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MANUFACTURING
Estimation of Manufacturing Output, Intermediate Consumption and Value Added
International WorkshopFrom Data to Accounts: Measuring Production in
National Accounting8-10 June 2009, Beijing, China
UN STATISTICS DIVISION
Content of presentation
Some basic principles in Manufacturing
International Recommendations for Industrial Statistics 2008
Manufacturing industries
Industrial classifications, such as ISIC - identify a group of manufacturing industries
Manufacturing industries Produce goods such as machineryProduce industrial services such as machinery repair
and installation Both goods and services produced should be
included in the Manufacturing output
Classification of units
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
Determineswhere the unit
will be classified
Treatment of Ancillary Activities (1)
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 supportDepict the production process as it is performedAncillary unit is not recognized by its own activityStructural decomposition of GDP by economic activity is
not depicted correctlyRegional GDP can not be compiled accurately
2008 SNA - units undertaking ancillary activities to be treated as an establishment in certain cases
Treatment of Ancillary Activities (2)
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
Treatment of Ancillary Activities (3)
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)
Output of ancillary establishments
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
Case 2. Treatment of the headquarter (ancillary unit) as an establishment
Establishment 1 Establishment 2 Headquarter
IC = 100 IC = 30
2/ 3 output 3 = 30 2/ 3 output 3 = 15
IC = 30
VA = 70 VA = 55 VA = 15
Output 1 = 200 Output 2 = 100 Output 3 (imputed) = 45
VA=VA1+VA2+VA3 == 140
VA=O1+O2–(IC1+IC2+IC3) == 140
Valuation principles (1)
Basic Price
Basic priceFactor costs
+ Other taxes on production
- Other subsidies on production
Factor costs
+ Taxes on products(excl. VAT andother deductibletaxes)
- Subsidies onproducts
Producers’ Price
Producers’ price
+ Any transportand trade marginsinvoiced separatelyto the purchaser to take delivery
Purchasers’ Price
Output and VA
IC
Valuation principles (2)
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
Background
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
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)
Need for Revision of IRIS
Scope of Industrial Sector Economic activities included in terms of ISIC or a
national classification compatible with ISIC:
Mining and quarrying (Section B) Manufacturing (Section C)
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
ISIC, Rev.4
Units of Industrial Sector (1)
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 themGovernment units operating for profitGovernment units providing goods and services to
themselves – printing, publishing, ammunitions factories, etc.
Units of Industrial Sector (2)
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
CorporationNon-profit Institution serving industrial businesses Unincorporated enterprise
Outsourcing 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
Types of Outsourcing (1) 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
Types of Outsourcing (2)
Outsourcing of complete production processOutsourcing 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 unitPrincipal 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)
Data Items (1) IRIS 2008 provides summary definitions of data
items for collection in industrial statistics13 groups of data items, incl. data items in quantity and
environmental protection expenditures
EmploymentEmployees 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 employeesEmployee stock options are considered income in kind
Data Items (2) Other expenditures (part of IC calculation)
Purchases of goods and services 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
Remember this item
Data Items (3) Sales (turnover), shipments and other
revenuesMarket 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 salesValue of own account fixed assets
Remember this item
Data Items (4)
Inventories and capital formationChanges 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 costComputer software and databaseResearch and developmentMineral exploration and evaluationEntertainment, literary and artistic originalsOthers
Gross output vs. Census output
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 non-industrial service revenues
Intermediate consumption and Census input
Intermediate consumption at purchasers’ prices = + Purchases of raw materials and supplies + Purchases of gas, fuel and electricity + Purchases of water and sewerage services
+ Purchases of services except rentals + Rental payments+ Changes in inventories of materials, fuels and supplies
Census input at purchasers prices – not recommendedCensus input = Intermediate consumption – Cost of
non-industrial services
Revalue to current prices and adjusts the
purchases to uses
National Accounts VA and Industry VA
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
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