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

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

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

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

5. 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

6. 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.

7. 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

8. 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

9. 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

10. 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

11. 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

12. Structure and coding Sections 17 A – Q 17 A – Q
ISIC Rev NACE Rev. 1
Sections A – Q A – Q
Subsections CA – DN
Divisions – – 99
Groups – – 99.0
Classes – –
ISIC Rev NACE Rev. 1.1
Sections A – Q A – Q
Subsections CA – DN
Divisions – – 99
Groups – – 99.0
Classes – –

13. Structure and coding Sections 21 A – U 21 A – U
ISIC Rev NACE Rev. 2
Sections A – U A – U
Divisions – – 99
Groups – – 99.0
Classes – –

14. 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

15. 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

16. 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

17. Basic classification rules

18. 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 %

19. 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 %
Division 29 Manufacture of motor vehicles, trailers and semi-trailers %

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

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

22. 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

23. 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% % = 0,34

24. 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% % = 0,53

25. 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

26. 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

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

28. Additional classification rules
repair and maintenance
motor vehicles and motorcycles NACE Rev and 45.4
personal and household goods NACE Rev
computers and communication equipment NACE Rev
other goods NACE Rev

29. 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.

30. 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

31. 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.”

32. 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.

33. Thank you for your attention!
Please address queries to:
Norbert Rainer
Contact information:
Guglgasse 13, 1110 Vienna
phone: +43 (1)
fax: +43 (1)
Thank you for your attention!