UN Statistics Division International Recommendations for Industrial Statistics (IRIS) 2008 UN Statistics Division 1

Overview Need for revision of recommendations Overview of main changes Scope and coverage of industrial statistics Statistical units and their characteristics

Introduction Since 1950s, UN has published international recommendations – to establish a coherent and uniform measurement of industrial activities – 1953, 1960, 1968 and 1983 UNSC in 2006 reviewed the industrial statistics and endorsed the proposal for revision of IRIS. Expert Group constituted to guide the revision

Need for revision Some important factors necessitating revision are: 1993 SNA update Units undertaking ancillary activities treated as a separate establishment in some specific circumstances Additional element for the measure of COE like ‘employees stock option’ Treatment of goods sent abroad for processing Changes in terminology and classification of assets Capitalisation of database development, and capitalisation of R&D expenditures etc. Revision of International Standard Industrial Classification (ISIC Rev. 4) and Central Product Classification (CPC Ver. 2)

Need for revision (2) Inclusion of aspects of globalisation of the industrial production process including ‘outsourcing’ and use of e-ecommerce Efforts of countries to minimise the differences between the concepts of ‘census value added’ and ‘national account value added’ Change in valuation of industrial output to basic prices in accordance with the SNA valuation principle

Need for revision (3) Extension of the link between the economy and the environment by extending the coverage of the data items to include the use of natural resources like energy, water, mineral, generation of solid waste and waste water and by-products Experience of countries both in developing an industrial statistics system and conducting an integrated system of annual and infra-annual industrial inquiries adapted to the needs of NA and the measurement of industrial sector for the economy as a whole

Need for revision (4) Consistency with changes in concepts, definition and terminology in publications and regulations of other international organisations Eurostat - statistical business register and regulations on short-term and structural business statistics OECD - measurement of non-observed economy, business demography and data and metadata reporting and presentation IMF – BOP manual (goods for processing, multi-territory enterprises ILO - international classification of status in employment, statistics of employment in the informal sector, and working time measurement

Need for revision (5) Provide guidance for implementation of IRIS data sources, data collection practices and data compilation methods Data quality and metadata

Overview of main changes Scope Scope of the industrial statistics extended to include sewerage, waste management and remediation services Statistical units Comprehensive and detailed discussion on statistical units for use in the collection of industrial statistics Statistical units of informal sector

Overview of main changes (2) Data items List of data items and their definitions - reviewed and updated Revenue and expenditure items - presented in more details E-commerce sales - separately identified Data items on quantity – important material and supplies, fuels and energy and output Lists of data items and their coding in IRIS 2008 and IRDTS 2008 - fully harmonized Extension of the link between the economy and the environment - data items include the use of natural resources like energy, water, mineral, generation of solid waste and waste water and by-products Performance indicators Indicators useful for assessment of the overall performance of industrial sector monitoring the profitability, productivity and efficiency

Overview of main changes (3) Data sources and data compilation methods Description of data sources and data compilation methods is significantly expanded with discussion on: Data sources - administrative data sources and statistical surveys Business register and its use as a frame for statistical surveys Data compilation methods – validation, editing, etc. An outline of a data collection strategy for different segments of the economy based on an integrated approach is presented Data dissemination Best practices on Confidentiality protection Sound revision practices

Overview of main changes (4) IRIS Harmonised with 2008 SNA Valuation of industrial output - basic prices (amount receivable by the producer from the purchaser for a unit of good or services produced as output minus any tax payable and plus any subsidy receivable by the producer as a consequence of its production or sale) An ancillary unit - recognized as a separate establishment in certain cases ‘Employees stock option’- Included in wages and salaries as additional instruments for compensation of employees Treatment of goods for processing, Changes in terminology and classification of assets, Capitalisation of database development, and capitalisation of R&D expenditures etc.

Scope of industrial sector Economic activities included in terms of ISIC Rev. 4 are: Mining and quarrying (section B) Manufacturing (section C) Electricity, gas, steam and air conditioning supply (section D), and Water supply; sewerage, waste management and remediation activities (section E) (Scope has been broadened as compared to the 1983 recommendations with inclusion of sewerage, waste management and remediation activities) Industrial activities in international waters, such as the operation of petroleum and natural gas wells, should be included if these activities are subject to the laws, regulations and control of the country concerned.

Scope of industrial sector (2) 1. Mining and quarrying (Section B) Includes the activities relating to extraction of minerals occurring naturally as solids (coal and ores), liquids (petroleum) or gases (natural gas). Included are supplementary activities aimed at preparing the crude materials for marketing, for example, crushing, grinding, cleaning, drying, sorting, concentrating ores, liquefaction of natural gas and agglomeration of solid fuels if out by the units that extracted the resource and/or others located nearby. Excluded: Processing of extracted materials; crushing, grinding or otherwise treating certain earths, rocks and minerals not carried out in conjunction with mining and quarrying;

Scope of industrial sector (3) 2. Manufacturing Includes the physical or chemical transformation of materials, substances, or components into new products. Substantial alteration, renovation or reconstruction of goods is generally considered to be manufacturing. Assembly of the component parts of manufactured products is considered manufacturing. This includes the assembly of manufactured products from either self-produced or purchased components

Scope of industrial sector (4) 2. Manufacturing Specialized maintenance and repair of industrial, commercial and similar machinery and equipment is included in manufacturing. However, the repair of computers and personal and household goods and the repair of motor vehicles are not included in this section. The recovery of waste - the processing of waste into secondary raw materials - though may involve, physical or chemical transformations, is not considered to be a part of manufacturing.

Scope of industrial sector (5) 2. Manufacturing The boundaries of manufacturing and the other activities can be somewhat blurry. As a general rule, the activities in the manufacturing section involve the transformation of materials into new products. Some activities, although sometimes involving transformation processes, are not classified as manufacturing. They include: Logging - classified in Section A (Ag, forestry & fishing) Construction of structures and fabricating operations performed at the site of construction - classified in section F (construction) Activities of breaking bulk and redistribution in smaller lots, including packaging, repackaging, or bottling products; mixing paints to customer order; and cutting metals to customer order, produce a modified version of the same product are classified to section G (wholesale and retail trade; repair of motor vehicles and motorcycles

Scope of industrial sector (6) 3. Electricity, gas, steam and air conditioning supply (Section D) Includes activities of providing electric power, natural gas, steam, hot water and the like through a permanent infrastructure (network) of lines, mains and pipes. 4. Water supply; sewerage, waste management and remediation activities (Section E) Activities related to the management (including collection, treatment and disposal) of various forms of waste, such as solid or non-solid industrial or household waste, as well as contaminated sites. Activities of water supply are grouped in this section as these are often carried out in connection with, or by units engaged in, the treatment of sewage.

Use of ISIC Rev.3 and 4

Coverage of industrial activities In conformity with the 2008 SNA production boundary all units engaged in economic activities within the scope should be covered. Units of all sizes (with and without fixed locations) and Units of all types of ownership including the govt. and household units Household unincorporated enterprises Goods produced by households engaging in industrial activities for own consumption should also be covered.

Coverage of industrial sector (2) Departments, establishments and similar units in general Govt. should be included if they are mainly engaged in production of goods and services within the scope and identifiable by accounting records kept by them. Some of units may not be operating for profit, or May not dispose of their output in the market. Produce of such units may be sold at prices below cost of production because of govt policy. Govt. units may furnish goods and services to itself of a kind provided by privately owned establishments – printing and publishing services, ammunitions, etc. All types of units not necessarily covered through the same survey instrument.

Coverage of industrial sector (3) Actual enumeration of establishments in the various activities will in practice vary according to the Frequency with which the data are required Difficulty of obtaining them, Existence of alternative sources and the resources available to the statistics authorities. Recommended coverage may be attained by a complete enumeration of relevant establishments or by using sample surveys. The method of enumeration chosen will depend on the circumstances in each country.

Statistical unit A statistical unit is an entity about which information is sought and for which statistics are ultimately compiled. Statistical units of the production system Enterprise group Enterprise Establishment (local kind-of-activity unit) Kind-of-activity unit Local unit

Statistical unit (2) 2008 SNA recommends establishment as the most appropriate statistical unit (SU) for production and employment data Countries are encouraged to use establishment as a SU for industrial statistics Choice of establishment vs enterprise as SU reflects balancing of data availability against homogeneity of economic activity. Using establishment as a unit enables Homogeneity in the measurement of the economic activity More accurate presentation of regional economic reality Choice of SU may be guided by factors such as purpose of study, the availability and quality of requisite data, therefore, enterprise can also be used as SU In majority of cases establishment and the enterprise are same except in case of multi-establishment enterprises.

Statistical unit (3) Treatment of Ancillary activities A productive activity undertaken with the sole purpose of producing services for intermediate consumption within the same enterprise is defined as an ancillary activity. Examples are record keeping, personnel management, warehousing, accounting services etc Ancillary activities are integrated with the establishments they support. This approach depicts the production process as it is performed but has the following disadvantages Not recognized by its own activity, structural decomposition of GDP by economic activities not depicted correctly, and Regional GDP can not be compiled accurately when the ancillary unit and the establishments it serves are located in different regional economies

Statistical unit (4) Ancillary units Units undertaking ancillary activities to be treated as an establishment in certain cases When an establishment undertaking ancillary activities is statistically observable, i.e. records of its transactions are readily available, and When the ancillary units are in a geographical location different from the establishments they serve. Such an establishment should be classified according to its own principal activity.

Treatment of Ancillary units Output of ancillary establishment Output of ancillary establishment should be derived on sum of cost basis i.e. Output = Intermediate consumption + compensation of employees + consumption of fixed capital + imputed operating surplus Output deemed to be market output when the parent enterprise is a market enterprise and non-market otherwise. Output of the ancillary unit is treated as intermediate consumption of the establishments it serves and should be allocated to them using an appropriate indicator such as their value added, output or employment.

Characteristics of statistical units Characteristics of statistical units are data items used for: Their unique identification Their geographical distribution Description of various aspects of their structure, operation and relationship with other units Characteristics of statistical units are a precondition for: Effective organization of the statistical sample surveys Making comparisons and links between data from different data sources Types of analysis based on characteristics Geographical – performance between regions of an economic territory Activity – structure or business cycle of production of one activity or comparison of relative performance of several activities within or between reference periods Legal and ownership – comparison of performance across various ownership and control Size class – relationship between size and their activity performance

Main Characteristics (2) Identification code Location Kind-of-activity Type of economic organisation Type of legal organisation and ownership Size (in terms of persons employed) Type of unit Period of operation

Characteristics of statistical units (3) Identification code Unique number assigned to a statistical unit which may comprise digits identifying its geographic location, kind-of-economic-activity, whether a unit is a principal producing unit or an ancillary unit, link to its subsidiaries/principal if any Allows their registration in a statistical business register or inclusion in a sampling frame Permits the collection of information about them via administrative sources Provides a sampling base for statistical surveys Permit demographic analysis of the population of units Identification code must not change throughout the life of the unit, although some of the other unit’s characteristics may change

Characteristics of statistical units (4) Location The location is defined as the place at which the unit is physically performing its activities not as where its mailing address is. Useful for classification of SU by geographical regions Kind-of-activity is the type of production in which a unit is engaged Principal variable which determines whether or not a given statistical unit is included in the scope To be determined according to ISIC, Rev.4 If a unit is engaged in several types of independent activities, but the unit itself cannot be segregated into separate statistical units - the largest share of value added by using the “top-down” method.

Characteristics of statistical units (5) Type of economic organization - intended to indicate whether the establishment is the sole establishment of the enterprise of immediate ownership or is part of a multi-establishment enterprise Type of legal organization - legal form of the economic entity which owns the unit Incorporated units Corporations Other incorporated entities Cooperatives Limited partnerships NPIs Unincorporated units Type of ownership Public Private

Characteristics of statistical units (6) Size an important stratification characteristic, essential for sample design and grossing up techniques Size based on employment (recommended) To be measured in terms of the average number of persons employed Recommended classification: 1, 2-9, 10-19, 20-49, 50-249, 250 and more Size based on monetary criteria – limited application for international comparisons Period of operation - indicates the period during which a unit has been in operation during the reference period in operation since (date) temporarily or seasonally inactive ceased operation (date) sold or leased to another operator (name of new operator)

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