1 ESCWA/UNSD Expert Group Meeting on National Accounts May 2009, Cairo, Egypt U N Statistics Division ISIC and CPC Implementation

Implementing New classifications Presentation Outline  Introduction  Implementation process - Steps  Structuring national classifications  Adaptation of business register  Sample designs and weights for surveys  Backcasting  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 New classifications  Structuring national classifications  Creation of a new national version of national classification (NSIC) according to ISIC Rev.4 for national use  Should involve other stakeholders / users/ data providers  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

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

Documentation and tools  UNSD will develop documents, based on European and other experiences, for:  Establishing a national classification  Recoding of business registers  Sampling design and weight estimation  Backcasting

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

NSIC setup process

Register update process

Statistics update process

Coordination of work  Groups involved in the three processes need to be coordinated ◦ Need for a programme manager  Communication with users of the classification (potential data providers) ◦ Need to get other users involved in setup and keep them updated on work and impact according to a fixed schedule

Recoding the business register  Based on known correspondence table, can use different methods:  Direct (straight) recoding  Use of additional info from NSO or external registers  Surveys  Profiling  Probabilistic models

Recoding the business register  Dual coding should be kept for several years ◦ Problem: some units may cease operation  Use of reference dates may help ◦ Can be implemented by using a transition code  Reflect correspondence table  Can computer-assisted coding help?

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

Thank You

Regional workshops  Regional workshops have been supported in two phases:  Workshops on final versions of ISIC and CPC in 2007/8  Workshops on specific elements of implementation*, such as:  Adaptation of business registers  Statistical collection programmes  Use of the classification for administrative data * (carried out most likely in connection with industry workshops)

Technical cooperation  EG supported regional partnership for technical cooperation  Proposal: ◦ US, Canada, selected S. American countries support ECLAC ◦ EU members support ECA, ECE, ESCWA (where relationships already exist) ◦ Australia, Japan, India support ESCAP ◦ UNSD will serve specific sub-regions  First steps of cooperation will be organized through the open discussion forum

Sample timetable for transition (1) Jan 2009 BR recoded to old and new classification 2009Continue sampling according to old NSIC but use Register information to tabulate the existing sample against the new strata in new NSIC. Use this scheme as the first attempt at the sample on the new basis. For strata that are weak, in terms of their sample size, estimate the numbers required for acceptable results on the new NSIC and seek approval to carry out this top-up of the sample

Sample timetable for transition (2) Jan 2010 Draw the sample on new NSIC (initially: old sample tabulated against the new industries and new strata, with weakest strata under the new NSIC boosted by a top-up of the sample) 2010Calculate variance of the elements in the sample in each of the strata based on returned data. Use sample variances as approximations of the population variances and use Neyman allocation to calculate new samples. Jan 2011 Re-allocate the sample based on reported data (in a more efficient way now). The top-up sample can cease. Survey can be conducted according to new NSIC.

Additional guidance  More detailed guidance for developing new national classification, recoding of business register, sampling design and weight estimation, backcasting is being prepared in the implementation materials