Insight: Pandemic leaves digital laggard Italy scrambling to catch up

Kisses From Italy

22/03/2021 07:21

(Repeats Sunday's story without changes)
    * Italy faces huge digital gap versus rest of Europe
    * Pandemic prompted sharp digital acceleration
    * Digital investment core element of EU recovery plan
    * Lifting growth essential to sustain debt burden

    By Valentina Za, Elisa Anzolin and Elvira Pollina
    MILAN, March 21 (Reuters) - Small Italian car filter
supplier Ecofiltri took out a state-backed loan last year, just
like thousands of other businesses fighting to keep afloat
during the pandemic.
    But instead of burning through the cash to pay overdue rent
and bills, Ecofiltri is investing the money on a technological
revamp of its business. Already facing a longer-term switch to
electric transport, the company was spurred to act after the
virus crisis cut the number of drivers on the road.
    "We've expanded our facilities, bought high-tech equipment
and even created an R&D department where we are working on three
projects we hope we can patent to provide more intelligent
products and services," Ecofiltri co-founder Simone Scafetta
told Reuters over a video call.
    Italy ranked fourth to last in the EU for digital
competitiveness in 2019, according to the Digital Economy and
Society Index (DESI). By forcing a huge technological
acceleration on the country, the pandemic is offering Italy a
one-off chance to boost its feeble productivity and economic
growth.
    
    
    Faster economic expansion is essential for Rome to sustain 
the world's third-largest public debt which the pandemic has
inflated to 1.6 times gross domestic product (GDP).
    Research by Milan's Politecnico University shows Italy could
add 1.9 percentage points a year on average to its GDP growth if
its small- and medium-sized enterprises (SMEs) bridged a 40% gap
versus Spanish peers measured by indicators ranging from
e-commerce capabilities or electronic invoicing to use of big
data.
    "But the trick only works if businesses switch from a
(crisis-driven) reactive approach to technology to a strategic
one, and the environment where they operate evolves with them,"
said Giorgia Sali who heads Politecnico's research hub on SMEs
and digital innovation.
    
    
    
    Italy estimates its businesses in recent years fell behind
the rest of Europe in terms of digital investment by an amount
roughly equal to 2 percentage points of GDP.
    The pandemic has brought a welcome shift, with 86% of
Italian respondents in a survey of mid- to large-sized firms
commissioned by Dell Technologies saying they sped up digital
transformation plans in 2020, above a 75% European average.
    "The pandemic has forced Italian companies to confront the
country's huge digital gap," said Francesca Moriani, CEO of IT
services provider VAR Group, adding Europe as a whole lags the
United States and China.
    The euro zone's digital economy is only two-thirds the size
of that in the United States.
    Encouragingly, 92% of SMEs polled by VAR Group expect to
invest in digital capacity in the next two years, despite the
blow to sales from the pandemic.
    
    RECOVERY FUNDS
    Italy's digital deficit has a number of roots.
    In a country where broadband access is below the EU average,
large companies which can sustain programmes of technological
investment make up only a tiny proportion of businesses.
    Many firms are family-owned and run, meaning they tend to
lack managers with the right skills to lead a digital
transformation.
    A European Central Bank study also highlighted funding
constraints when businesses rely mostly on bank financing like
in Italy, saying traditional lenders often struggle to evaluate
the risk involved in projects based on complex technologies.
    Add to that an ageing population, and a very low share of
ICT graduates - around 5,000 a year compared with around 18,000
in smaller Spain, according to Eurostat figures https://ec.europa.eu/eurostat/statistics-explained/index.php/Tertiary_education_statistics#Fields_of_education
 - and Italy has fallen behind in the digital race.
    To support the adoption of cutting-edge technologies by its
companies and ultra high-speed connectivity, Rome has earmarked
46 billion euros in yet-to-be disbursed EU recovery funds for
digital investments.
    It also offers tax breaks to firms seeking to boost digital
spending and appointed former Vodafone CEO Vittorio Colao as its
technology czar to oversee efforts in coming years.
    Like in Greece, the modernisation push also targets public
services which Ecofiltri's Scafetta said set a bad example.
 urn:newsml:reuters.com:*:nL8N2KT366
    "We've given our staff palmtops and screens to share
information non-stop and interact with customers ... people
don't add value by walking next door to carry paper documents,
like you see state employees do," he said.
    Located in the central Abruzzo region, Ecofiltri has found
success by developing a process which gives a second life to
diesel particulate filters.
    To fund its projects, which include sensors to more easily
detect issues with its filters and a digital warehouse
management system to feed information to its website and liaise
with e-sellers such as Amazon, Ecofiltri last September borrowed
100,000 euros from Credimi, a fintech lending firm.
    Credimi says digital innovation is an important driver of
credit demand it faces from SMEs.
    "With a few exceptions, the pandemic has caught small- and
mid-sized Italian businesses unprepared, sending them scrambling
to catch up with digital progress," Fabio Troiani, CEO Italy and
Global digital services at Milan-based BIP Consulting, said.
    "For some it's become a matter of life and death."
    
    FALLING FURTHER BEHIND
    Many smaller Italian businesses are rising to the challenge.
    The share of SMEs using e-commerce in 2020 rose 50% to a
third of the total, as first-time e-shoppers surged by 2 million
during a nationwide lockdown last spring, according to data by
Politecnico and e-commerce lobby Netcomm.
    
    
    
    Politecnico data also point to a 42% jump in cloud services
for SMEs as remote workers increased by 11.5 times to 6.6
million.
    So far, Italian government programmes aimed at fostering
digital investments have been mostly taken up by larger
companies.
    The challenge is to bring onboard companies like Ecofiltri,
which is one of more than 4 million Italian businesses with
fewer than 10 staff, or 95% of the total.
    Small firms find it hard to attract people with the
necessary skills in a country where ICT graduates make up only
1% of the total, the lowest in the EU, contributing to Italy
scoring last in the DESI human capital index.
    "It wasn't easy but we've brought in an engineer and the
next person we hire must also be an engineer or they wouldn't
fit our development plans," Scafetta said. 
    Diego Ciulli, senior public policy manager at Google, warned
that a failure to fill Italy's digital gap when consumers
globally have turned to online channels would be more than a
missed opportunity. 
    "The real risk is falling further behind," he said.
    "If Italian wine producers wait for trade exhibitions to
resume to find new foreign customers, while French ones get
really good at selling their wine online you don't just lose a
chance to grow, you lose market share."

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DESI index 2020    https://tmsnrt.rs/3vGlAh5
SMEs selling online    https://tmsnrt.rs/2NwcJgD
DESI Index Connectivity    https://tmsnrt.rs/2NAkana
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 (Additional reporting by Giuseppe Fonte in Rome; Graphics by
Stefano Bernabei; Editing by Toby Chopra)
 ((valentina.za@thomsonreuters.com; +39 02 6612 9526;))