1 Workshop on National Accounts 6-9 July 2009, New Delhi, India UN Statistics Division Implementing New classifications

Implementing ISIC Rev. 4 Presentation Plan  Introduction  Overview of ISIC changes  Implementation process - Steps  Structuring national classifications  Adaptation of business register  Points for discussion

 Since its creation in 1948, ISIC had two goals:  Provide a tool for international comparison  Provide guidance to countries for a national activity classification structure  ISIC periodically updated to keep it relevant with economic developments.  Side effect: Increasing need for detailed data has lead to more detailed versions of ISIC Introduction

Implementing ISIC Rev. 4  Structuring national classifications  Creation of a new national version of national classification (NSIC) according to ISIC Rev.4 for national use  Recoding Business Register  Switchover in the Business Register to new NSIC  Statistics update process  Co-ordinate simultaneous switchover in statistics to new NSIC and the control of the quality of time series

ISIC structure changes  Increase in top-level categories  Increase in overall detail  New concepts (information, professional services, support services)  New application rules (vertical integration, top-down method, outsourcing)

6 Increased detail of ISIC Rev.4 ISIC Rev.3 ISIC Rev.4 Sections1721 Divisions6088 Groups Classes292419

Continuity in ISIC Rev. 4  Despite many changes, a lot of areas in ISIC have not changed  Manufacturing as a “ historical ” area remains relatively stable  Most application rules remain intact

High-level concordance ISIC Rev.4 A Agriculture, forestry and fishing B Mining and quarrying C Manufacturing D Electricity, gas, steam and air conditioning supply E Water supply; sewerage, waste management and …… F Construction G Wholesale and retail trade; Repair of motor vehicles … H Transportation and storage I Accommodation and food service activities J Information and communication K Financial and insurance activities L Real estate activities M Professional, scientific and technical activities N Administrative and support service activities O Public admn and defence; compulsory social sec P Education Q Human health and social work activities R Arts, entertainment and recreation S Other service activities T Activities of households as employers … U Activities of extraterritorial organizations and bodies ISIC Rev.3.1 A Agriculture, hunting and forestry B Fishing C Mining and quarrying D Manufacturing E Electricity, gas and water supply F Construction G Wholesale and retail trade; … H Hotels and restaurants I Transport, storage and communications J Financial intermediation K Real estate, renting and business … L Public administration … M Education N Health and social work O Other community, social, personal … P Activities of private households Q Extraterritorial organizations and bodies

Structure of Section J 58 - Publishing activities 59 - Motion picture, video, television programme production, sound recording and music publishing activities 60 – Programming and broadcasting activities 61 - Telecommunications 62 – Computer programming, consultancy and related activities 63 - Information service activities

Affected ISIC 3.1 categories :  221 ”Publishing” ( in “Manufacturing”)  72 “Computer and related activities” except 725 (in “Real estate, renting and business activities”)  642 “Telecommunications” (in “Transport, storage and communications”)  92 “Recreational, cultural and sporting activities” (9211, 9212, 9213, 9220, 9231 in “Other community, social and personal service activities”)

Implementation of ISIC Rev.4  Major tasks and challenges :  Defining a new classification and associated tools  Reclassification of all units on the business register according to the revised classification  Maintaining two classifications for an interim period  Sampling and weighting under the new classification

Implementation of ISIC Rev.4  Major tasks and challenges :  Simultaneous estimation and results assessment under both new and old classification  Construction of industry weights  Construction of back series in terms of the revised classification  Handling of the national accounts move to the revised classification

Structuring national classification How can national classifications be structured? 1. Using ISIC as a starting point 2. Based on historical national versions 3. Starting completely from scratch

Using ISIC as a basis  Countries that use ISIC as a basis for their national classification, can do this to varying degrees: 1.Adopt ISIC “as-is” 2.Use the complete ISIC and add subdivisions to reflect nationally important industries (but maintain the ISIC coding structure) – can be “numerically truncated” back to ISIC [Example] 3.As above, but with changes of the coding structure (example: NACE) – requires correspondence table [Example] 4.Elevating lower level ISIC categories to higher national levels, (e.g. combine ISIC categories at 2- or 3-digit level) [Example]

Using ISIC as a basis  The first three methods maintain full comparability with ISIC at all levels  Option 4 limits internationally comparability to a higher aggregation level only  Is use of the same coding as ISIC 4 a requirement? - No, but it makes comparisons easier.

Using historical national classifications as a basis  Using non-ISIC based classifications always creates difficulties for international comparison  Correspondence tables are necessary  May limit data conversion due to splits  Efforts are encouraged to line the historical versions up to ISIC  At detailed level (without considering aggregation structures) or  By lining up individual sections

What detail should be considered? (1)  The United Nations Statistical Commission recommends that detailed categories of a national classification can be rearranged and aggregated so that they correspond with the 2-digit level of ISIC without loss of data.  However, most statistics and users will require more  Countries might want to add detail for industries of particular importance to the national economy.  Countries might want to remove detail for reasons involving size and relevance, confidentiality or homogeneity

What detail should be considered? (2)  Classification for collection may be more detailed than for distribution of data  Using more detail for collection allows for future adjustments if individual industries are growing  Level of detail for publishing depends on type of statistics anyway  No fixed guidelines exist for the proper choice of detail

ISIC Possible approaches “Formal approach” Homogeneity based “Pragmatic approach” Based on variables like: # of statistical units # of employees value added With chosen variable, compute ratio R between what is found within a category and average among “siblings”: R delete R  [0.5, 1.5] => keep R > 1.5 => split Drawbacks: Hard to define levels/weights Level of detail influence outcome Ignore dynamic aspects Compress or expand classification based the value of these ratios Based on: Homogeneity ratios (as described in ISIC Rev. 3) Drawbacks: Not enough usable data No definitive and mutually exclusive definition of activities by products Based on: Input from data users Special concerns (confidentiality, extra burden, growing industries) New subclasses only created if user demand Data users must justify their needs for splits, and estimate number of affected units and turnovers Take confidentiality and extra burden into account in advance No strict thresholds Drawbacks: Challenging and intense discussions, not all user needs can be met

Options to consider or avoid (1)  ISIC structure and definition are based on few criteria (input, process, output, use of outputs)  Should other criteria be added for national purposes, such as private vs. public entity, manufacturing by hand (crafts) vs. manufacturing by machines?  What are the applications?  Generally, avoid unnecessary addition of detail

Options to consider or avoid (2)  When following the ISIC structure and coding system, don’t renumber codes if you want to skip a code number  Regardless of legality, size or other concerns, it is still within conceptual scope, and must be accounted for in the SNA.  Renumbering makes the ISIC link less intuitive Rules for good housekeeping  If a category at level n is not further subdivided, the code at level n+1 should be the same code with a “0” appended  Use digit “9” for residual categories

Implementation of ISIC and CPC Expert Group  Expert Group discussed a proposal for the implementation of ISIC and CPC at its meeting in April 2007  Main recommendations relate to:  Timetable  Documentation and tools  Regional workshops  Technical cooperation

Implementation Timetable  EG recommended two milestones:  Countries should adapt their national classification to ISIC Rev.4 by 2009  To meet population census target of 2010  International data reporting in ISIC Rev.4 format should begin in 2012  No specific dates have been recommended for completion of:  Adaptation of business register  Sample designs and weights for surveys  Backcasting  Reasons: ◦ The timing and organization of surveys varies by country ◦ Scope (length) of backcasting differs by country

Documentation and tools  UNSD will develop:  A Companion Guide to ISIC and CPC that helps to understand:  the concepts and structure of the classifications  Application of the classification  Correspondence tables  ISIC and CPC indexes  UNSD will also set up an open discussion forum and expand the classifications website into a larger knowledge platform

Implementation of ISIC Rev.4  Major tasks and challenges:  Defining a new classification and associated tools  Reclassification of all units on the business register according to the revised classification  Maintaining two classifications for an interim period  Sampling and weighting under the new classification  Simultaneous estimation and results assessment under both new and old classification  Construction of industry weights for short term statistics  Construction of back series in terms of the revised classification  Handling of the national accounts move to the revised classification

Recoding the business register Sources:  Direct (straight) recoding (1:1 link)  Problems for 1-n and m - n links  Internal sources  Information from profiling of large and complex enterprises  Existing business activity descriptions can some times be used to allocate split codes between old and new classifications  External sources  NSO may depend on external registers (tax registration, social security, chambers of commerce etc.)  If admin sources convert to new classification at exactly the same time as the statistical BR of NSO – then admn source is helpful to determine the correct new code for the business

Points for discussion  Has the process for implementing new classifications been set up by the South Asian countries? If  Yes – Status  No – Plan for implementation

Thank You