After Next Generation EU, Italy’s infrastructure needs private capital

Infrastructure co-financing needs long-term investors like pension funds, which currently invest 80% of their assets outside Italy.

Infrastructure, as we know, is crucial for competitiveness and for achieving sustainable development goals. Particularly strategic are investments in so-called economic infrastructure, such as transport, energy, and telecommunications, but also in social infrastructure, such as housing, education, and healthcare, and finally, in public goods, like safety and security.

For nearly two decades, investments as a share of GDP have been declining across the United States, Europe, and increasingly in Italy. The National Recovery and Resilience Plan (PNRR, Piano Nazione di Ripresa e Resilienza,, the Italian implementation of Next Generation EU) has been a notable exception, enabling the deployment of significant investments that covered just over 30% of the financial needs for strategic infrastructure: over €50 billion for railways, €10 billion for roads and another €10 billion for urban systems, and €6.5 billion for ports. However, with only a few months left before the NRRP ends, it is urgent to consider how to support a widespread investment plan using differentiated approaches, as each sector has its own specific characteristics. There is no magic formula, but a decisive and concrete effort is needed to encourage the use of private capital, particularly from long-term investors such as pension funds. Due to taxation and a lack of investment opportunities, these funds currently invest around 80% of their assets outside Italy.

Tapping into pension fund capital means delivering better services to citizens, who are also the investors. Public capital continues to dominate, with the exception of a few sectors, such as energy, thanks to liberalization processes, and transport (motorways and airports), where private capital is attracted by the presence of private operators, often listed companies. Nearly 90% of capital for strategic infrastructure comes from public sources. This is not only due to market failures, which could still be addressed through co-investment mechanisms, but also reflects a broader economic policy stance and cultural barriers.

Using public capital when private capital could be deployed results in allocative inefficiencies. Consider investments in the renovation and energy efficiency of public assets, or in the water network, areas where historical spending levels would allow private capital to be remunerated, provided there is some public co-financing. Promotional and development banks must play a decisive and concrete role as anchor investors within blended finance schemes that create funds leveraging public capital to attract institutional investors. Such solutions are also essential in sectors like housing for young families, student housing, or seniors, and healthcare, where many call for the use of INAIL (the National Institute for Insurance against Accidents at Work) funds but few viable strategies exist to channel those resources quickly into the €4.5 billion in planned investments. This isn’t rocket science: Structural fund programming has been recommending the use of financial instruments to attract private capital in co-financing logic for over a decade.

However, the issue isn’t only about private capital, it’s also about solutions and innovation, which competitive dynamics and greater openness to markets can bring. The NRRP did include some small-scale experimentation, such as with telemedicine and the national cloud infrastructure. We had expected to see a more ambitious use of private capital in the NRRP, at least in a pilot capacity.

A serious and forward-looking approach to investments in tangible and intangible, social and economic infrastructure is now urgent, and public-private partnerships must be a key component, tailored to each context. While regulatory reforms are always helpful, what’s truly needed are bold leaders, in both the public and private sectors, who can launch pragmatic, systemic reflections, followed by pilot initiatives that demonstrate how private capital and know-how can contribute to the creation of public value in Italy and across Europe. Some regions are already trying, and they should be encouraged and closely followed.