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Workshop on National Accounts6-9 July 2009, New Delhi, India

UN Statistics DivisionUN 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)

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Increased detail of ISIC Rev.4

ISIC Rev.3ISIC Rev.3 ISIC Rev.4ISIC Rev.4

SectionsSections 1717 2121

DivisionsDivisions 6060 8888

GroupsGroups 159159 238238

ClassesClasses 292292 419419

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.4A 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 activities59 - Motion picture, video, television programme

production, sound recording and music publishing activities

60 – Programming and broadcasting activities61 - Telecommunications62 – 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 versions3. 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]

ISIC link through “numerical truncation”

ISIC Rev.4 National Classification 23101 Manufacture of flat glass 23102 Shaping and processing of flat glass 23103 Manufacture of hollow glass 23104 Manufacture of glass fibres

2310

Manufacture of glass and glass products

23109 Manufacture and processing of other glass, including technical glassware

2391 Manufacture of refractory products

23910 Manufacture of refractory products

23921 Manufacture of ceramic tiles and flags 2392

Manufacture of clay building materials

23922 Manufacture of bricks, tiles and construction products, in baked clay

International comparability is maintained. No additional tools are required.

Link between ISIC and NACE

ISIC Rev.4 NACE Rev.2 2311 Manufacture of flat glass 2312 Shaping and processing of flat glass 2313 Manufacture of hollow glass 2314 Manufacture of glass fibres

2310

Manufacture of glass and glass products

2319 Manufacture and processing of other glass, including technical glassware

2391 Manufacture of refractory products

2320 Manufacture of refractory products

2331 Manufacture of ceramic tiles and flags 2392

Manufacture of clay building materials

2332 Manufacture of bricks, tiles and construction products, in baked clay

International comparability is maintained. However, correspondence table is required.

Combining of ISIC categories

ISIC Rev.4 National Classification 2311 Manufacture of flat glass

2310 Manufacture of glass and glass products

2319 Manufacture and processing of other glass

2391 Manufacture of refractory products

2392

Manufacture of clay building materials

2390

Manufacture of refractory products and clay building materials

International comparability is reduced Correspondence table is required.

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

ISICPossible approaches

“Formal approach”

Homogeneitybased

“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 < 0.5 => 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