The National Plan «Industria 4.0»

and key policy issues to govern

the Next Production Revolution

Bruxelles, 6th September2017

Stefano Firpo

Italian Ministry of Economic Development

Director General for Industrial Policy, Competitiveness and SMEs

Relaunching investments

and productivity

2

Next Production Revolution

FORNITORI

CLUSTER DEI FORNITORI

CLUSTER DEGLI IMPIANTI PRODUTTIVI

IMPIANTO PRODUTTIVO DEL FUTURO B

IMPIANTO PRODUTTIVO DEL FUTURO A

3D PRINTING /ADDITIVE MANUFACTURING

SENSORI

NANOTECNOLOGIE /MATERIALI AVANZATI

> Zero errori / dev iazioni> Reattiv ità> Tracciabilità> Prev edibilità

> Eliminazione degli scarti> Mass customization> Rapid prototy ping

> Prodotti a v alore aggiunto intelligenti> Differenziazione tecnica> Connettiv ità

ROBOT

CLOUD COMPUTING

> Sicurezza per l' "internet basedmanufacturing"

> Allungamento del ciclo vita dei prodotti tecnologici

CYBERSECURITY> Gestione della complessità> Creativ ità> Manufacturing collaborativo

> Cy ber Physical Systems (CPS)> Controllo numerico> Full automation> Sistemi totalmente interconnessi> Comunicazione "Machine to machine"

LOGISTICA 4.0

> Catena di fornitura pienamente integrata

> Sistemi interconnessi> Perfetta coordinazione

BIG DATA

SISTEMI DI MANUFACTURING

EVOLUTI

CLIENTI

VEICOLI AUTONOMI

> Vicinanza Cliente - Marketing> Flessibilità> Perfetto incontro tra bisogni del

cliente e efficienza della produzione di massa

> On demand manufacturing

MASSCUSTOMIZATION

INTERNET OF THINGS

> Controllo elettronicodell'oggetto

> Comunicazione internet-oggetto

> Dati in real time> Magazzino ottimizzato> Minori scarti e sprechi

> Real time – Autonomia –Produttiv ità

> Completa trasparenza (contestua-lizzazione, robot collaborativi) sulla reportistica dei dati

> Ottimizzazione dei flussi

> Sicurezza aumentata> Riduzione dei costi

RISORSE DEL FUTURO

EOLICO ALTERNATIVE / NON CONVENZIONALI SOLARE GEOTERMICO

> Energie pulite e rinnov abili ovunque> Stoccaggio di energia> Materiali alternativ i

IMPIANTOPRODUTTIVO 4.0

3

Key enabling technologies for industry 4.0

BIG DATA &

DATA

ANALYTICS

CLOUD COMPUTING

& CYBER SECURITY

SENSOR

SYSTEMS

AND IOT

HUMAN MACHINE

INTERFACE

ARTIFICIAL

INTELLIGENCE

COLLABORATIVE

AUTOMATION

& ROBOTICS

ADDITIVE

MANUFACTURING

NEW MATERIALS

4

Expected benefits within and outside the factory:

smart factory and supply chain integration

Efficiency

Flexibility

Quality and

sustainability

Speed

Higher flexibility: enabling small batches production,

strong variety and customisation, all with the

economies of scale of mass production

Faster time-to-market: product and process “digital

twins” allow faster prototyping and factory layout

design, saving time and costs

Higher productivity: thanks to lower set-up time and

continuous monitoring, errors and downtimes are cut

down

Improved quality and sustainability: scrap reduction

thanks to sensors that allow real-time production

monitoring, smarter resource management, a more

circular and ecological production

New business

models

Higher competitiveness of products thanks to

additional functionalities enabled by Internet of

Things, which open the way for new business models

5

Policy challenges to govern the Next Production

Revolution

Data control,

security, privacy

and interoperability

Including SMEs

for higher

competitiveness

Jobs, skills

empowerment and

training

Intangible assets

and Data

We may see more and more robots but no productivity gains:

diffusion and adoption of new technologies among SMEs is the

big conundrum. How to digitally transform firms which were not

born digital? Tech-transfer issues and infrastructures

Data-driven innovation and know-how are the real drivers: while

production factors dematerialise, it is necessary to codify

know-how to manage the generational transition. Challenge:

taxation and regulation remain pre-digital

A certain regulatory framework on data ownership and

standards, to ensure a seamless integration and secure

interoperability: new barriers to trade/entry and data related

competition issues when data control rather than size matters

Will automation and labour-saving innovations destroy jobs?

Adjustment process is critical: job demand and supply may

mismatch. Skills empowerment and retraining are key: STEM

competencies, vocational education, on-the-job training and

LLL: workplaces as evolving learning places

6

Industry 4.0: growth issues at stake in Italy

Stronger skills

Investments

Connectivity

Capital

allocation and

productivity

Decreasing quantity of fixed industrial investments in the last

15 years: increasing obsolescence in installed equipment

Low quality of investment allocation: resources going to low-

performing firms, misallocation within firms rather than

sectors, rent seeking, and poor bank creditors’ discipline

Poor skills in STEM subjects: only 14 out 1,000 graduated in

STEM and low appeal of vocational education: >200,000

students do not go to university nor to tertiary professional

education, poor re-placement services

70% of companies do not have adequate connectivity (>30

Mbps) and are located in grey/white areas (where providers

experience some degree of market failure)

Digital

Competitiveness

Italy ranks 25th out of 28 EU member States in the Digital

Economy and Society Scoreboard: only 6.5% of SMEs are

selling online. Well positioned in cloud computing, but…

7

Key policy objective: productivity

Source: OECD

80

85

90

95

100

105

110

115

120

(1998=100)

Total factor productivity performance

8

Trends in investments

Source: Eurostat

0

100

200

300

400

500

600

700

Italy Germany Spain UK France

2005-08 2009-11 2012-14 2015-16

Gross fixed capital formation (€ Bn)

9

Capital misallocation in Italy

Evolution of capital misallocation

vs labor misallocation

TFP can increase

by 20% with

better capital

allocation

10

Bank Loans and productivity: a comparison

Elasticity of bank loans* issued at time t with

respect to various measures of productivity at t+1

Italy France Germany

t + 1 t + 1 t + 1

MRPK 0.1%*** 7.6%*** 5.1%***

TFPR 2.4%*** 14.4%*** 6.1%***

Labor

productivity 3.4%*** 10.3%*** 5.7%***

Real value added 1.2% 22.5%*** 8.8%***

* This measure gives an idea of how credit allocated at time t by banks correlates

with various measures of firms’ activities after one year.

The period of reference is 2000-2013.

11

Stylised facts on skills in Italy

Vocational training

NEET

Core competencies

Early school leaving

Over 2.5 M NEETs, amounting to 27% of all people

between 15 and 29 y.o. (OECD average: 14%)

Among the worst rates in Europe. 15% of youths

between 18 and 24 y.o. drop out education and

training without a degree

Just 7,000 students in ITS (Germany: over 150,000)

Only 3.4% of youths between 16 and 29 y.o are

employed as apprentices (Germany: over 15%)

Language and maths skills among the lowest in OECD

(PIAAC survey 2013)

Low level of STEM and digital skills

Skill use

Unlike any other OECD country, in Italy there is no

evidence of a positive relationship between skill use

and firm size

12

«Industria 4.0»: policy approach

Italian industrial sector peculiarities

• Few large industrial and ICT private players able to lead the Italian manufacturing transformation

• Limited number of industry champions able to coordinate the evolution/integration of value chains

• Industrial sector largely based on SMEs where productivity gains are more needed

• High quality of research but fragmented network of research/tech-transfer centers

• Strong manufacturing know-how and Made in Italy quality

Government guidelines

• Operate in a technological and

sectoral neutrality logic

• Avoid “call for tender” logic;

implement fiscal measures and

horizontal actions

• Operate on enabling factors:

investments, skills, infrastructires

• Steer existing instruments to promote

technological leap and productivity

• Coordinate key stakeholders without

acting as a controller or decision-

maker

13

"Industria 4.0" national plan 2017-2020 Strategic guidelines

Skills Enabling

Infrastructures

• Generate interest on I4.0 opportunities and create a public-private governance

Governance and awareness

Innovative

investments

Key guidelines

Public instruments

at support

Complementary guidelines

• Stimulate private investments in new equipment and I4.0 transformation

• Increase private expenditure in R&D&I

• Patent Box to spur investment in intangible assets

• Open alternative forms of finance (non-bank lending, VC and PE) for better allocation of capital to innovative firms

• Spread the I4.0 culture

through "Scuola

Digitale"1 and

"Alternanza Scuola

Lavoro”1 programmes

• Develop I4.0 skills in

academic paths and

vocational education:

"Istituti Tecnici Superiori”2

• Financing research,

upscaling Clusters and

doctoral studies

• Create Competence

Centers and a network of

Digital Innovation Hubs

• National Skill Strategy

with OECD

• Ensure adequate network infrastructure – Ultra Broadband Plan with a “Fiber to the factory” approach that prioritises industrial areas

• Cooperate in the definition of IoT open standards and interoperability criteria

• Attract FDI and support large I4.0 investments

• Reinforce corporate finance, improve savings allocation towards productive investments

• Strengthen the productivity-salary taxation exchange through lower taxation on “productivity benefits”, negotiated in decentralised bargaining

1. Work-related learning; 2. Italian professional institutes

14

"Industria 4.0" national plan: 18 €B to support

industrial transformation 2017-2020 targets

+10 €B private investments

increase from 80 to 90 €B

in ‘17-’18

+11.3 €B

R&D private expenditure

increase over the '17-'20

period

+2.6 €B

volume of early stage

investments mobilized

over the '17-'20 period

Patent Box to sustain investments in

intangible assets

100% of Italian companies with

access to 30 Mbps

connectivity within 2020

50% of Italian companies with

access to 100 Mbps

connectivity within 2020

6 consortia on IoT standards, with the

involvement of Italian

players

Fiber to the

factory

approach

200,000 academic students

qualified on I4.0 topics

+100% students attending "Istituti

Tecnici Superiori" on I4.0

topics

Creation of

Competence

Center and DIH focused on solution-driven

tech-transfer, training and

collaborative R&D

National Skill

Strategy

+1 €B Development Contracts

focused on large I4.0

investments

+0.1 €B Strong investment on

digital sales chains

(Made in Italy plan)

Strengthening of

productivity-salary

taxation exchange:

increments in RAL and

higher amount eligible for

incentive

Key guidelines

Skills Enabling

infrastructures

Innovative

investments

Public instruments

at support

Complementary guidelines

15

Hyper-Depreciation and

Super-Depreciation schemes

Innovative investments “Industria 4.0” advantages

Hyper-Depreciation

• Increase of rate for I4.0 investments

2016

140%

Super-Depreciation

• 1 year extension of the Super-Depreciation

with a fixed rate (140%)

• extension to immaterial assets like software,

IT systems, digital platforms

2017

250%

Deadline

• In order to guarantee a high appeal of Hyper

and Super-Depreciation schemes, item

delivery date is prolonged to 30/06/18;

however the order and a >20% deposit have

to be placed within 31/12/17

16

Tax credit for research, development

and innovation (R&D&I) expenditures

Research and development and

innovation expenditure – '17 example

Average

expenditure

Expenditure

R&D

2017

Expenditure

R&D

2014

Expenditure

R&D

2013

Expenditure

R&D

2012

25% 50%

50% 50%

2016 2017

5 €M 20 €M

Tax credit

calculation

Credit for

intramural

expenditure

Credit for

extramural

expenditure

Maximum credit

per taxpayer

Incremental R&D

based on the

2012-14 fixed

average

R&D tax credit

regime valid until

2020

R&D tax credit

contribution

17

Italy’s Patent Box

Optional tax regime: a deduction by 50% of taxable IRES

income that demonstrably derives from direct or indirect use

(as licensee) of IP, such as: industrial models, patents,

formulas, software protected by copyright, know-how.

It transposes into law OECD guidelines on harmful tax

practises, being only applicable to the production,

development and maintenance activities of IP that are based

on real research and development («nexus approach»).

It is a permanent fiscal instrument to reward firms that

base their value production on knowledge and IP.

It can be combined with the R&D Tax Credit.

In case of use of internally-developed IP, a ruling

agreement with the Italian Revenue Agency is required.

18

Capital markets to support «Industria 4.0»

Initiatives

130

534

7801,000

0

500

€M ~1000

Italy

2020

Italy

2015

Spain

2015

Germany

2015

• PIR – Elimination of capital gain

tax for medium-long term

investments in unlisted

companies

• CDP programmes:

“AccelerateIT", and ITATech

aimed at acceleration of hi-tech

ideas and patents

• New tax regulations on carried

interest to attract foreign VC and

PE funds

• Tax deductions up to 30%, for

investments up to 1 €M in

innovative startups and SMEs

• «Sponsor companies» may

now buy and deduce from

taxable income fiscal losses of

participated startups in their first

four years

Nati

on

al

savin

gs

E

arl

y s

tag

e f

ocu

s

• In the last 5 years AuM almost doubled

in Italy (now amounting to almost €2

trillion)

• No more than 2% of them are invested in

stocks representative of the Italian real

economy

• The national industry of savings

management has weakened: nowadays

Italy is a net exporter of savings

19

Digital Innovation Hubs

and I4.0 Competence Centers

Digital Innovation Hubs

Features:

• Point of contact and

information for companies

on I4.0

• Selected DIH located at

Confindustria's and

R.E.TE. Imprese Italia's

branches

Mission:

• Awareness creation on

I4.0 opportunities

• Digital maturity assesment

• Support in innovative

investment planning

• Orientation to

Competence Centers and

I4.0 network

• Support in accessing

public and private

financing

solutions/investors

• Mentoring services

Gov. and

Public

Institutions

Startups

Universities

Clusters Associations

Player

industriali

SMEs

Incubators

Investors

I4.0 Competence Center

Features:

• Few and selected national

Competence Centers, putting

together the best practices

• Strong involvement of leading

Italian universities and private

players (PPPs)

• Ad hoc governance and adequate

managerial skills

Mission:

• Live demos on new technologies

and access to I4.0 best practices

• Technical advisory on I4.0 for

SMEs

• Launch and acceleration of

technological development and

innovative projects with high TRL

• Trial support and "on-site"

development of new I4.0

technologies

• On-site I4.0 advanced training

• Coordination with European CCs

Research

Centers

CC

CC CC

20

Italy : the 2nd most attractive country

for digital investment (Digital Tax Index 2017)

Country

(Region)

Effective tax rate

2017 Ranking

Ireland -10.32% 1

Italy -8.84% 2

Hungary -6.85% 3

… … …

Switzerland (Zurich) 8.39% 11

United Kingdom 11.11% 16

France 12.39% 18

Spain 12.85% 20

Netherlands 13.61% 22

Germany 22.81% 31

USA (California) 22.82% 32

Thank you for your attention!

Bruxelles, 6th September 2017

Stefano Firpo

Italian Ministry of Economic Development

Director General for Industrial Policy, Competitiveness and SMEs