International Workshop
From Data to Accounts: Measuring Production in
National Accounting
8-10 June 2009, Beijing, China
UN STATISTICS DIVISION
 Some
basic principles in Manufacturing
 International
Recommendations for Industrial
Statistics 2008
Some basic principles in
Manufacturing


Industrial classifications, such as ISIC identify a group of manufacturing industries
Manufacturing industries
Produce goods such as machinery
Produce industrial services such as machinery repair
and installation
Both goods and services produced should be included
in the Manufacturing output
Determines
where the unit
will be classified

Principal activity
 The activity whose value added exceeds that of any other
activity carried out within the same unit

Secondary activities
 Activities carried out within a single producer unit in addition to
the principal activity and whose output, like that of the principal
activity, must be suitable for delivery outside the producer unit

Ancillary activities
 Incidental to the main activity of an enterprise
 Facilitate the efficient running of the enterprise but does not
normally result in goods and services that can be marketed

Ancillary activity – a productive activity
undertaken with the sole purpose of
producing services for IC within the same
enterprise
1993 SNA – ancillary activities are integrated with the
establishments they support
 Depict the production process as it is performed
 Ancillary unit is not recognized by its own activity
 Structural decomposition of GDP by economic activity is
not depicted correctly
 Regional GDP can not be compiled accurately
2008 SNA - units undertaking ancillary activities to be
treated as an establishment in certain cases

When an ancillary activity is recognized as a
separate establishment?
 An enterprise in which different kinds of activities
undertaken are either horizontally or vertically integrated
 An establishment undertaking ancillary activities is
statistically observable, i.e. records of its transactions are
readily available
 The ancillary units are in a geographical location different
from the establishments they serve


Ancillary establishment should be allocated to the
industrial classification corresponding to its own
principal activity
Statisticians should not make extraordinary efforts
to create separate establishments for these
activities artificially in the absence of suitable basic
data being available

Output of ancillary establishment
Should be derived on a sum of cost basis, i.e. all cost
of production incl. the cost of capital used
Output is deemed to be market when the parent
enterprise is a market producer and non-market
otherwise
Output is treated as intermediate consumption of the
establishments it serves and should be allocated using
appropriate indicator (VA, output, employment)
Case 1. An enterprise with 2 establishments and a headquarter (ancillary unit)
Establishment 1
Establishment 2
Headquarter
IC = 100
IC = 30
IC = 30
VA = 100
VA = 70
VA = 15
Output 1 = 200
Output 2 = 100
Output 3 (imputed) = 45
VA=O1+O2–(IC1+IC2+IC3) =
= 140
Case 2. Treatment of the headquarter (ancillary unit) as an establishment
Establishment 1
Establishment 2
Headquarter
IC = 100
IC = 30
IC = 30
2/3 output 3 = 30
2/3 output 3 = 15
VA = 70
VA = 55
VA = 15
Output 1 = 200
Output 2 = 100
Output 3 (imputed) = 45
VA=VA1+VA2+VA3 =
= 140
IC
Purchasers’ Price
Output
and VA
Producers’ Price
Basic Price
+ Other taxes
on production
- Other subsidies
on production
Factor costs
Factor costs
+ Taxes on
products
(excl. VAT and
other deductible
taxes)
+ Any transport
and trade margins
invoiced separately
to the purchaser
to take delivery
- Subsidies on
products
Basic price
Producers’ price

Total VA at basic prices =
GO at basic prices – IC at purchasers' prices
If taxes and subsidies on products and
production cannot be segregated

Total VA at factor cost =
GO at factor cost - IC at purchasers' prices
International
Recommendations for
Industrial Statistics 2008
(IRIS 2008)


Since 1950s, UN has published international
recommendations to establish a coherent and
uniform measurement of industrial activities –
1953, 1960, 1968 and 1983
IRIS 2008 adopted by the 39th session of the
UN Statistical Commission
Need for Revision of IRIS

Revision of the 2008 SNA

Revision of the ISIC, Rev.4, and CPC, Ver.2



Efforts of countries to minimize the difference
between the concepts of “census value added” and
“national accounts value added”
Change in the valuation of industrial output to
basic prices in accordance with SNA principles
Consistency with concepts, definitions and
terminology used in statistical publications and
regulations of other international organizations
(IMF, OECD, ILO, Eurostat)

Economic activities included in terms of ISIC or a
national classification compatible with ISIC:
 Mining and quarrying (Section B)
 Manufacturing (Section C)
ISIC, Rev.4
 Electricity, gas, steam and air conditioning supply (Section D)
 Water supply; sewerage, waste management and remediation
activities (Section E)

Industrial activities in international waters, such as
the operation of petroleum and natural gas wells,
should be included if they are subject to the laws,
regulations and control of the country concerned

In conformity with the 2008 SNA production
boundary all units engaged in economic
activities within the scope of industrial sector
should be covered
 Units of all sizes and types of ownership, including:
 Household unincorporated enterprises as well as goods
produced by households engaging in industrial activities for
own final consumption
 Departments, establishments and similar units of General
Government should be included if they are mainly engaged in
industrial activities within the scope and are identifiable by
accounting records kept by them
 Government units operating for profit
 Government units providing goods and services to
themselves – printing, publishing, ammunitions
factories, etc.

Establishment - appropriate for production
and employment analysis by economic
activities
Enhance homogeneity in the measurement of the
economic activity and more accurate presentation of
regional economic reality
Allow grouping into similar kind of industries (ISIC)

Enterprise – appropriate for financial analysis
by institutional sectors
Corporation
Non-profit Institution serving industrial businesses
Unincorporated enterprise

Outsourcing of production - when the principal unit
contracts another productive unit to carry out specific
aspects of the production activity of the principal, in whole
or in part in the production of a good or a service
 Activity classification of the contractor – straightforward,
does not change with the outsourcing
 Activity classification of the principal - affected by the
nature and extent of the outsourcing, requires conventions
for a consistent treatment

Recommendation: the criterion on where to classify the
principal should be based on the ownership of the physical
input materials by the principal only

Outsourcing of support functions - the principal carries out the
production of goods or services, but outsources certain support
functions, such as accounting or computer services, to the
contractor
 Principal remains classified to the respective ISIC class that represents
the core production process
 Contractor is classified to the specific support activity it is carrying out,
e.g. ISIC class 6920 or 6202

Outsourcing parts of the production process - the principal
outsources a part of the production process, but not the whole
process, to the contractor as the principal owns the material
inputs to be transformed by the contractor and thereby has
ownership over the final outputs
 Principal is classified in the appropriate class of ISIC as if it were
carrying out the complete production process
 Contractor is classified according to the portion of the production
process he is undertaking

Outsourcing of complete production process
 Outsourcing of service producing activities, including
construction
 Both the principal and the contractor are classified as if they
were carrying out the complete service activity support
functions
 Outsourcing of manufacturing activities to contractor,
when the principal does not physically transform the
goods at the location of its unit
 Principal owns the material inputs and thereby has economic
ownership of the outputs, but has the production done by
others - he is classified to section C (Manufacturing)
 Principal has the production done by others, but does not
own the material inputs - should be classified to section G
(Distributive trade)
 Contractor is classified always to section C (Manufacturing)

IRIS 2008 provides summary definitions of data items
for collection in industrial statistics
 13 groups of data items, incl. data items in quantity and
environmental protection expenditures

Employment
 Employees engaged in own account production of fixed
assets and intellectual property products (software and
database development, R&D, mineral exploration and
evaluation, entertainment, literary and artistic originals)
should be distinguished separately for the purpose of
calculating output and capital formation

Compensation of employees
 Employee stock options are considered income in kind

Other expenditures (part of IC calculation)
 Purchases of goods and services
Remember
this item
 Raw materials, parts and supplies – purchased from other
enterprises and delivered by other establishments of the same
enterprise
 Gas, fuels and electricity purchased
 Water and sewerage services
 Services except rentals
 Cost of industrial services purchased and also delivered by
other establishments of the same enterprise – maintenance,
repair, installation, contract and commission work
 Cost of non-industrial services – transport, communication,
advertising
 Purchase of good and services for resale in the same condition as
received
 Rental payments
 Non-life insurance premiums payable on establishment property

Sales (turnover), shipments and other
revenues
Market sales to other enterprises, incl. transfers to
other establishments of the same enterprise and barter
Sales of goods and services purchased for resale in the
same condition as received
Receipts for industrial work done or industrial services
rendered – contract and commission works,
maintenance and repair, R&D from industrial nature
Other non-industrial service revenues (may not be
ascertain at the establishment level) – revenues from
operating cafeterias, hostels, storage, transportation
E-commerce sales
Remember
Value of own account fixed assets
this item

Inventories and capital formation
Changes in inventories - important for the calculation
of industrial output and intermediate consumption,
valuation
Do not forget the new classification of non-financial
assets
 Intellectual property products – their output should be
capitalized; if done on own account - the output should
be valued at cost
 Computer software and database
 Research and development
 Mineral exploration and evaluation
 Entertainment, literary and artistic originals
 Others
 Gross
output at basic prices =
+ Value of sales (turnover), shipments and other
revenues
- Purchases of goods and services for resale in the
same condition as received (usually from a
secondary trade activity)
+ Change in work-in-progress
+ Change of inventories of finished goods
+ Change in inventories of goods purchased for
resale in the same condition as received
 Census
output – recommended to be
discontinued
Census output = Cross output – Other nonindustrial service revenues


Intermediate consumption at purchasers’ prices =
Revalue to
+ Purchases of raw materials and supplies
current prices
+ Purchases of gas, fuel and electricity
and adjusts the
+ Purchases of water and sewerage services purchases to
uses
+ Purchases of services except rentals
+ Rental payments
+ Changes in inventories of materials, fuels and
supplies
Census input at purchasers prices – not
recommended
Census input = Intermediate consumption – Cost of
non-industrial services

IRIS 2008 makes the concept of Industry Value Added
as close as possible to the concept of National
Accounts Value Added
However

Depending on the organization of the country some
adjustments would still be needed to get to the
National Accounts concept
 FISIM - the cost is included in the interest paid and interest
received
 Insurance service charge - the cost is included in the
premium
Thank You