Market performance, digitalization, connectivity, skills…. all the way to new models of work like renting. We spoke about all of this with Mirco Risi, UNACEA president, the Italian Construction Equipment Association.
by Silvia Crespi
Despite uncertainty surrounding investment, 2018 was a year of growth for the Italian construction machinery sector. What are you expectations for this year?
Growth figures have been registered each year for the last five years. Italy has benefitted from the positive global economic trend over this period, a trend which has also been present in our sector. The demand for construction machinery continued to grow in 2017 and should get to the record number of 1 million machinery units sold by 2020. However, if we take a closer look, Italy has not taken advantage of this golden period as much as some European competitors. While the market in most of Europe is now above pre-recession levels, Italy is still somewhere around those of the early nineties.
In Italy, construction made up almost 30% of GDP until 2008; by 2017 this had been cut to just 17%. This radical drop is linked to the brakes that have been put on private investment, which has led to the fall in overall market performance for construction machinery. One crucial statistic to take into consideration is the high level of machinery obsolescence, machinery which is however, still being used by Italian companies rather than being substituted for state-of-art alternatives. Since the market collapsed in 2008, the Italian construction sector has contracted by around 80% and the obsolescence of much machinery is now at critical levels. The gradual economic recovery has helped in the (equally slow) substitution of obsolete machinery, creating a possibly illusory plus sign across the market.
Over the medium term, this level of substitution will not be sufficient to maintain growth and so it is hoped that expansionist investment policy in construction will come into force, for example, in infrastructure. 2019 is expected to be a year of economic slow-down, our market should stay in positive territory but the figures will be lower than before at around 5/10% growth. A lot will depend on the ability of the political system to get out of the stagnation, both in terms of economic policy as well as general decision making, meaning construction can be relaunched through infrastructure development for mobility across networks as well as ensuring safety and protection from natural disaster are not overlooked.
Export and trade balance continue growing … which are the most important export markets for Italian machinery?
Export has been the compensatory factor, allowing Italian production to hold onto its relevant market share even in the most difficult moments for domestic demand. Italian SMEs have been able to compete on the international stage with even the biggest competitors, those from USA or China. This, thanks to technological innovation and the design factor that is an inimitable feature of our products. Exports now make up as much as 75% of production for some sectors and this is expected to grow over the next two years. As far as export markets themselves are concerned, the EU still holds the biggest market share for Italian products, while the USA is actually the biggest single market for construction machinery and tools. They are followed by France, Germany and the UK. Looking to the rest of the world, the Far East has been disappointing, coming from a difficult period in China. The same can be said of Latin America where exports have dropped by 25% in one year.
Unacea believes that the promotion of the Made in Italy brand around the world is a priority in the defense of this manufacturing sector and, since our founding, we have been present at the biggest trade fairs around the world. Thanks to the collaboration with the ICE agency, public funding has been made available to Italian participants, making the costs more affordable. This year, together with ICE we will be at Bauma, the biggest and most important world trade fair for our industrial sector. At Bauma, Unacea set up the first joint partnership involving 6 companies who were participating at the event for the first time. Also for 2019, we will be in the Italian construction machinery pavilion at Bauma-CTT Russia and Excon India.
At the last CECE congress, improvements in productivity, security and environmental sustainability through adoption of digital technology was clearly shown. Where are Italian manufacturers on the path towards digitalization?
Digitalization is an industrial process that can be seen under the Industry 4.0 banner in order to get an idea of the revolutionary characteristics it is bringing to the production sector. It is not a drastic or immediate shift but rather a transformation which will not only concern the finished product but its construction, maintenance and after sales processes, even going as far as its stand-alone use or combined with other tools. The investment levels in this sector for digitalization have greatly increased over recent years and ever more importance is now attributed to intelligent machinery, connectivity and the ability to interface with other machinery on site. The potential for expansion of these applications is infinite even if certain questions concerning resources and skills and, above all in Italy, access to the internet (one family in three still has no domestic internet connection and connection speeds are among the lowest in Europe ahead of only Malta, Greece and Cyprus) still remain to be solved.
To work effectively in a digital environment, operational skill sets are required. Does the lack of such a resource in Italy represent a stumbling block?
Unfortunately, yes. I say “unfortunately” because Italy has the paradox of very high youth unemployment but difficulty in recruiting the right professional figures. This is the case for current digital climate, but the problem goes back much further in reality. The end of professional training courses was the main reason for the beginning of the dearth of specialized personnel in production lines, in our sector for sure. Looking at digital operators, there is much better growth in progress but a few years will be necessary to fully establish its sustainability. Analysts are predicting a dramatic change in the job market over the next decade, with a lack of qualified personnel in the digital sector. Therefore, greater collaboration between schools, universities and firms is to be hoped for. This reciprocal relationship will allow companies to get to know the operators of the future better while students will also be able to familiarize themselves with company set ups meaning they can organize their study plan based on the professional roles required in that moment.
Is renting a phenomenon in expansion in the construction sector? If so, what is pushing users in this direction?
Renting is a crucial growth area especially in Western Europe. Undoubtedly, the fragmentation of demand in the construction sector and the increasingly specialized operational function of machinery is leading to greater interest in rental. The high level of investment required and machinery becoming rapidly obsolete are two factors pushing companies in the direction of renting, meaning they have access to the latest generation of machinery with the highest level of safety and environmental standards.
While Italy is still far from the adoption levels seen in Northern Europe, there is a strong trend toward the scenario described above, with around 20% of the market now organized in this way. However, it is important to underline market differences which depend on the kind of machinery in question. Small scale machinery is still experiencing a minority of rental solutions, in larger machinery we can find rentals exceeding 60% of the overall market.