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 offers 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 it’s 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 lag 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 that can sustain technological investment programs 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.