of corporations shows again that the Convergence regions are lagging behind the northern ones. In Piedmont and Emilia-Romagna, innovative start-ups represent, respectively, 0.45% and 0.49% of corporations, compared with 0.19% in Campania, 0.24% in Puglia and 0.25% in Sicily (Calabria, on the other hand, shows a surprising relatively high value, at 0.34%). Finally, recent cuts in public expenditure on universities and research had a stronger impact in southern regions: between 2008 and 2014 the Ordinary Fund for Higher Education (FFO) (the main block funding) was cut by 0.3% for universities in the north and by 10.7% for those in the south. A compound calculation of the turnover rates for professors and researchers assigned to each Italian university in 2012-2015 shows that universities in the south have lost 281 posts (punti organico), while the ones in the north have been assigned 341 additional posts.

Policy Response: 

The PONREC has been the main strategy to boost the R&I-driven competitiveness of southern regions, with a total allocation of nearly €4.6b in five priority areas: (1) industrial research, (2) structural/infrastructural strengthening, (3) clusters and laboratories, (4) smart cities and communities and (5) social innovation.

The Agency of Territorial Cohesion was established following the PONREC experience to coordinate the management of EU Structural Funds and other cohesion policies, including R&I regional actions, for the 2014-2020 programming period (see Challenge 3).

Policy assessment: 

The territorial inequalities between the north and south of Italy have dramatically deepened during the recession, as highlighted by a number of recent analyses that warned about the risk of long-term underdevelopment. R&I-related initiatives in recent years have had mixed effects on the R&I system of the southern regions. On one hand, the Cohesion Action Plan, launched in 2011, helped improve the very low trend in take-up of Structural Funds, and also involved civil society in the Smart Cities and Social Innovation calls. On the other hand, cuts in public funding and the recent allocation of teaching/research personnel both had negative repercussions on universities in the south, owing to their comparatively low performances in teaching and research and their less efficient financial management of resources. Nevertheless, MIUR introduced some corrective measures to mitigate the effects of the performance-based allocation, e.g. a more favourable calculation in the standard cost per student (+5%) for the universities in the south (the measure affects 25% of the core part of the FFO).

1. Overview of the R&I system

The Italian economy is starting to show signs of recovery after the years of recession that followed the financial crisis in 2008 and the euro area sovereign debts crunch of 2011. For the first time in years, gross domestic product (GDP) is forecast to grow, by 0.8% in 2015 and 1.4% in 2016. However, Italy’s GDP is still far below pre-2008 levels, and industrial production in 2014 was 25% below the 2007 level.

The Ministry for Education, Research and Universities (MIUR) is the main player in research and innovation (R&I), in charge of coordinating national and international scientific activities, supervising the academic system, funding universities and research agencies, and supporting public and private research and technological development. The Ministry for Economic Development (MISE) manages industrial innovation.

2. Recent developments in research and innovation policy and systems

Key developments in the R&I system in 2015 include:

  • Publication by the MIUR of the guidelines for the new research evaluation exercise, which will be performed by the evaluation agency (ANVUR) on the period 2011-2014. ANVUR’s final report is expected by October 2016.
  • Modifications to the law on innovative start-ups, which opens the benefits to EU businesses controlling at least one branch in Italy.
  • Implementation of the new R&D tax credit scheme. Businesses can benefit from a tax credit of 25% on incremental R&D expenditures; this percentage increases to 50% for extramural research carried out in collaboration with higher education institutions (HEIs) and public research organisations (PROs) or other businesses.
  • New legislation on ‘patent boxes’, providing a 30% deduction from the corporation tax base on the incomes from patents, trademarks, licences and software in 2015, 40% in 2016 and 50% in 2017.
  • The launch of the new National Operational Programme ‘Research and Competitiveness’ (PONREC) 2014-2020, which will trigger €1.29b, part from the European Regional Development Fund (ERDF) and European Social Fund (ESF) (€930m) and the rest from national co-financing (€360m) to the five Less Developed regions in the south (Basilicata, Calabria, Campania, Puglia and Sicily) and the three Transition regions (Abruzzo, Molise and Sardinia). 
3. Public and private funding of R&I and expenditure

Italy’s R&D intensity is 1.29%, still far from the Europe2020 national target of 1.53%, which will not be reached if the current trend persists. To reach the Europe2020 target the yearly R&D investments should increase – assuming a constant GDP – by €4b, a much greater amount than the resources made available by present policies.

Moreover, the share of gross domestic expenditure on R&D (GERD) performed by the business sector (54%) is low for industrialised economies (OECD, 2014) and much lower than the EU-28 average of 63.67%. 

Italy put in place a set of strong fiscal consolidation measures, but in doing so it did not preserve its public support for research and development (R&D). As a consequence, Italy did not implement a smart fiscal consolidation strategy.

4. Quality of science base and priorities of the European Research Area

The research output of the R&D system recorded a very good performance. Bibliometric indicators confirm the performance and the ranking of Italy’s output productivity for both universities and PROs among the top countries. The percentage of publications in the top 10% most cited publications increased from 10.17% in 2000, below the EU average of 10.55%, to 13.77% in 2010, higher than the EU average. Other bibliometric indicators for 2013 also outline Italy’s excellent ranking in the EU.


5. Framework conditions for R&I and science-business cooperation

The current framework for business investment in R&I is quickly evolving towards indirect incentives and towards the implementation of a number of specific measures for SMEs.

In the last 3 years, governments have reformed access to the direct funding of R&I, introduced different typologies of indirect incentives, made available some administrative facilitations, implemented many tax benefits and finally allowed some derogations from the general business laws. Start-up laws, tax credits and the patent box law are the three layers aimed at triggering R&D investments. Since 2014, the political agenda has also focused on the attractiveness of Italy to FDI as a key issue for the success of R&D investments in the business sector. An assessment of the success of the current policies is not yet available. The degree of public–private cooperation is still low.

6. Conclusions

The four identified challenges put forward in the executive summary are summarised in the conclusions. The chapter lists relevant policy actions, assesses their appropriateness, efficiency and effectiveness, and provides links to relevant evidence (based on evaluations or empirical analyses).

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Official publication date
Wednesday, 8 June, 2016
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