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I just took Yugo and the italiens got nothing from it. In another game I had them take cairo and they didn't get a boost from that either.

Weird.

I will elaborate a bit. They got the plunder but the production each turn has remained the same.

Weird. I've used Italy in my current game to take Cairo and got the boost, but I got Yugo to join thru Diplo. Italy has taken some others, like Palestine and Syria, and I have seen the boost. So it's not me, it's you [;)]

Zuxius,

Could be that when you conquered Egypt/Yugo, the resource level of their capitals and major cities was reduced through combat to a low level. Did you check again after giving them a few turns for them to recover?

No, not at all. Pretty much at the time it was taken the whole thing was in full production. I was hoping to give Italy a bit more Umph for my game, but instead they are floundering at 149 MP.

I have gotten them up to 400 MP or more in earlier iterations of the game, but in this one it just stays low.

OK, I see.
Yes, I think compared to Assault on Democracy, for instance, where you could get Italy up to 400 MPPs per turn, in SC3, the best I have managed is about 300.
And that was with Italy holding Yugo, Egypt, Palestine Transjordan, Portugal, (liberated) Iraq, and (liberated) Persia.
Seems to be a natural limit built into this version of SC.
One thing that helps is having Turkey join the Axis.
Once it does, any Axis-held resource cities in the Levant are considered to be connected to the Axis rail grid and can grow beyond level 5