05 April 2022

NRRP: a growth tool for Italy, but some factors might affect its effectiveness

One year after the inauguration of the National Recovery and Resilience Plan (NRRP), on April 2, 2022, Ambrosetti Club presented the preview of the study "NRRP Observatory: a year after the launch" to the public of the 33rd Workshop on Economy and Finance. The Advisory Board that is in charge of its development was represented by Carlo Cottarelli, Director of the Observatory of Italian Public Accounts at the Catholic University of the Sacred Heart.

In the survey carried out within the Ambrosetti Club’s Community, it emerges how the NRRP is considered a potential growth tool for Italy, but it must first overcome long-standing obstacles related to the long timings of public investments, governance inefficiencies, and issues and delays in the publication and implementation of calls and tenders.

The analysis about the flaws of the Plan’s governance has found several critical issues. There are, at least formally, seven bodies in charge of the implementation of all the steps of the NRRP. This leads, on the one hand, to an increase in bureaucracy and extension of response times, and, on the other, to a concentration of responsibilities in the hands of the higher organs. Moreover, monitoring of investments, especially long-term ones, is lacking and poorly structured. There is also some scepticism, within the business community, about the capability to manage the NRRP processes and funds by some Public Administration bodies – one third of the funds (66.5 billion euros) will be managed by local authorities, primarily municipalities. 

Moving to more positive findings, the NRRP is seen as a tool to address the historical problem of productivity growth: unlike other European countries, the level of productivity in Italy has not increased between 2000 and 2020.

«The NRRP is intended to increase the capital endowment of the average Italian worker through investment, expenditure and reforms, and thus increase the productivity of the country.»

To achieve this, the Plan encourages the growth of three kinds of capital:

  • Public capital: financing public investments and public sector reforms to make funding «expendable»
  • Private capital: creating the conditions to stimulate private investment in Italy (bureaucratic simplification, civil and criminal justice, regulation of competition, incentives for the 4.0 transition), and facilitate tax reform, in parallel with the NRRP
  • Human capital: promoting education (from primary schools onwards), training, research

The NRRP in figures

The Plan should give access to 235 billion euros, of which:

  • 191.5 billion euros from the Recovery and Resilience Facility (RRF) of the European Commission (68,9 billion from subsidies and for 134 from loans)
  • 13 billion euros from the European Recovery Assistance for Cohesion and the Territories of Europe (REACT-EU) programme, which complements the European Regional Development Fund and the European Social Fund
  • 30.6 billion euros from the Complementary Fund, allocated by the Italian Government and financed by the financial markets.

The resources are disbursed by the European Commission to the attainment of 527 conditions from today to 2026, the year of completion of the programme. They are divided into 213 qualitative goals (milestones) and 314 quantitative goals (targets).

The Ambrosetti Club’s Advisory Board has also carried out an analysis of the impact on growth, which focused on investments with medium-term impacts. Such analysis has been focused on the impacts deriving from the increase of the ability to the productive system to generate value, therefore not considering the impacts deriving from mere injections of liquidity.

The analysis identified a number of investment items capable of having a structural impact on GDP growth – an amount between 33% and 50% of RRF funds – for a turnover of between 66 and 90 billion euros. These investments will enable a structural increase in GDP growth, quantified between 1.3% and 2.6%. Assuming that this effect is reduced in a decade, the 2036 GDP differential would be +221 billion euros.

For example, the investment of 4.60 billion euros in the increase of capacity of primary schools – up to +73% compared to the current allocation – will have a positive impact by allowing more women to access the labour market, encouraging a structural transformation of the economy.

Cottarelli concluded his presentation in Cernobbio recalling that it is essential to monitor the many risk factors that have been reported by the Community and that might compromise the full implementation of the NRRP:

  • Excessive focus on achieving goals and objectives and lack of an overall vision of Italy’s future and an industrial policy
  • Too much challenging project timings
  • Lack of adequate skills within local authorities
  • Ineffective governance in terms of implementing investments
  • Persistent increase of the energetic bill that negatively impacts on investments. Confindustria (the main association representing manufacturing and service companies in Italy) estimates an extra cost of 37 billion euros in 2022 (compared to 8 billion euros in 2019): this alone is worth about 20% of NRRP investments in the total, 80% if you consider the amount of 2022
  • General elections in 2023: will Italian voters still support the NRRP?

The research work will continue in the next months and the final results will be presented at the 48th Forum "The Intelligence of the World, Europe, and Italy", to be held in Cernobbio between September 2 and 4, 2022.