Pandemic brings Italy’s black market out of the shadows

A shift towards digital commerce during Italy’s coronavirus lockdown has presented a unique opportunity to force Europe’s largest black market by absolute size into the official economy, according to the lead adviser for Rome’s “phase two” reopening strategy. 

Vittorio Colao, the former chief executive of Vodafone who was appointed by the Italian government to lead a task force of experts on reopening its economy, said the Covid-19 outbreak had forced many small companies to adopt digital systems for payments and supply management for the first time. 

This growth in online purchasing and digital payments has in turn made informal activity harder and hastened the formalisation of a black market that is estimated to be worth as much as a fifth of gross domestic product in the eurozone’s third-largest economy by output.

“As unfortunate as it has been, the virus has allowed the country to achieve the same amount of progress for digital adoption in two months as it would have in five years,” Mr Colao said. “Social distancing has forced many small businesses in Italy to suddenly go digital.”

“Many small Italian restaurants are for the first time using digital booking systems, using digital menus,” he added. “That forces owners to get people who know how to use digital systems, it creates opportunities to link the supply chains of restaurant to other companies. This will not only reduce the black economy, but will also increase incentives for small companies to invest and create a more skilled workforce”.

The shift of previously informal economic activity into the formal economy will also increase tax receipts for the Italian government, Mr Colao said, and help reduce public debt. “We cannot afford to waste this opportunity. Even if you bring in just 20 per cent of a black market worth more than €100bn that is still a very large amount of money.”

Italy has one of the largest weightings of small and medium-sized companies of its total businesses in Europe. This is a feature of its economy that has been blamed for exacerbating low productivity for domestically-focused companies compared with faster growing exporters in the industrialised north.

Mr Colao, who headed a committee of economists, labour leaders and business figures that drew up an economic road map for the Italian government ahead of its lifting of lockdown measures, said that it was too early to draw firm conclusions on the success of the reopening. But he insisted that Italy’s record had been among the best in Europe so far.

He said he worked 15-hour days for 10 weeks to draw up “relaunch Italy” recommendations for the government, presenting Giuseppe Conte, prime minister, with more than 100 recommendations on areas ranging from the labour market and tourism to the reform of public administration.

One of the main conclusions he has drawn from the study prepared by the task force he led was that future EU funds to tackle the economic consequences of the coronavirus lockdown should be spent as much as possible on long-term investments that will promote future growth.

“Italy will have a lot of debt from this crisis,” he said. “Let us turn that cost as much as possible into an investment, into assets for the future and not just short-term subsidies. We need to invest in infrastructure and make this an investment for future generations, not just a cost for the taxpayer.”

He said he had been in contact with equivalent government advisory bodies across Europe and believed that they were “all on the same page” in wanting spending to prioritise infrastructure and green investment for the future as much as possible. 

“I am a European optimist and I hope that Europe, and the UK, because the UK is still part of Europe, will use this as a moment of upgrading.”

Italy, he said, should use the example of the rebuilding of the collapsed Morandi bridge in Genoa almost within a year as an inspiration for future economic reforms.

“We rebuilt the bridge faster than anyone could have expected, and this shows that if we want to we can do things quickly. We were first in the crisis, and now we have been among the first to show how to get out of it. This time Italy is not late, we are early and are heading in the right direction”.