Exhaustiveness of National Accounts, NOE and informal sector of Armenia Workshop on Implementation of the 2008 SNA Kiev, 29 November - 2 December 2011 ՀՀ ԱԶԳԱՅԻՆ ՎԻՃԱԿԱԳՐԱԿԱՆ ԾԱՌԱՅՈՒԹՅՈՒՆ NATIONAL STATISTICAL SERVICE OF RA Agenda item 6d

Structure of presentation Brief overview of National Accounts in Armenia Exhaustiveness of NA, NOE in Armenia’s GDP Measuring the contribution of the informal sector (IS) to the total economy, Informal Sector Survey, ADB (RETA 6430) Presentation of IS GVA estimates/shares by industry. Presentation of IS GVA estimates/shares by industry. Which activities noted high contribution of informal sector (in proportion to total) GVA? Which activities noted high contribution of informal sector (in proportion to total) GVA? The characteristics of these industries that could explain why IS contribution is high. The characteristics of these industries that could explain why IS contribution is high. Description of the IS labor productivities in each industry. Comparison with the labor productivity in the formal sector. Description of the IS labor productivities in each industry. Comparison with the labor productivity in the formal sector. Characteristics of informal sector enterprises. Characteristics of informal sector enterprises. Implementation of Eurostat Tabular approach to Exhaustiveness of GDP 2

National accounts of Armenia are compiled in accordance with the fundamental concepts, categories, accounts’ conception of SNA Simultaneously, the implementation of the ESA 95 continues. Since 1990 the ANNUAL accounts are available Since 1992 the QUARTERLY accounts are available GDP is compiled by three methods : -production (according to NACE - Rev.1.1), annual and quarterly (current and constant prices, sseasonally adjusted) (current and constant prices, sseasonally adjusted) -expenditure, annual and quarterly (current and constant prices, seasonally adjusted) seasonally adjusted) -income (only for annual data, current prices) BRIEF OVERVIEW OF NATIONAL ACCOUNTS IN ARMENIA 3

Exhaustiveness of NA, NOE in Armenia’s GDP According to the conceptual framework of Measuring the Non-Observed Economy – Handbook, ILO, IMF, CIS ISC, 2002 GDP includes an estimate of Non-observed economy (NOE) since NOE in Armenia’s GDP includes: - underground production, - underground production, - deficiencies in the basic data collection system - deficiencies in the basic data collection system - informal sector production and - informal sector production and - production of households for own final use. - production of households for own final use. Illegal production is out of GDP estimate. 4

Exhaustiveness of NA, NOE in Armenia’s GDP Estimations are based on following data sources: -employment data (formal employment reported by companies) -employment data (formal employment reported by companies) -labour force survey (total employment received from -labour force survey (total employment received from households) households) -ILCS -ILCS -special one-off sample surveys (construction, education, -special one-off sample surveys (construction, education, healthcare, trade, NPISH) healthcare, trade, NPISH) -other indirect methods -other indirect methods Special round of surveys focused on informal activities was held during : -small size enterprises -small size enterprises - labor force survey - survey of self-employed 5

GDP27,327,426,325,024,8 A,BAgriculture24,124,722,522,322,1 DManufacturing42,741,838,536,049,7 EElectricity0,00,00,05,27,4 FConstruction36,338,041,438,436,3 GTrade55,353,549,449,245,8 H Hotels and restaurants 5,517,08,06,421,1 ITransport11,29,18,010,013,8 K Real estate, renting 20,516,917,213,911,5 MEducation6,57,07,47,07,0 NHealth56,050,949,931,644,7 O Other services 43,034,931,425,926,1 Exhaustiveness of NA, NOE in Armenia’s GDP by industries,% 6

Exhaustiveness of NA, NOE in Armenia’s GDP by industries,% 7

MEASURING THE CONTRIBUTION OF THE INFORMAL SECTOR (IS) TO THE TOTAL ECONOMY Informal Sector Survey, ADB (RETA 6430)-2009 IS According to the Delhi Group The Delhi Group (Expert Group on IS set up by UNSD) proposed the following criteria to identify the IS: Legal organization (unincorporated enterprises)Legal organization (unincorporated enterprises) No complete set of accountsNo complete set of accounts With at least some market outputWith at least some market output Employment size (less then 5)Employment size (less then 5) For statistical and SNA purposes, the IS is defined in terms of enterprise (producing unit). Thus, measuring its contribution to GDP is made more explicit. It is defined as part of household unincorporated enterprises and a subsector of the national accounts. 8

MEASURING THE CONTRIBUTION OF THE INFORMAL SECTOR (IS) TO THE TOTAL ECONOMY Informal Sector Survey, ADB (RETA 6430)-2009 NSS RA applied mixed survey approach in 2009 through the ADB Regional Technical Assistance (RETA) 6430: Measuring the Informal Sector. It had two phases: 1. Expanded Labor and Employment module of the Integrated Living Conditions Survey (ILCS), with additional questions - identifying household unincorporated enterprises with at - identifying household unincorporated enterprises with at least some market production (HUEMs), least some market production (HUEMs), - distinguishing informal employment from formal employment, - distinguishing informal employment from formal employment, - the extent of social protection mechanisms. - the extent of social protection mechanisms. 2. the Informal Sector Survey, covered 624 PSUs. The sampling frame constituted the list of HUEMs identified in phase 1. A total of 548 HUEMs were included in the ISS. 9

Structure of ISS Questionnaire in Armenia MEASURING THE CONTRIBUTION OF THE INFORMAL SECTOR (IS) TO THE TOTAL ECONOMY Informal Sector Survey, ADB (RETA 6430)-2009 Section A Organization of Business Section B Employment and Compensation Section C Production and Sale Section D Expenditures on Raw Materials and Stock Section E Capital Expenditures Section F Credit Information Section G Other Information 10

MEASURING THE CONTRIBUTION OF THE INFORMAL SECTOR (IS) TO THE TOTAL ECONOMY Informal Sector Survey, ADB (RETA 6430)-2009 ISS Questionnaire Description NA components Section B, Employment and Compensation – gathers information on the incomes paid from the production and other components of GVA under the income approach Income approach – compensation and operating surplus Section C, Production, Inventory and Sale – information include sales, revenues, inventories and own consumption of the enterprise from production, either in agriculture or non-agriculture enterprises. Production approach – output Section D, Expenditures on Raw Materials and Stock – data gathered are on expenditures on inputs to production incurred by the enterprise, either in agriculture or non-agriculture enterprises. Production approach – intermediate input Section E, Capital Expenditures – consists of items on the types and costs of fixed capital purchases / sold by the enterprise. other variables – gross fixed capital formation Change in inventories - gathers estimates of changes in inventories of output Other variables - Inventories Activity fluctuations during last 12 months - records the sales trend of the business which can be utilized to approximate the annual level of production and verify degree of activities Annualization of GVA estimates 11

Informal sector GVA by industries Share in total GVA of industry, % Share in informal sector total GVA TOTAL GVA A,BAgriculture, hunting and forestry, fishing CMining and quarrying0.0 DManufacturing EElectricity, gas and water supply0.0 FConstruction GWholesale and retail trade, repairs, etc HHotels and restaurants0.0 ITransport, storage, and communications JFinancial intermediation0.0 KReal estate, renting, and business activities L Public administration and defense, social security0.0 MEducation NHealth and social work OOther community, social and personal services

Informal sector GVA by industries Trade: - average share in GDP – about 11.0%, 2009 – 12.7%, % 2009 – 12.7%, % - influenced by large imports of goods, which comprised about % in GDP of recent years - many informal small trade points (boutiques) mainly in rural areas Other community, social and personal services: - includes Recreational, cultural, sport, sewage and refuse disposal and other personal services, - share in GDP is small – 1.8% in 2009 and informal production mainly in personal services like hairdressing 13

Informal Sector GVA by urbanity in Armenia 14

Agriculture and non-agriculture GVA in the Formal and Informal sectors 15

Labor productivity 16

Type of premises where business activities are conducted Location Proportion (%) Farm or individual agriculture / subsidiary plot Home or workplace of the client 4.34 Transport vehicle 2.60 At home with no special work space 2.25 Market, bazaar stall, trade fair 1.94 At home with work space inside / attached to the home 1.20 Street, pavement or highway with fixed post 1.11 No fixed location (e.g., mobile, door-to-door, street w/o fixed post 0.75 Construction site 0.59 Business premise with fixed location independent from home 0.38 Employer's home 0.21 Others

Average Employment of IS Enterprises by Industry IndustryWorkers Paid Workers Agriculture, hunting and forestry, fishing Manufacturing Construction Wholesale and Retail Trade Transport and Communication Real Estate, Renting Education Health and Social Work Other Service Activities Max of workers - 6, paid workers - 5: in Agriculture. 18

Reason for choosing the business activity Reason% Family tradition 41.8 More stable returns than other products / services 12.2 It is the profession that I know 7.6 It gives better income / higher profits than other products or services 5.9 Others

Source of Financing of IS enterprises Source Proportion (%) Private bank 77.7 Private money lender / pawnshop 12.8 Relative / neighbor / friends 11.2 Cooperative1.3 Employer / landlord 0.0 Others16.1 Reason for not availing of any loan to finance business activity - High interest rate for loans – 52.1%, - Burdensome requirements – 30.8%, - Other source of income – 16.7%. 20

Implementation of Eurostat Tabular approach to Exhaustiveness of GDP Current TWINNING project from January 2011 to January 2013 with Statistics of Denmark as the core partner includes also project component for Exhaustiveness of GDP with aim to introduce Eurostat Tabular approach to Exhaustiveness into practice. Table 1A is already completed for all industries and 7 types of non-exhaustiveness and draft Table 2A is completed for one industry. 21

THANK YOU! ՀՀ ԱԶԳԱՅԻՆ ՎԻՃԱԿԱԳՐԱԿԱՆ ԾԱՌԱՅՈՒԹՅՈՒՆ NATIONAL STATISTICAL SERVICE OF RA Workshop on Implementation of the 2008 SNA Kiev, 29 November - 2 December 2011