ESTP – Course Structural Business Statistics Norbert Rainer Eurostat, Luxembourg 17-19 October 2012 NACE classification (1) General overview

Content Purpose and nature of the NACE classification Development of the NACE classification Structure and coding Interpretation Basic classification rules

Purpose and nature of the NACE classification What is a classification? A tool A language A model

Purpose and nature of the NACE classification Types of classifications Product Occupation Buildings Health Environment Research Geographic Tourism Purpose Assets Activity etc

Purpose and nature of the NACE classification Properties of good classifications exhaustive and mutually exclusive categories appropriate hierarchical structure up-to-date model of the reality based on appropriate conceptual basis user requirements considered well-defined and harmonised relations to other classifications adequate descriptions and instruments for application appropriate application support appropriate maintenance and update/revision concepts

Purpose and nature of the NACE classification Two main types of economic classifications Classifications of economic activities definition of an activity cover (usually) all economic activities used to classify economic entities (e.g. enterprises, kind of activity units, local units) compiling statistics on output, production process (intermediate consumption, value added), production factors, capital formation, financial transactions, etc.

Purpose and nature of the NACE classification Classifications of products products: output of economic activities goods and services compiling statistics on supply (domestic production, imports) and use (intermediate use, final use) of products and on their price dimension Relation between activity and product classifications conceptual relation: activity → product classificational relation: industrial origin

Purpose and nature of the NACE classification NACE is a classification covering all economic activities no distinction based on kind of ownership type of legal organisation mode of operation market or non-market activity formal or informal; legal or illegal production classification criteria: solely kind of economic activity

Development of the NACE classification Before harmonisation: UN: International Standard Classification of All Economic Activities (ISIC) EU: Statistical Classification of Economic Activities (NACE) 1948: ISIC 1958: ISIC Rev. 1 1968: ISIC Rev. 2 1961: NICE 1965: NCE 1970: NACE 1970 1990: NACE Rev. 1 Regulation

Development of the NACE classification After harmonisation: 1989: ISIC Rev. 3 2002: ISIC Rev. 3.1 2006: ISIC Rev. 4 1990: NACE Rev. 1 2002: NACE Rev. 1.1 2006: NACE Rev. 2 NACE is since developed as the “European version of ISIC”. NACE is more detailed but fully harmonised with ISIC. 2006: NACE Rev. 2 Regulation

Structure and coding Derivation from ISIC Coding system section level: unchanged sub-section level: only for NACE Rev.1 and NACE Rev. 1.1 division level: unchanged group level: more detailed class level: more detailed Coding system

Structure and coding Sections 17 A – Q 17 A – Q ISIC Rev. 3 NACE Rev. 1 Sections 17 A – Q 17 A – Q Subsections - - 31 CA – DN Divisions 60 01 – 99 60 01 – 99 Groups 159 011 – 990 222 01.1 – 99.0 Classes 292 0111 – 9900 503 01.11 – 99.00 ISIC Rev. 3.1 NACE Rev. 1.1 Sections 17 A – Q 17 A – Q Subsections - - 31 CA – DN Divisions 62 01 – 99 62 01 – 99 Groups 161 011 – 990 224 01.1 – 99.0 Classes 298 0111 – 9900 514 01.11 – 99.00

Structure and coding Sections 21 A – U 21 A – U ISIC Rev. 4 NACE Rev. 2 Sections 21 A – U 21 A – U Divisions 88 01 – 99 88 01 – 99 Groups 238 011 – 990 272 01.1 – 99.0 Classes 419 0111 – 9900 615 01.11 – 99.00

Interpretation of the NACE classification Interpretation using the classification instruments itself titles explanatory notes alphabetical index Interpretation by other instruments case law; CIRCA discussion forum; UN: Classification Hotline relation to other classifications product classifications: CPA, CN other classifications

Basic classification rules Principal activity activity that contributes most to gross value added at basic prices Gross value added at basic prices1) Output at basic prices minus intermediate consumption at purchasers prices 1)Value added at basic prices minus Taxes on production plus Subsidies on production value added at factor costs

Basic classification rules in case that one activity accounts for more than 50% of value added, this activity determines the classification in other cases, the top down method has to be used: starting from the highest hierarchical level, determine the activity contributing most to value added, then do the same for the second hierarchical level, and so forth, until reaching the lowest hierarchical level example of how the top down method works

Basic classification rules

Basic classification rules Identify the section Section C Manufacturing 52% Section G Wholesale and retail trade; repair of motor vehicles and motorcycles 35% Section M Professional, scientific and technical activities 13%

Basic classification rules Identify the division Division 25 Manufacture of fabricated metal products, except machinery and equipment 7% Division 28 Manufacture of machinery and equipment n.e.c. 40% Division 29 Manufacture of motor vehicles, trailers and semi-trailers 5%

Basic classification rules Identify the group Group 28.3 Manufacture of agricultural and forestry machinery 8% Group 28.4 Manufacture of metal forming machinery and machine tools 3% Group 28.9 Manufacture of other special-purpose machinery 29%

Basic classification rules Identify the class Class 28.95 Manufacture of machinery for paper and paperboard production 8% Class 28.99 Manufacture of other special-purpose machinery n.e.c. 21%

Basic classification rules if data on value added are missing, use the following criteria to obtain the best approximate possible which would have been obtained on the basis of value added: based on output gross output value of sales based on input wages and salaries employment used as proxies for the unknown value added data

Example I of using sales data to achieve value added shares Enterprise A Activity Turnover share (%) weight (value added) weighted turnover Estimated value added share % Top down Manufacture of machinery for textile production Wholesale trade of machinery for textile 50 x 0,507 0,174 25,35 8,70 /: 0,34 74,6 25,6 main activity (28.94 “Manufacture of machinery for textile, apparels and leather production”) (46.64 “ Wholesale of machinery for the textile industry and of sewing and knitting machines”) secondary activity 34,05 = 100% 1% = 0,34

Example II of using sales data to achieve value added shares Enterprise B Activity Turnover share (%) weight (value added) weighted turnover Estimated Value added share % Top down Software development Market research Call Center 20 40 x 0,471 0,505 0,584 9,42 20,20 23,36 /: 0,53 17,8 38,1 44,1 secondary activity (62.01 “Computer program- ming act.”) (73.20 “ Market research”) (82.20 “ Activities of call center”) secondary activity main activity 52,98 = 100% 1% = 0,53

Specialized and non specialised wholesale trade Additional classification rules Wholesale and retail trade; repair of motor vehicles and motorcycles Wholesale Division 46 Specialized and non specialised wholesale trade 46.2 – 46.9 Wholesale on a fee or contract basis 46.1 Specialised 46.2 – 46.7 Non specialised 46.9 46.2 46.3 46.4 46.5 46.7 46.6 According to products traded

Additional classification rules Retail sale Retail sale Division 47 In stores 47.1 – 47.7 Not in stores 47.8 – 47.9 Non specialised 47.1 Specialised 47.2 – 47.7 47.2 47.3 47.4 47.5 47.7 47.6 Others 47.9 Via stalls & markets 47.8 Food predominating 47.11 Other 47.19 According to products traded

Additional classification rules on-site installation connected with constructions NACE Rev. 2 Section F machinery and similar equipment NACE Rev. 2 33.2 installation performed as a service incidental to the sale of equipment is an associate activity

Additional classification rules repair and maintenance motor vehicles and motorcycles NACE Rev. 2 45.2 and 45.4 personal and household goods NACE Rev. 2 95.2 computers and communication equipment NACE Rev. 2 95.1 other goods NACE Rev. 2 33.1

Additional classification rules vertical integration vertical integration of activities occur where the different stages of production are carried out in succession by the same unit and where the output of one process serves as input to the next. vertical integration should be treated like any other form of multiple activities; i.e. the principal activity of the unit is the activity accounting for the largest share of value added, as determined by the top-down-method.

Additional classification rules outsourcing outsourcing of labour/ employment services outsourcing of support functions outsourcing of parts of a production process outsourcing of complete production process

Additional classification rules What is outsourcing Contractual agreement on which a unit (= the principal) contracts another legal unit (= the contractor) to carry out specific tasks, such as parts of a production process or even the full production process, employment services or support functions. Outsourcing according to NACE Rev.1 and Rev.1.1 NACE Rev.1 and NACE Rev.1.1 defined outsourcing as: “Units which sell goods and services under their own name, but arrange for their production by others. These units are classified to Sector G (wholesale and retail) expect when they own the legal right and the concept, in which case they are classified as if they produce the goods themselves.”

Additional classification rules Outsourcing according to NACE Rev. 2 Units, which completely outsource the transformation process, should be classified into manufacturing only if they own the raw material used as input to the production process (and therefore own the final output). The principal and the contractor may be located in the same territory or in different economic territories: the actual location does not affect the classification of either one of these units.

Thank you for your attention! Please address queries to: Norbert Rainer Contact information: Guglgasse 13, 1110 Vienna phone: +43 (1) 71128-7703 fax: +43 (1) 771128 -7053 norbert.rainer@statistik.gv.at Thank you for your attention!