Remarks by Angel Gurría
31 January 2020 - Rome, Italy
(As prepared for delivery)
Minister Gualtieri, Vice-President Dombrovskis, Ladies and Gentleman,
Thank you for joining us today for the launch of the OECD’s Capital Market Review of Italy 2020: Creating Growth Opportunities for Italian Companies and Savers. This is the first Review of this type that we produce for Italy and I would like to thank Minister Gualtieri for his support during its preparation.
Making capital markets work to support competitiveness, job creation and inclusive growth is a priority for all countries. As our economies are grappling with slow growth, it is key for established and new companies to have access to a diverse range of financial instruments, including market-based financing, in line with the G20/OECD High-Level Principles on SME Financing. Households should also have opportunities to diversify their savings and share in the success of the corporate sector.
In Europe today, long-term market-based financing options remain limited. There is still too much dependence on bank credit. In Italy, the problem is particularly acute, since corporate lending continues to be highly constrained, dropping by 15% between 2011 and 2018. This limits future and long-term investments, hampering corporate innovation and competition. Let me give you two concrete examples.
During the last decade, the amount of capital raised by European companies through stock markets decreased by almost 50% compared to the previous decade . As a result, the portion of global equity financing that they received decreased from 35% in early 2000s to 21% in recent years . The share of Italian companies raising capital through stock markets declined from 9% to only 5% in the same period.
Similarly, and despite the support from the ECB and historically low interest rates, the share of European non-financial companies in the global corporate bond market also dropped. From 34% ten years ago, to 19% in 2019.
I am glad to see that the European Commission has decided to continue moving forward with the Capital Markets Union. Significant progress has been made in this area, such as the modernisation of the Prospectus Directive and the launch of the Pan-European Venture Capital Funds-of-Funds programme. However, there is room to improve the institutional and regulatory framework to better connect national capital markets.
Another opportunity for Europe is the new Green Deal. It is not only a new growth strategy by the European Commission, but also a capital market development strategy. Greening capital markets will be indispensable in our fight against climate change. The OECD is fully committed to supporting initiatives that help align the role of capital markets with our environmental objectives.
Within our new OECD initiative on sustainable finance, we also see an increased interest among institutional investors to integrate ESG (Environmental, Social, and Governance) factors into their investments strategies.
Let’s move to the Italian case.
Italy has been an active and constructive supporter in the development of European capital markets as well as at a national level. For example, it has promoted individual saving plans (PIR) for households, the mini-bond market framework for smaller companies, and the ELITE programme of the Borsa Italiana. These are important initiatives aiming to help companies gain access to capital and networks.
Despite this progress, a number of issues still need to be addressed.
Over the last ten years, on average, less than four companies per year listed on the regulated market of the Italian stock exchange, and the Italian market capitalisation as a share of GDP remains well below that of its European peers.
In addition, the total amount of corporate bonds issued, in Italy and abroad, by Italian non-financial companies represented approximately 6% of all European issuances in 2018. To put this in perspective, it amounts to about half of Italy’s share of European GDP.
Importantly, only 7% of Italian institutional investors’ portfolios is invested in corporate shares and bonds issued by Italian firms. Instead, Italian investors have, directly or indirectly through foreign investment funds, allocated around EUR 190 billion to equity investments in foreign firms. In terms of value, this represents almost two-thirds of the total free-float market capitalisation of all Italian listed companies.
Another consequence of less developed capital markets is that Italian stocks account for only 3.6% of the important MSCI Europe index. In comparison, French stocks account for about 18%.
Our Review also shows that Italy is one of the European economies with the highest proportion of high-growth firms. However, their success has not been enough to lift the economy as a whole. This is because a disproportionate large number of small companies with low productivity dominates the economy . Italian micro-enterprises in particular, which account for a whopping 45% of total employment (well above the 31% OECD average), are significantly less productive than their OECD counterparts.
To tackle many of these challenges, we have worked with all relevant partners in Italy – and with the support of the European Commission – to develop key recommendations. Greg Medcraft, our Director for Financial Markets and Enterprise Affairs, will present the Review shortly. However, let me emphasise three key points.
First, minimising economic, social and political uncertainty will be instrumental to harvest the benefits of any reforms and reinforcing the trust of both entrepreneurs and investors. Developing a multi-year reform package is key. We estimate that the reform of public administration and the justice system will have the largest impact on GDP growth.
Second, ensuring the overall consistency and predictability of taxes that influence the use of capital markets should be at the heart of any tax reform. This is important since entrepreneurial initiatives and investments are long-term commitments by both companies and investors.
And third, Italian entrepreneurs and savers must be given the opportunity to benefit from what modern capital markets can offer. This requires that the institutional structures, the regulatory framework and administrative processes are fit for purpose and adapted to current international developments. I would therefore encourage the Italian government to undertake an assessment of the effectiveness of the institutional framework and the overall capacity of the national competent authorities.
Minister, Vice-President, Ladies and Gentlemen,
The OECD stands ready to work with the Italian Ministry of Finance and all stakeholders to implement the recommendations of the Review and to help Italy turn its capital markets into a source of more inclusive and sustainable growth.
Let me now give the floor to Greg Medcraft, our Director for Financial Markets and Enterprise Affairs, for the presentation of the Review. Thank you.
OECD work on Corporate Governance