Italy is likely to continue to suffer from chronic political instability, but this will for the most part have a limited impact on the business environment. Frequent changes in government – and the country’s inability to tackle structural issues with the regulatory and tax systems, corruption and the economy – have had a negative impact on investor sentiment. While the president of the Republic is Sergio Mattarella, the Prime Minister is currenlty Mario Draghi (independent). After Conte's resignation on January 26 of 2021, he succeeded in winning a large majority after obtaining the support of the ultra-right-wing League and the 5 Star Movement (M5S). With the backing of all parties, with the exception of the Brothers of Italy, the new government faces a coexistence between very heterogeneous political forces, subject to numerous conditions contributing to political instability. 

Italy is one of the G8 industrial countries and its citizens enjoy a high standard of living. Its numerous small and medium-sized (often family-run) companies – the driving force of the economy – operate with minimal political interference, despite the frequent changes in government. The country's market economy is diverse and has been traditionally regionally divided (with the south poorer and less developed than the north, and significant sectors of the economy under control of the Mafia.), with  engineering, high-value manufacturing and finance dominating in the north, and intensive small-scale agriculture, clothing and textiles manufacturing pre-eminent in the south. Companies in these key sectors have proven particularly vulnerable to increased global competition, and the country has experienced difficulties in attracting investment into new fields to replace them. The illegal (black) economy is strong; the line between legitimate and illegitimate business is often unclear. Long-standing issues with corruption and political uncertainty have undoubtedly had a negative impact on the economy. Additionally, the negative impact of the COVID-19 outbreak on Italy's economy is high. According to the IMF, Italy´s real GDP contracted dramatically  by 10.6% in 2020, higher than the 2009 drop. 

To assist the economic recovery, the government approved a decree worth EUR25 billion and public guarantees for EUR400-billion-worth of loans to the corporate and banking sector. Italy also stands to benefit from the European Stability Mechanism (ESM), and its borrowing costs are kept low by the ECB’s bond-buying program. The government's relief measures notwithstanding, the outbreak is likely to have a substantial impact on the important tourism sector via canceled bookings and a decline in demand. Given the threats to the global economy, alongside Italy's fiscal and political challenges, the impact of the COVID-19 virus outbreak will further contribute to recession.  Italy currently is advocating debt mutualization by EU member states to help distressed sovereigns during the recovery phase. Italy's large public debt leaves the government limited fiscal space to react compared to Northern member states like Germany and the Netherlands.  Socio-economically driven protests have became more common across Italy. There is also an increased risk of the Mafia infiltrating legitimate businesses as a result of the economic downturn similar to the period of the 2008/09 recession. Various measures aimed at preventing the spread of coronavirus disease 2019 (COVID-19) are still in place, contributing to ongoing operational challenges. Given the uncertainty aroround the evolution of the spread of the virus, businesses are likely to face disruption throughout the coming months. Its real GDP is expected to grow by 3% in 2021, according to the IMF. After experiencing a new peak in the number of infections in March 2021, COVID-19 projections forecast a decreasing trend from now on (IHME)

While political instability is unlikely to have a significant impact on the day-to-day operating environment for businesses, the regulatory and tax systems are overly complex and costly to business, with no prospects for significant improvements in the short-to-medium term. Foreign companies also have to deal with a burdensome, outdated and rigid bureaucracy as well as a notoriously slow judiciary.

High inflows of migrants and asylum seekers arriving in Italy across the Mediterranean remain a key political, social, and security issue. Despite a decrease in overall migration numbers into Europe since a peak in 2015-16, the issue retains political salience in Italy. Former deputy prime minister Matteo Salvini (2018-19), leader of the far-right League, will continue to use his anti-immigration stance to boost his party's support.

Despite increased judicial activity and frequent police operations against Mafia groups, organized criminals remain involved both in illegal activities and in illicit actions linked to legitimate business operations. In particular, groups are frequently involved in rigging bids for construction projects and have established virtual monopolies in key sectors in the south. Although violence is less frequent than in previous decades, Mafia groups also retain the capacity to stage bombs and gun attacks, posing mainly incidental security threats to businesses.

Italy is a republic and parliamentary democracy. Parliament currently consists of the 630-member Chamber of Deputies (lower house) and the 321-seat Senate (upper house), of which 315 senators are elected and six are senators for life. However, the size of both chambers will reduce in future elections. The Chamber of Deputies and Senate are elected for a five-year period. The Chamber of Deputies is elected on a proportional system, though the party or coalition winning the most seats is granted a bonus contingent to ensure that it has a working majority. The Senate is elected on a mixed system of regional and proportional voting. Parliament elects the president, who has a prestigious and honorary role with limited, but important, powers – including the dissolution of parliament; mediation in government crises; and ensuring respect for the constitution, including the constitutional legality of laws promulgated by parliament.

Italy is divided into 20 regions, five of which enjoy broad autonomy powers (Aosta Valley, Trentino-Alto Adige, Friuli-Venezia Giulia, Sardinia and Siciliy). Regions are divided into provinces, and provinces into municipalities and metropolitan areas. Each of these administrative levels has its own representative and executive bodies.

Italy is likely to continue to suffer from chronic political instability, however, this has only a limited impact on business operations. Meanwhile, although elections are often contentious, transfers of power are generally orderly and elected governments regarded as legitimate. The failure to eliminate the exaggerated influence of small factions is a key factor driving structural instability in Italian politics. The current system has forced larger parties to depend on smaller ones to achieve a majority, particularly in the Senate (upper house). Consequently, small parties have effectively had a veto over government policy out of proportion to their level of popular support, while the largest party in the Chamber receives a “stability bonus” that also leaves it disproportionately powerful.

Subsequent administrations have generally maintained a pro-business attitude, though both the left and right wings of the political spectrum can be prone to economic nationalism. Frequent changes in government – and the country’s inability to tackle structural issues with the regulatory and tax systems, corruption, and the economy – have had a negative impact on investor sentiment. As a result, Italy continues to have significant problems in attracting foreign investment, particularly in southern regions, which are poorer and less developed. 

A perceived lack of solidarity from other EU states during the migration crisis and initial stage of the COVID-19 outbreak has undermined relations between Italy and the EU. Popular support for EU membership has declined in recent years. Nevertheless, a vote to leave either the single European currency or the EU remains highly unlikely in the coming years.

Patronage based on family ties and acquaintances has long been prevalent throughout Italy, particularly in the south. Corrupt government officials are most likely to target local firms. However, some foreign companies have discovered that local agents or brokers have made illegal payments on their behalf to officials. Arrests of local politicians in relation to corruption involving the private sector remain common, especially – but not only – in southern regions.

Corporate and civil law systems are in place, and companies normally operate with minimal political interference despite frequent changes in government. However, the perception that personal contacts are worth more than written contracts undermines the influence of the legal system, as does the existence of numerous loopholes. Foreign businesses frequently claim that the legal system moves more slowly and raises more obstacles for them than for Italian companies, though a lack of familiarity with processes may account for this. There is a low likelihood of nationalisation or expropriation. However, a relatively strong undercurrent of economic nationalism persists.

Debt pressure and low growth levels will continue to put a strain on government finances. Italy was one of the EU countries worst affected by the 2010-11 eurozone debt crisis, though it avoided the need for an EU bailout. However, the fallout from the crisis has since plagued the economy and financial sector. The government has failed to address structural economic problems and continued to pursue high-spending policies. Government spending in 2020-21 in response to the COVID-19 outbreak is likely to put further strain on public finances.

Italy is considered a Flawed Democracy in the 2020 Democracy Index, developed by The Economist Intelligence Unit (EIU), where the country ranks 35 out of 167 countries scored.

The country ranks 29 at the 2019 Human Development Index developed by the United Nations Development Programme.

The operating environment poses challenges to business. At the national level, this is primarily because the regulatory and tax systems are overly complex and costly to businesses, with no prospects for significant improvements in the one-to-two-year outlook. Foreign companies also have to deal with a burdensome, outdated, and rigid bureaucracy, as well as a notoriously slow judiciary. Given the current COVID-19 pandemic, restrictions imposed in response to the disease are likely to continue causing significant operational disruption in the coming months.

The infrastructure network is relatively comprehensive in northern regions, but generally poor in the south, partly as a result of Mafia infiltration and corruption in public procurement. Environmental groups also continue to pose an obstacle to large-scale infrastructure development, as do bureaucracy and political interference in obtaining and registering land.

The regulatory environment is overly complicated and costly for business. Regulatory obstacles to market entry are significant, and one of the key reasons why Italy has had significant problems attracting foreign investment in recent years. Operating in southern regions of the country is more challenging compared with the centre and north. Successive governments have sought to ease regulatory barriers to foreign investment, but with limited results. 

The labour market has long been inflexible and in urgent need of reform, especially with regard to employment law and eradicating entry barriers for young people. The controversial 2014 “Jobs Act” marked a first step in labour reform. It aimed to achieve a reduction in unemployment, which is pretty high, particularly among young people, including by simplifying dismissal procedures. Despite a culture of left-wing activism within the political mainstream, trade unions are less powerful than in many neighbouring countries. Nevertheless, strikes are frequently carried out by public transportation workers (air, rail, and inner-city) and can cause disruption. It is advisable to remain informed of all strike actions.

Transport and telecommunications infrastructure is good in the north and centre, although the country's tourism infrastructure is underdeveloped, relative to its neighbours in Mediterranean Europe. In remote southern regions, the road and railway network is less comprehensive and can pose an impediment to business. This is partly a result of Mafia involvement in public contracts awarded for infrastructure projects, which are typically undertaken using substandard material and technology or simply never carried out.

A key obstacle to infrastructure development is opposition from environmental and other groups, which remain a notable force in Italy.

Taxis are generally white in Italy. Ensure that the taxi has a meter or that the price is agreed in advance. Supplementary costs may be imposed for luggage, night services, or bank-holiday services. Cars are not permitted in many historical centers, particularly in northern towns, where access is limited to bicycles and pedestrians. Many of the large towns and cities maintain efficient public transportation systems (metro, tram, bus). The use of headlights is required in non-urban areas in Italy during both day and night. Drivers unfamiliar with the country may find that the system of traffic lights lacks, at times, the same clarity found in other western European countries.

The rail network is reliable between large cities and the trains are comfortable.

Overall, Italy ranks 58 out of 190 countries scored at the 2020 Doing Business Index by the World Bank and 52 out of 198 at the 2020 Corruption Perception Index by the Transparency International Organization.

The overall security environment is relatively benign. Nonetheless, challenges persist, particularly in southern regions. Organised crime has historically been the most credible security threat to business, particularly in the south. However, Mafia groups are increasingly concentrating on activities such as drug-smuggling and economic crime, which pose a less direct security threat to foreign business. 

There are four major Mafia groups in Italy; the Cosa Nostra, the 'Ndrangheta, the Camorra, and the Sacra Corona Unita. These organizations are all showing signs of increasing levels of co-operation with foreign organized crime entities based both in Italy and abroad. As a rule, these organizations discourage excessive and frequent use of violence in order to avoid confrontation with law enforcement agencies. When violence is employed, it is typically a matter of score-settling between rival crime groups. There is a growing risk of the Mafia infiltrating legitimate businesses during the economic downturn that has followed in the wake of the COVID-19 virus pandemic.

Italy has a strong culture of ultra-leftist/anarchist direct action groups. Mass protests occur occasionally, and are often organised through social media such as Twitter to gather larger numbers of participants and avoid police counter-measures. Environmentalist, left-wing and anti-capitalist, and animal rights extremist groups are still the principal direct action groups, alongside non-violent anarchist groups. However, groups tend to co-operate across issues and be mutually supportive, often contributing to larger participation, and the anti-austerity movement has become an important unifying factor. Environmental action groups remain a notable force and occasionally stage campaigns against companies that they believe cause pollution or other environmental harm. Such protests are designed to generate publicity and tend to be non-violent. Political polarization and large-scale immigration have contributed to growing numbers of far-right rallies and leftist counter-protests across Italy, often resulting in violence between protesters and police. Protests against government policies and the EU have significantly increased in recent years and are likely to continue to occur regularly. The migrant crisis has also been a trigger for civil unrest and the impact of the COVID-19 outbreak holds the potential to do the same. 

Petty crime is a threat throughout Italy. Pickpocketing is a concern in all major cities, particularly the capital Rome and Milan. However, violent crime is unusual. The high proportion of domestic violence incidents and feuding between organised criminal crime groups inflate the annual figures for murder. 

The likelihood of inter-state war is very low. The main war risk to Italy stems from the violence in Libya, where the civil war between rival factions continues to rage on. Italy has deployed military missions to Tripoli and Misrata to provide training and technical assistance for the security troops of the UN-backed Government of National Accord (GNA). The Italian troops also provide security for a military hospital in Misrata. Italy would seek to reaffirm its diminished diplomatic status in Libya, but it is unlikely to become more militarily engaged without the involvement of its European allies.

Large-scale immigration from war-torn and poverty-stricken countries has fuelled anti-immigrant sentiment and increased the risk of far-right terrorist attacks, as evidenced by the Macerata shooting on 3 February 2018 that resulted in six Africans being wounded by a far-right sympathiser. Police operations in July and November 2019 helped dismantle far-right and neo-Nazi rings, uncovering a large number of military-grade weapons, ammunition, and other weapons. The operations highlighted such groups' increased access to sophisticated weaponry.

No Islamist extremist terrorist attacks have taken place in Italy. However, Italy remains a potential target of transnational terrorism, given its status as a leading Western country with a colonial past in the Muslim world, its role in recent military actions in the Middle East, and the presence of leading Christian sites and symbols on its territory. Italy has been mentioned in a number of recordings linked to extremist Islamist groups Islamic State (IS) and al-Qaida, some of which are likely to be genuine.

Overall, Italy ranks 31 out of 163 within the 2020 Global Peace Index by the Institute for Economics and Peace.

Italy is currently among the most cyber-attacked countries in the world.  Aaccording to Kaspersky cyber threat map, it ranks as the 10 most cyberattacked. 

Since 2019, an increase in the number of cybercriminal campaigns directed against individuals and organisations have been observed in Italy. Cybercriminal groups have conducted the highest volume of attacks against Italian organisations. 

State-sponsored groups have focused their targeting on strategic sectors, primarily for political espionage. State-linked campaigns targeting EU and NATO member states have also affected organisations in Italy.

Cyber activist campaigns have typically focused on the government sector, though the financial, education and legal sectors have been increasingly targeted. Such campaigns predominantly aim to raise awareness of poor cyber security practices among Italian organisations.

No vaccinations are required to enter the country.

Italy ranks 31 out of 195 within the 2019 Global Health Security Index, a project of the Nuclear Threat Initiative (NTI) and the Johns Hopkins Center for Health Security (JHU), developed with The Economist Intelligence Unit (EIU).

The climate in the north is continental, with hot summers and cold winters. The coasts enjoy a Mediterranean climate. Temperatures can reach as high as 40°C in certain regions.

Italy has a high risk of seismic activity and earthquakes are frequently reported throughout the country. In August 2016, an earthquake measuring 6.2 magnitude on the Richter scale occurred in the town of Amatrice, around 100 km (60 mi) northeast of Rome, in which 292 people were killed and 400 injured. Hundreds of aftershocks followed the initial earthquake. The regions of Umbria, Lazio, and Marche were the hardest hit, particularly in the areas surrounding the towns of Accumoli, Posta, Arquata del Tronto, and Amatrice. Numerous minor earthquakes have occurred since, including at least one deadly tremor.

There are 13 volcanoes in Italy, spread across three zones: the bay of Naples, the area northeast of Sicily, and near the Mediterranean island of Pantelleria. Three of these volcanoes remain active and are liable to erupt: Mount Vesuvius (famous for its destruction of the towns of Pompeii and Herculaneum in 79 AD) on the border of the Bay of Naples; Stromboli in the archipelago of the Aeolian Islands to the north of Sicily; and Etna, situated close to the city of Catania.

Furthermore, avalanches often occur in the Alps, and periodic flooding impacts some regions. In June 2017, heavy rains occurred in Alpine regions of Italy as well as in the south and Sicily, causing rivers to overflow and leading to several casualties.

Forest fires also occur in Italy. Southern Italy, including Sicily and Sardinia, often suffers from arson attacks in summer, sparking wildfires that are exacerbated by heatwaves and dry weather.

If you plan to visit Italy, stay informed by the Protezione Civile.