Where are the best export opportunities for the “Made in Italy”?

Ethan Bailey Countries, Fx Leave a Comment

The world that awaits us
Economically, 2016 was a disappointing year. So far, 2017 has been better but still characterized by far-reaching uncertainty. We have experienced slow growth across the world since the most recent worldwide recession, but 2017 is looking up, especially for foreign investors and exporters endeavoring to capitalize on opportunities from growing economies around the world. 2017 is the year for new investments and opportunities.

Which countries are the best export opportunities for Italian companies?
1) Spain – 82
2) China – 80
3) Germany – 80
4) India – 77
5) United States – 76
6) Poland – 74

Which countries are the best investment opportunities?
1) India – 80
2) United States – 72
3) China – 71
4) Poland – 71
5) Spain – 71
6) Germany – 69

How were these countries chosen?
These indexes give a score from 0 to 100 and were obtained by using the Export Opportunity Index (EOI) and the Investment Opportunity Index (IOI) provided by SACE. These indexes look at average growth rate, import figures for each industry, and the level of uncertainty used by businesses and investors to evaluate the situations of countries around the world where growth can be expected and opportunities abound. Each country must be analyzed individually to fully understand their comparative advantages.

Not every country is the same
Countries vary in their competitive advantages due to differences in their natural resources, climatic zones, values, culture, history, and economic structures. It is unrealistic to think that every country can be competitive at all industries. They must pick and choose what to produce and what to import. Countries import goods that they cannot produce or that can be produced more inexpensively by other countries. For instance, you would not expect a country to produce its own oil rather than import it from another country when it would cost more per capita unless cost was not a factor, and they wanted to support their own economy. When this occurs, quality of production and life around the globe goes up considerably, showing the benefits of a global market. When it is said that this country is a great place for foreign investment or foreign exports, it must be understood that not every sector will succeed and only specific ones will be able to take advantage of certain scenarios.

For example, Italian exports of chemicals to Iran is growing by 10% a year, which is quite high. Similarly, Italy exports mechanical tools to Philippines and Morocco and metals at high rates. These countries are great for those industries, but there is no guarantee that a company outside of those industries could succeed in the same way. It is best to make specific agreements with specific countries which desire your goods. In the summaries of countries below, knowing which industries are thriving in each country is very important.

Spain (EOI: #1; IOI: #5)

Spain’s economy is struggling since their unemployment rate is high at almost 20%. Even though this is true, Spain still represents a great opportunity for Italian exports, and because of this, is number one on the list.

Italian exports to Spain spiked in 2015 when they grew by nearly 10%. Since then, growth has slowed down but is expected to maintain at around 5-6%, totaling to €26.4 billion in 2020. Most of the exports are from mechanical engineering and transportation. Both of which, represent the strongest areas of opportunity, followed by tech and chemical.

Companies in these industries would do well to invest in Spain, even though their economy is currently not booming like other countries.

United States (EOI: #5; IOI: #2)

The situation in the United States is somewhat cloudy at the moment with the uncertainty around regulatory changes and how the potentially increased protectionism will affect exports there.

The numbers look great for both investing and exporting to the US. Since the start of the year, Italian exports to the US have risen from 5% to 5.6% and total to €37 billion. This shows signs of continuing due to the targeted 2% GDP growth per year.

The strongest sectors of opportunity are food goods, excavation, and chemicals. But why is the USA not a good place to look for exports? America is the country with the strongest protection measures, introduced after the Great Recession, which will most likely not change with Donald Trump as President. Furthermore, the Border Adjustment Tax will further hurt Italian exports to the US. Knowing the full picture is critical to making a well-informed decision.

China (EOI: #2; IOI: #3)

In 2015, Italian exports to China decreased by around -.8% but was followed up the next year with a 6% increase. This trend should continue in the following years, which is why China is given the second highest rating for exports. China’s population is booming; therefore, infrastructure and construction are very strong industries for Italian companies. China is the country with the second highest investment in construction and development in the world. Other strong industries for Italians in China are food and drinks as well as pharmaceutics. One significant problem with exporting to China is that only 50% of their citizens have the internet, so the e-commerce market just is not there.

Germany (EOI: #3; IOI: #6)

Germany is the top export destination of Italy, so the reason for them having a high EOI score is obvious. Other than that, they have low unemployment, one of the highest quality of life in the world, and their GDP grows at a respectable amount of 1.8% per year.

Exports to Germany are expected to grow around 4% for each year till 2020, and the strongest sectors for foreign exports are agriculture, metals, transportation, chemical, and mechanical engineering.

There are many opportunities for businesses in the food and beverage, agriculture, chemical, and mechanical engineering industries.

Poland (EOI: #6; IOI: #4)

Poland’s current situation in the EU can only be described as tenuous. After Poland had decided not to take in any African and Muslim migrants, the EU threatened them with possible sanctions. Poland ignored these threats, but whether or not the sanctions come has yet to be seen. This situation is very uncertain, and attention must be paid to the developing situation as it unfolds.

Regarding exports, last year Italians exported a total of €11.2 billion worth of goods to Poland, with a growth of 4.4% from the previous year. It is expected that exports will continue to rise similarly until around 5% growth by 2020 at €13.5 billion.

India (EOI: #4; IOI: #1)

India is one of the fastest developing countries in the world today. Their current growth outlook (2016) is 7.5% according to the IMF – International Monetary Fund – and 7.8% according to the World Bank (forecasts for China are respectively 6.3% and 7.0%). 42% of Italian exports to India were mechanical engineering, which represents a great opportunity for Italian companies. Other opportunities are infrastructure, chemical, and pharmaceutics.

Why is investing in India a good idea?
We are looking at a country that is trying to improve itself. It is a young country with half of their population between 20 and 59. India is also seeking to industrialize on a massive scale. Furthermore, with a 6% interest rate, asset prices would tend to be cheaper, and stock prices would be more volatile, but the upward trend in India’s situation is apparent, and the benefits should outweigh the negatives. Finding stocks in India that are cheap compared to their cash flow should be rather easy. Finally, “Make In India” has created 25 new sectors to foreign investors, which has boosted capital inflows by over 46%, which is currently at $55.5 billion.
to foreign investors, which has boosted capital inflows by over 46%, which is currently at $55.5 billion.

That is all well and good, but India has its problems. One major problem in India is their significant level of poverty, lack of internet, and weak infrastructure. Since their population is exploding and significant urbanization is occurring, infrastructure is a very excellent opportunity. According to India Census 2011, over 31% of India’s population resided in urban areas, from 28% in 2001 and the migration towards cities will be much greater in the decades to come.

Summary
Based on SACE’s Export and Import Opportunity Indexes, these six countries represent areas for Italian companies to grow their revenue streams and expand their global presence in fast-growing areas. Each country has a different reason for being in the list; China and India have exploding populations with desperate need for infrastructure and construction, others consume Italian produced foods on large scales and support “Made In Italy,” while others like Germany are already massive consumers of Italian goods with other opportunities to strengthen that connection.

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About the Author

Ethan Bailey

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Graduated with a degree in Economics from the University of North Carolina in 2017. Currently he is a Financial Communications Analyst. Experience in Data Analytics using Stata, SAS, and SQL. Written Econometric research papers on the college wage premium as well as developing countries.

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