regional seminar on compilation and application of … · 2018-02-02 · regional seminar on...

REGIONAL SEMINAR ON COMPILATION AND

APPLICATION OF SUPPLY-USE TABLES IN AFRICA

5-8 FEBRUARY 2018, ADDIS ABABA, ETHIOPIA

ACS/ESNA2018

Session 4: Estimation of output, intermediate consumption, value added components; and

Valuation columns

Economic Commission for Africa

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Outline of presentation

• Concepts in brief

– Domestic production (supply table)

– Intermediate consumption (use table)

– Value added components (use table)

– Taxes and subsidies on production and imports; differences between taxes and subsidies on products and other taxes and other subsidies on production; basic prices, producers’ prices and purchasers’ prices

• Compilation of

– domestic production, imports, intermediate consumption and value added components in SUTs

– valuation columns in the supply table

• Trade and freight transport margins

• Taxes and subsidies on products

Domestic production, intermediate consumption and value added

components: Concepts


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Production and products

• Production

Production is an activity, carried out under the responsibility, control and management of an institutional unit, that uses inputs of labour, capital, and goods and services to produce outputs of goods and services.

Production can be described in general terms as an activity in which an enterprise uses inputs to produce outputs.

• Products

Products—goods and services (including knowledge capturing products) that result from a production process.

Particular enterprise may be involved in production of goods / services or both.


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Goods and services• Goods

Goods are physical, produced objects for which a demand exists, over which ownership rights can be established and whose ownership can be transferred from one institutional unit to another by engaging in transactions on markets

Ownership, existence of demand and transferability—main characteristics of goods

Satisfy needs or wants of households or community or for production of other goods and services

• Services

Services are the result of a production activity that changes the conditions of the consuming units, or facilitates the exchange of products or financial assets

Change effecting services: Change the conditions of goods

- example: transport, cleaning, repairing

Change the physical condition of persons

- example: medical, beautician services

Change the mental condition of persons

- example: educational, entertainment services

Margin services—trade and many financial services


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Production boundary (1/3)

Production boundary includes the following:

(a) Goods (i) Production of goods for supply to units other than their producers;

and (ii)Own-account production that is retained by their producers for own

final consumption or gross fixed capital formation; and

(b) Services (i) Individual and collective services intended to be supplied to units

other than their producers, (ii)The own-account production of knowledge-capturing products that

are retained by their producers for their own final consumption or gross capital formation but excluding (by convention) such products produced by households for their own use,

(iii)Own-account production of housing services by owner-occupiers, and (iv)Domestic and personal services provided by employing paid staff.


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Production boundary (2/3): few points

• Illegal production is not excluded from the production boundary

• Non-market production of goods, and bribes, tips, etc. which are made in return for services are within the production boundary

• Own account production of goods include:

agricultural products and their subsequent storage; gathering of berries or other uncultivated crops; forestry; wood-cutting and collection of firewood; hunting and fishing;

other primary products such as mining salt, cutting peat, the supply of water,etc;

processing of agricultural products; production of grain by threshing; production of flour by milling; meat and fish products; preservation of fruit by drying, bottling, etc.; dairy products such as butter or cheese; beer, wine, or spirits; baskets or mats; etc.;

other kinds of processing such as weaving cloth; dress making and tailoring; production of pottery, utensils or durables; making furniture or furnishings, etc.


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Production boundary (3/3)

• own-account construction of dwellings.

• own account production for GFCF includes the production of fixed assets such as construction, development of software and mineral exploration.

• Production excludes the production of domestic and personal services that are produced and consumed within the same household (with the exception of employing paid domestic staff and the services of owner-occupied dwellings).

• Volunteer activities that result in goods, e.g. the construction of a dwelling or other building are to be recorded as production. Volunteer activities that do not result in goods, e.g. caretaking and cleaning without payment, are excluded.

• “Do-it-yourself” repairs and maintenance to consumer durables and dwellings carried out by members of the household constitute the own-account production of services and are excluded from the production boundary of the SNA. In the case of dwellings, purchases of materials for repairs become intermediate expenditures incurred in the production of housing services. Output of such repairs and maintenance is not separately recorded. Major renovations or extensions to dwellings are output and GFCF.


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Output and time of recording

Output

• Output is defined as the goods and services produced by an establishment, excluding

the value of any goods and services used in an activity for which the establishment does not assume the risk of using the products in production

the value of goods and services consumed by the same establishment except for goods and services used for capital formation (fixed capital or change in inventories) or own final consumption

Time of recording

• Recorded as it takes place and not when the resulting output is sold.


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Classification of Output

• Categories of output

Market output is intended for sale or disposal on the market at prices that are economically significant.

Non-market output produced for own final use consists of goods and services intended to be retained by the producers for their own final consumption or gross fixed capital formation.

Other non-market output includes production by government and non-profit institutions serving households of goods and collective or individual services that are supplied free or at prices that are not economically significant.


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Economically significant prices

• Economically significant prices are prices that have a significant effect on the amounts that producers are willing to supply and on the amounts purchasers wish to buy. These prices normally result when:

The producer has an incentive to adjust supply either with the goal of making a profit in the long run or, at a minimum, covering capital and other costs; and

Consumers have the freedom to purchase or not purchase and make the choice on the basis of the prices charged

• Rule of thumb: A particular price is considered economically significant, when price of goods and services cover more than half of the cost of production


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General valuation principles in the SNA

• Values agreed upon by transactors

• Market prices therefore basic reference for valuation

• In the absence of market transactions:

Market price for similar product (owner-occupied dwellings)

Valuation according to costs:

- Include net return on capital for output for own final use for market producers (new in the 2008 SNA)

- Exclude return on capital for non-market producers


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Valuation of Market Output

• It is the sum of the total values of

Goods and services sold

Goods and services bartered

Goods and services used for payments in kind, including compensation of employees in kind

Goods and services supplied by one establishment to another belonging to the same enterprise

Changes in inventories of finished goods and work-in-progress

- Changes in inventories cannot be for Services, exceptions are some knowledge products (which take more than one year to develop)

Special cases: Trade, banks, insurance


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Valuation of Non-market Output for Own Final Use

Goods

• sum of the total values of goods produced, own account fixed capital formation and changes in inventories of finished goods and work-in-progress

• valued at the basic prices at which they could be sold on the market or as the sum of its costs of production: Intermediate consumption+ Compensation of employees+ CFC+ Other taxes on production

Services

• Own-account production of housing services by owner-occupiers (valued at market rentals for similar dwellings)

• Services produced by employing paid domestic staff (valued at wages)


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Other Non-market Output

• Government and NPISHs

The individual and collective services are supplied free or at prices that are not economically significant

Valued as the sum of its costs of production, as Intermediate consumption+ Compensation of employees+ CFC+ Other taxes (less subsidies) on production

The net operating surplus by convention is assumed to be zero


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Intermediate Consumption

• Intermediate consumption (IC) consists of the value of goods and services used as inputs in the production process

• They are entirely used up and transformed in the production process

• Excludes the use of fixed assets and valuables, includes small tools

• IC is recorded on an accrual basis, i.e. at the time when a good or service is actually used in the production process, as distinct from the time of acquisition

• IC is normally valued in purchasers’ prices, which consists of (i)basic price received by the producer of the good or service, (ii)transportation costs paid separately by the purchaser, (iii)wholesale and retail trade margins, and (iv) any non-deductible tax less subsidies on the product payable

• IC = acquisitions changes in inventories of goods for IC


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Intermediate consumption: Borderline cases

• With compensation of employees

Tools and equipment used at work; protective clothing, uniforms; barracks, dormitories etc., travel and hotel services while on business, changing facilities, washrooms etc., medical facilities

• With fixed capital formation

Small tools

Maintenance and repairs —“Small” or regular are intermediate consumption

Large or such as to extend an asset’s life or improve it s performance are capital formation

Mineral exploration and evaluation—always capital

Military equipment—durable goods (bombs, spare parts etc.) are intermediate consumption when withdrawn from inventories


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Value added components

• GVA at basic prices by income approach includes,

Compensation of employees

Consumption of fixed capital

Other taxes on production

Other subsidies on production ()

Net operating surplus / mixed income


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Compensation of Employees

• Compensation of employees is the total remuneration payable by an enterprise to the employees for work done by them during the accounting period

• For owners of unincorporated enterprise, they are classified as self-employed

• There are three main components of compensation of employees:

wages and salaries in cash

wages and salaries in kind

employers’ social contributions (consist of social contributions payable by the employer for the benefit of their employees. They may be either actual or imputed)


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Consumption of Fixed Capital

• CFC is a cost of production : for use of fixed assets

• It measures the decline in the current value of the stock of fixed assets during the accounting period

• This current value may differ substantially from the historic costs prevailing at the time when the assets were acquired

• Therefore, CFC differs substantially from depreciation as recorded in business accounts

• Depletion or degradation of natural assets not included


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Other taxes and subsidies on Production

Other taxes on Production

- payable out of the value added of producers - may be levied on land, fixed assets or the labour employed. Examples are motor vehicle licenses, business licences, real estate taxes, and stamp duties and fees

Other subsidies on production- Other subsidies lack the characteristics of subsidies on products.

Examples are subsidies on payroll or workforce and subsidies for interest relief


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Operating Surplus (OS) and Mixed Income (MI)

• OS Constitutes the surplus accruing from the production process

• It is different from the concept of profit used in business accounting

• The term mixed income is used for unincorporated enterprises owned by members of households

As their OS and compensation of employees cannot be segregated


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Taxes and subsidies on production and imports,

basic prices, producers’ prices and purchasers’ prices


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Role of Taxes in Prices Related to Goods and Services

• Price concepts used in the SNA: (they are all observable actual transaction or “market prices”) and their difference depends on the treatment of taxes and subsidies on products for the whole economy, and also on trade and transport margins for individual products.

• Valuation of output:

Basic prices (SNA-preferred valuation of output)

Producers’ prices

• Valuation of uses of goods and services:

Purchasers’ prices


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Taxes on Production and Imports

• Comprise all taxes that enterprises incur by engaging in production

taxes on products

- payable on goods and services when they are produced, sold or used. Taxes on products are proportional to he value or quantity of the goods and services on which they are levied

other taxes on production

- payable out of the value added of producers - may be levied on land, fixed assets or the labour employed. Examples are motor vehicle licenses, business licences, real estate taxes, and stamp duties and fees


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Subsidies

• They are current transfers that government pays to producers that constitute additions to the income receivable from their output

• Just as in the case of taxes, there are two categories

Subsidies on products- Subsidies on products are payable per unit of quantity of a

product

Other subsidies on production- Other subsidies lack the characteristics of subsidies on products.

Examples are subsidies on payroll or workforce and subsidies for interest relief


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Terminology of taxes

• (a) Invoiced VAT is the VAT payable on the sales of a producer; it is shown separately on the invoice which the producer presents to the purchaser;

• (b) Deductible VAT is the VAT payable on purchases of goods or services intended for intermediate consumption, gross fixed capital formation or for resale which a producer is permitted to deduct from his own VAT liability to the government in respect of VAT invoiced to his customers;

• (c) Non-deductible VAT is VAT payable by a purchaser which is not deductible from his own VAT liability, if any.


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Basic and producers’ prices

• Basic prices

The basic price is the amount receivable by the producer from the purchaser for a unit of a good or service produced as output minus any tax payable, and plus any subsidy receivable, on that unit as a consequence of its production or sale. It excludes any transport charges invoiced separately by the producer.

This includes all other taxes on production net of other subsidies.

• Producers’ prices

Amount receivable by the producer from the purchaser for a unit of a good or service produced as output minus any value added tax (VAT), or similar deductible tax, invoiced to the purchaser. It excludes any transport charges invoiced separately by the producer


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Relationship between basic, producer and purchasers’ prices

From basic to

producers’ prices

Basic prices

• plus taxes on products excluding invoiced VAT

• less subsidies on products

equals Producers’ prices

From basic to

purchasers’ prices

Basic prices

• Plus taxes on products excluding invoiced VAT

• Less subsidies on products

• Plus VAT not deductible by the purchaser

• Plus wholesalers’ and retailers’ margins

• Plus separately invoiced transport charges

Equals purchasers’ prices

From producers’ to


producers’ prices

• plus Non-deductible VAT by the purchaser

• plus separately invoiced transport charges

• plus wholesalers’ and retailers’ margins

equals Purchasers’ prices


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Compiling tables of domestic production, imports, intermediate consumption and

value added components in SUTs


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Domestic production at basic prices, Intermediate consumption at purchasers’ prices and gross value added at

basic prices and its components (1/4)

• Production is an activity carried out under the responsibility, control and management of an institutional unit that uses inputs of labour, capital, and goods and services to produce outputs of goods and services

• The main data sources for the three tables are the

– Administrative data (for example, agriculture, mining, electricity, transportation, government services, accounts of companies, etc.)

– Establishment surveys or censuses on mining, manufacturing and services

– Population census (for dwellings)

– Other surveys (household budget surveys for estimating output of some products from expenditures, labour force surveys for informal sector, paid domestic services, etc.) and adhoc sources (such as research studies done on underground or illegal activities)

• The data available at the establishment level facilitates (in a cross-classification of sectors and industries) in the compilation of

– Output of goods and services at basic prices

– Intermediate consumption at purchasers’ prices

– Gross value added at basic prices and its components


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Domestic production…. (2/4) • First step in compiling these three data is to establish preliminary control figures of

domestic production, intermediate consumption and gross value added components for the total economy. This step is similar to the regular annual GDP estimation procedures.

– The compilation is undertaken by analyzing all the data sources identified and finalisedfor compiling SUTs.

– The following table needs to be compiled for each of the 5 institutional sectors. Final table showing grand total for the total economy is obtained by summing up the 5 tables

– The final table gives control figures shown in the last rows under the columns of industries in SUTs

Industriesincluded in SUT

↓

Gross value of

output at basic prices

Intermediate

consumption at


Grossvalue

added at basic prices

Compensation of employe

es

Other taxes less subsidies

on productio

n

Consumption of fixed

capital

Net operating surplus/mixed

income


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Domestic production….(3/4)

• The next step (which can also be carried out simultaneously while analyzing the source data for establishing control figures) is to compile product break-down of control figures for production and intermediate consumption for each of the columns of industries. No further detailed information is needed for value added components, once the control figures are established for industries.

• For government units, data source is the government accounts

– Only partial product level details of expenditures may be available in budgets.

– For more detailed data at product level, major government departments may be requested to provide expenditures details with product break-down

• For non-government units (corporations and household enterprises),

– Corporations: Partial data at product level may be available in their accounts

– Carefully designed business surveys may provide detailed product level information (UNIDO developed model questionnaires with the purpose of meeting the requirements of national accounts as well as the SUTs)

– Household/informal sector surveys may only provide limited information to estimate output, intermediate consumption and value added; and data at product level may not be available

– Input output surveys, research studies and consultation with subject specialists and industry experts or borrowing coefficients from similar countries, could be other sources to estimate ratios on output and intermediate consumption profile.


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Domestic production….(4/4)

• Input-output surveys

– In the focused input-output surveys, a few establishments under each economic activity are selected (frame from the business register or annual enterprise surveys or economic censuses) and a questionnaire is sent to them to provide detailed information on product profile of output, intermediate consumption, inventories and value added components.

– The ratios built up from the results of these surveys can be applied on the control figures discussed earlier

• Dealing with mis-classified and unidentified products reported in the source data

– It is often observed that units report a part of product level information under ‘others’, fuels, office expenses, miscellaneous, etc. There may also be cases of mis-classification at the coding stage. For allocating them to the SUTs products

• One option is to use ratios built up from input-output surveys, if available

• Another option is to allocate the values of these items to a set of product codes outside the SUT product codes, to be adjusted at the time of balancing. For example, if SUTs include 50 products, ‘others’, fuels, office expenses, miscellaneous can be allocated product codes of 51, 52, 53, 54 respectively. At the time of balancing, the values under 51 to 54 can be allocated among the 50 products.


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Import of goods and servicesExport of goods and services (1/3)

• Trade statistics on imports and exports of goods are based on customs records. These follow HS classification (6-digit). Other agencies compiling trade statistics may follow either HS or SITC classification (5-digit)

• Data on imports and exports of services is available from the BoP, mostly from central bank

• BoP shows imports and exports of goods in a single row, but shows services against

a. Manufacturing services on physical inputs owned by others;

b. Maintenance and repair services n.i.e.;

c. Transport;

d. Travel;

e. Construction;

f. Insurance and pension services;

g. Financial services;

h. Charges for the use of intellectual property n.i.e.;

i. Telecommunications, computer and information services;

j. Other business services;

k. Personal, cultural and recreational services; and

l. Government goods and services n.i.e.


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Imports and exports (2/3)

• Establishing control figures of imports and exports

– The control figures should be those reported in the BoP, as SNA and BoP are conceptually aligned. If any adjustments are carried out for illegal or border trade in national accounts, the BoP data should be adjusted in the first place.

– For the control figures of exports of goods and services to be used in SUT, values provided in the BoP can be used as such, as both use f.o.b. valuation. Most likely, the BoP includes non-residents’ purchases in the economy under travel item. If not, this item should be estimated and added to the exports values shown in BoP

– For import of goods, the SUT requirement is that they should be valued on c.i.f. basis. The BoP shows total import of goods on f.o.b. basis, but may also show separately the values of c.i.f./f.o.b. adjustment. Therefore, it is possible to compile total value of goods imported on c.i.f. basis.

– For import of services, the values shown in BoP should be adjusted for the difference in import of goods on c.i.f. and f.o.b. against imports of insurance and freight transport services


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Imports and exports…..(product break-down) (3/3)

• Goods

– Source of data for product break-down of imports and exports of goods is the merchandise trade statistics

– Data available according to HS/SITC needs to be converted to CPC. A simpler method is to use SUT product codes directly on the source data, as these codes are fewer in number as compared to the CPC.

– The difference between the control figures for imports and exports of goods as available from the BoP and the merchandise trade data, should be adjusted at the time of balancing the SUTs.

• Services

– Broad product level break-down of services is available in the BoP.

• C.i.f/f.o.b. adjustment may have to be made against the rows of insurance and freight transport services of imports.

• Travel item in BoP most likely includes purchases of residents abroad and non-residents purchases in the economy. If not, adjustments have to be made in imports and exports data

– This item includes many products. If product level data can be estimated using tourism satellite accounts, imports and exports of products may be adjusted accordingly

Valuation columnsTrade and freight transport margins

taxes and subsidies on products


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Valuation columns in supply table: Trade margins (1/2)

• Trade margins include

– Output of traders (which is derived as the difference between the sale and purchase value of traded goods)

– Secondary output of other industries (several industries (other than trade), sell some products in the same condition as they are purchased. The margin from such sales is trade product of these industries)

• Data required for supply table is trade margins by products for the total economy

• Usually, the enterprise surveys and business accounts provide data on total trade margins only

• Very few countries are able to collect information on trade margins by products through surveys

• Therefore, data on trade margins by products is mostly estimated through indirect methods.


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Trade margins columns (2/2)

• The indirect method involves four steps:

– estimating total output of trade (in the supply table), which is equivalent to the sum of

• output of principal product of trading industry and

• output of trade product of other industries;

– estimating (or assuming) trade margin ratios for each product;

– estimating trade margins for each product (only goods) by applying the trade margin ratios on the product’s output at basic prices; and

– finally, adjusting the trade margins for each product to the control figure, which is the total output of trade product

• These trade margin ratios for different products can be estimated on the basis of small surveys of wholesalers and retailers

• It is advisable to estimate trade margins by products separately for wholesale and retail trade, as trade margin ratios are different for the same product in the hands of wholesalers and retailers, especially for the agricultural and perishable goods


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Columns of freight transport costs in supply table

• The requirement of data is transport costs with product break-down for the total economy.

• As in the case of trade, the transport costs can also be estimated through indirect methods, in the absence of direct product-wise information on transport costs from the enterprise surveys.

• The procedure is exactly the same as mentioned under trade margins.

• It is also advisable to estimate transport costs by products, separately for each means of transport, namely, railways, road, air, and water, if feasible.


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Avoid double-counting of trade and freight transport in the supply table

• The gross output of trade and transport need to be included as part of domestic gross output. They are shown in the output matrix like that of any other industry.

• However, these same gross outputs of trade and freight transport products are needed to be allocated to products valued at basic prices to bring them up to purchasers’ prices

• At purchasers’ prices, there are no trade and freight transport margins on products as their values are subsumed in the values of goods.

• The next table shows how we avoid counting gross output of trade and freight transport twice.


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Columns of taxes and subsidies on products in the supply table

• Data on taxes and subsidies on products are available from the government budget documents or tax authorities.

• Sometimes, product-wise tax data (excise duties, sales tax or VAT) may not be available.

– In such cases, countries first need to estimate product taxes for each product on the basis of average tax rates (output at basic prices multiplied by average tax rate) and then adjust these to the control figure of total product taxes on pro-rata basis.

– This may be done for each type of tax on product (excise, VAT, sales tax, import duties, etc.), as tax rates are different for different types of taxes on the same product.

– Industry surveys may also provide information on taxes and subsidies paid/received by the producers, but the summation of these may not tally with the government records, therefore, adjustment may be needed to tally with government data.


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Suggested reading material

• Handbook on SUT: Compilation, Application, and Practices Relevant to Africa (Draft), UNECA

• The 2008 SNA, European Commission, IMF, OECD, UN, World Bank, 2009;

– Chapter 14: The supply and use tables and goods and services account

• Eurostat Manual of Supply, Use and Input-Output Tables, European Union (2008)

– Chapters 3 to 5

THANK YOU

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