Planning for recovery—Italian cities can cut red tape by sharing good practices

Excessive bureaucracy at any time is a burden on companies, and in the aftermath of the coronavirus crisis it is an additional hurdle that jeopardizes the ability of SMEs (Small to Medium Enterprises) to survive.  A recent study, conducted in Italy before the crisis, highlights specific opportunities to cut red tape by replicating good practices already implemented locally. Local good practices present the advantage of not requiring major legislative overhaul to be adopted nationally, and they have already been successfully tested within the country.

Doing Business in Italy measures how red tape affects SMEs in five areas , by looking at how easy or difficult it is for entrepreneurs to start a business, get construction permits, connect to the electricity grid, transfer land, and resolve commercial disputes through the courts in 13 cities. 

ITALIAN ENTREPRENEURS FACE DIFFERENT REGULATORY HURDLES DEPENDING ON WHERE THEY ESTABLISH THEIR BUSINESS

No single city does equally well in all areas measured: each indicator is led by a different city, and cities that do very well in one area perform poorly in others (figure 1). Starting a business is easiest in Ancona and Milan, while Ancona scores second to last on getting electricity, and Milan is last on construction permits. It is easiest to register a property in Rome, which, in contrast, is the hardest city in where to start a business. Cagliari and Turin lead on construction permitting and enforcing contracts respectively, but they lag behind the other cities on registering property. Bologna, the best performing city in the area of getting electricity, is the only city that stands in the upper half among cities in all five areas. Good practices can also be found beyond the best performer in each category. For example, on construction permitting, Naples ranks low because of the complex and lengthy process developers need to go through. However, it is also where obtaining construction authorization is least expensive, and the only city along with Reggio Calabria where the cost is lower than the EU average.

Figure 1 – A different city scores highest in each of the five areas measured

_{Source: Doing Business database.
Note: The indicator scores show how far a location is from the best performance achieved by any economy on each Doing Business indicator. The scores are normalized to range from 0 to 100 (the higher the score, the better).}

Getting electricity, construction permitting, and contract enforcement are three areas where variations between cities is particularly large. Take the example of getting electricity. In Bologna, authorization is issued by one single agency (the municipality) in 30 days, but an identical project in Palermo requires 15 approvals, bringing the waiting time to six months. Even going to court can look radically different. Entrepreneurs in Turin can expect to solve their disputes in a bit more than 2 years—while there is still room for speedier trials, Turin is the fastest jurisdiction thanks to the development of specialized court sections. In Reggio Calabria, it takes more than twice as long and may deter entrepreneurs from going to court at all.  

A CHALLENGE WORTH TAKING

Several of the good practices identified are related to the use of digital tools, whose adoption is likely to further accelerate after a 2-month nationwide lockdown. The successful introduction of IT solutions at the national level is the reason why starting a business and transferring property across Italy is faster than in most EU countries. In areas where the use of digital tools depends on the initiative of local authorities, the study identifies successful examples that can be replicated nationally. For example, Bologna, Cagliari, Padua, and Turin switched to fully electronic systems for administering building permits, resulting in a 25% decrease in the waiting times compared to the rest of the cities. Or, when incorporating a new company, entrepreneurs in Milan and Turin have automatic access to the labor office portal, while in other cities they need to go through a lengthy and costly process to be accredited. 

This means that there is ample room to improve, and all cities can learn from each other to improve Italy’s business environment overall. The potential for improvement is particularly large in areas where Italy is behind its EU peers.  For example, if Rome could enforce contracts as quickly as Turin, make the process as inexpensive as in Reggio Calabria, and improve the quality of judicial processes to match Bologna and Naples, the country – which is represented by Rome in the global study – would achieve a ranking of 53 globally in the area of contract enforcement. This is almost 70 positions higher than the current ranking of 122 (figure 2). 

Making bureaucracy more efficient will be essential to help rebuild the private sector and mitigate the effect of the crisis on SMEs, which are especially vulnerable to global shocks.  Doing Business in Italy provides evidences of success stories in Italy that could be replicated nationally to improve the business environment and boost economic recovery.

Figure 2 – If Italy adopts each city’s best practices, its ease of doing business ranking would significantly improve 
 

_{Note: The hypothetical best ranks for the five regulatory areas shown are based on the best performances recorded among all 13 cities benchmarked within the country. Those ranks are used along with Rome’s actual ranks for five other regulatory areas measured by Doing Business (getting credit, protecting minority investors, paying taxes, trading across borders and resolving insolvency) to calculate the hypothetical best rank for the overall ease of doing business. The registering property indicator is not represented in the figure because Rome already incorporates all domestic good practices identified in this area.} 

Doing Business in Italy is part of Doing Business in the European Union, a series of subnational studies being produced by the World Bank at the request of and funded by the European Commission (Directorate-General for Regional and Urban Development). The work in Italy, carried out with the support of the Ministry of Economic Development, is based on the same methodology as the global Doing Business study published annually by the World Bank. More than 400 lawyers, notaries, engineers, electricians, architects, construction experts, utility providers, public officials, and judges contributed to the study.