ISSUES AND PROBLEMS ENCOUNTERED IN THE IMPLEMENTATION OF ISIC REV. 3. by Marshall T. Moseki, Central Statistics Office of Botswana

ESA/STAT/AC.63/7 30 September 1998 UNITED NATIONS DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS STATISTICS DIVISION Fourth Meeting of the Expert Group on International Economic and Social Classifications New York, 2-4 November 1998 ISSUES AND PROBLEMS ENCOUNTERED IN THE IMPLEMENTATION OF ISIC REV. 3 by Marshall T. Moseki, Central Statistics Office of Botswana

Issues and Problems encountered in the Implementation of ISIC Rev 3 A paper to be presented at the Meeting of Expert Group on International Economic and Social By Marshall T Moseki Central Statistics Office, Ministry of Finance and Development Planning

1. Background 1.1 At the time of independence in 1966, Botswana was one of the poorest countries in the world. The country was characterised by a high rural population which depended on agriculture for a livelihood. Beef production was the mainstay of the economy in terms of output and export earnings. Almost more than 75 percent of the labour force was engaged in agriculture, with more than 30 percent of Botswana men working in South African mines. The civil service was very small by then, and very few private sector enterprises operating in the economy, particularly in retail trade. 1.2 The 30 years since independence have seen a remarkable economic transformation. The discovery of copper/nickel and diamonds in the 1970s altered the structure of the economy. The discovery of diamonds not only expanded the mining sector production, but also stimulated infrastructure development and finance the expansion of government services. By the mid 1980s, the mining sector dominated the economy, contributing about 50 percent of total GDP whilst the contribution of the agriculture declined from a high of 40 percent in 1966 to about 7 percent in the 1980s, and eventually to about 4 percent in the 1990s. The development of infrastructure throughout the economy led to an increase in the number of companies operating in the economy. By the late half of 1980s, the economy was growing at an average of 12 percent per annum. The construction boom of the 1980s also brought about a high number of multinational corporations in the Construction, Wholesale & Retail Trade, Transport and Financial industries. 1.3 From 1988 to 1997, the number of companies registered in the economy increased from about 7 000 to 30 000, with 15 000 of them actively operating. These were spread among all the economic spectrum, from Commercial farming to Community & Personal Services. 1.4 As the economy got more complex and sophisticated, the demand for the data, particularly on economic indicators increased. Potential investors requested data on economic indicators such as employment, GDP, inflation; number of companies operating another etc. More interest was focused on GDP and Employment by economic activity, as well as the number of companies operating in the economy. International agencies such as IMF, World Bank and UN agencies were also knocking at CSO s door looking for reliable and up-to-date data on both economic and social indicators. This put pressure on CSO to up-date and maintain its sampling frame of the establishment/economic surveys, which was based on an adapted version of the 1968 ISIC, Rev 2. 2. Enterprise and Establishment Register (EER) 2.1 For some time the CSO has been using an adapted version of the 1968 ISIC Rev. 2 in classifying establishments according to their economic activities. All major tables for employment surveys, national accounts and other establishment based surveys were presented on the basis of ISIC Rev.2. Come 1995 the office embarked on a very demanding and taxing task of implementing ISIC Rev 3. A substantial amount of resources were devoted towards this project, with about 12 staff members involved with data collection and processing. Bearing in mind the fact that ISIC Rev 3 was more comprehensive than its predecessor, there was no way the office could do a one-to-one transformation. Again this presented an opportunity to weed out all those

establishments which had since ceased operating and those which may have changed their economic activity. All the establishments which were thought to be operating and those which were dormant and struck-off were sent the questionnaire, a Business Review Form (BRF). These were to provide information on physical and postal addresses, ownership details, operational status, economic activity, employment size, institutional type and telephone number. Many large establishments from urban responded and provided the required information, whilst many small establishments, particularly in rural areas did not. Thus the response rate was very poor at the beginning, but later improved considerably after personal visits by CSO staff. The whole exercise took almost a year to complete, with data collection having taken about nine months. Coding was done in the office by well-experienced staff of Industrial Statistics Unit. Of course there were problems encountered in the process of collecting and coding the data, and these are outlined below. 2.2 The ISIC Rev 3 (see Annex 1) was slightly modified to suit local conditions. Quite a number of economic activities which we felt were of lesser significance to the economy were combined and some (irrelevant ones) were done away with. However should these combined industries happen to gain importance in future these would be separated. For instance, vehicle manufacturing used to be combined with Metal products but it has since been separated because it is now a major player in the economy, as it is now the second largest foreign exchange earner after diamonds. 2.3 The CSO maintains the Enterprise and Establishment Register (EER). The EER is the key factor in sampling for the establishment or economic surveys. The EER itself is updated and maintained by using variety of sources. Chief among these are; the Registrar of Companies; Transport Licensing Authorities, Central Tender Board, Local Authorities, telephone and telex directories, local newspapers, etc. By law all companies intending to operate in Botswana are required to register with the Registrar of Companies, regardless of their economic activity. These have to complete the memorandum and articles of association disclosing all the relevant information, i.e. intended location of the business, postal address, ownership, economic activity of the business, etc. However, hawkers and vendors have to register with the Local Authorities before starting a business. Again, these also have to provide the same kind of information as with the memorandum and articles of association. Transport permits and licences for both freight and passengers are issued by the Department of Transport and Road Safety, and these also provide the same kind of information. The Central Tender Board is used to collect information on the companies which tender for government projects. Again the format of the information provided is almost the same as the other sources mentioned above. Lastly the telephone directories are used to supplement whatever information is available, except that the economic activity may not be available. Establishments which appear on the telephone directories but not on the EER are recorded and later sent the Business Review Form (BRF) to get more information from them. However, not all the necessary information is available from such sources, to an extent that, the CSO end up sending a Business Review Form to all newly registered companies. The information sought from such companies is, the name and address, location of the address, economic activity, activity status, i.e. whether operational or not, employment size, telephone number, and institutional type, i.e. whether privately owned, parastatal, government etc. 2.4 The information provided through the BRF is used to supplement the already existing information. The BRF is also send to companies which are already operating but may have changed their economic activity. For instance, a company may have indicated that it is going to

produce textile and garments at the time it was first registering, but eventually may decide to go into retail, rather than manufacturing. This may be detected through bi-annual employment surveys and quarterly surveys of industrial production as well as government gazette. But again the BRF is also used to establish whether those companies which indicated that they had not started operating or dormant during the first enquiry were now operating or not. If they are indeed operating, they have to indicate whether they have changed from their intended purpose of manufacturing or providing certain goods and services. 2.5 So far ISIC Rev 3 has been used successfully to code the 1995/6 Labour Force Survey, which has been published. All other establishment based surveys for 1997 onwards would be coded using ISIC Rev 3. 3. Problems Encountered 3.1 Indeed, there are numerous problems encountered by the Industrial Statistics Unit, in the process of maintaining and up-dating the EER. Firstly, the information available through the above mentioned sources is often inadequate. Some parts are left blank, for instance, the section on economic activity may be blank, or incomplete information provided. Of course the BRF is meant to bridge this gap, but however this BRF also encounter some problems. Normally the address provided in the memorandum and articles of association is for the company secretary, but not that of the directors of the companies. However, these company secretaries immediately after registration lose contact with their clients. Therefore in most cases, once the company is registered then both parties cease to communicate, with the result that once the CSO send the BRFs and other relevant documents, these are returned unopened to CSO as return to senders. Thus, if the company had supplied wrong information at the registration stage, this will remain in the EER until such time that the company is physically located or sampled for one of the establishment based surveys and responded positively. For instance, it may happen that, the employment size of the company may have increased since registration, of it may, have changed its production mix which warrant change of the ISIC in the EER, but this may not be effected because of the difficulty of locating such a company, and getting the correct information from it. 3.2 It may worth noting here that since 1995 the government has lowered the tax rate to 15 percent for all manufacturing companies compared to 25 percent for other sectors of the economy. This was meant to attract more manufacturing enterprises into the economy. However, in the process this created problems for the CSO as many companies started to engaged in dual production. Many of these companies would register as manufacturing establishments, whilst in practice they would be engaged in retailing. For instance, company X may register as a blanket manufacturer, and indeed would buy few machinery and start manufacturing blankets and sell them direct to the members of the public. Later the same company would import these from neighbouring countries and produce very little, say 10-20 percent of the total sales and sell all these to the public. In reality the company would be engaged in retail activity as its major economic activity as compared to manufacturing. Nonetheless, the company would be recorded as a blanket-manufacturing establishment in our EER. Such companies are very difficult to detect unless they are exposed by the media, or staff members of CSO who make personal visits to non-responding establishments. The mere fact that these companies know that they are defrauding government, they will never record that they are actually involved in retail activities if they are asked to indicate what type of economic activity they are engaged in since registration. This aspect is normally covered by the Survey of Industrial Production. In fact, many companies are engaged in such practices because there are very few factory inspectors.

3.3 The other problem encountered by the ISU in the course of implementing the ISIC Rev. 3 was that in most cases many establishments are engaged in production of many different though related commodities. For instance, most of the commercial arable farmers produce both cereals, crops as well as vegetables and horticultural produce, and these may be produced almost at the same scale, thus making classification slightly difficult. This problem is quite prevalent across industries, with construction and manufacturing being the worst one, except on few occasions. For instance a construction company may indicate that its principal activity is buildings and house construction, but however, during hard times it may be engaged in civil engineering, i.e. roads and dams construction. This may be necessitated by lack of projects in buildings and house construction. It may happen that civil engineering may be the major occupation of the company for a considerable length of time. 4. Conclusions 4.1 Indeed, the regular updating and reviewing of the ISIC can not be overemphasised. The constant changing of the economies calls for this exercise to be carried out on regular basis. Some economic activities, which were hitherto not playing any significant role in the economies, are now starting to become major players, particularly in developing economies. We have seen situation whereby some economic activities which were irrelevant in some economies gaining prominence at a later stage. Again we have witnessed some economic activities conducted simultaneously, such as in agriculture. Most farmers in developing countries engage in mixed farming, rather than specialising, and this may pose problems in classifying such activities. However, these activities may change in the long run as farmers may decide to concentrate say on pastoral farming only due to climatic conditions. This therefore may call for regular reviewing of the ISIC. Annex 1 BOTSWANA STANDARD INDUSTRIAL CLASSIFICATION Revision 3 A: Agriculture, Hunting and Forestry 0100 Traditional or Subsistence agriculture 0110 Commercial crop farming 0120 Commercial livestock farming 0130 Commercial mixed farming 0140 Agricultural & Husbandry Services e.g. Artificial Insemination, & Irrigation 0150 Hunting and trapping (Traditional)

0200 Forestry (All) B: Fishing 0500 Fishing (All) C: Mining and Quarrying 1010 Coal Mining 1320 Copper/Nickel mining l423 Diamond mining l424 Soda ash and salt mining 1425 Gold Mining l426 Quarrying and other mining D: Manufacturing (includes repair of machinery & equipment) l510 Meat and meat products 1520 Dairy products l530 Grain mill Products Includes maize, sorghum, millet etc. human & animal feeds l541 Bakery products l545 Other food products n.e.c. (e.g. Chocolates, Sweets) l550 Beverages (Beer incl. Trad, Beer Soft Drinks etc.) l600 Tobacco Products - Cigarettes etc. l700 Textiles (exc. Clothing) includes preparation of textile fibres, natural or synthetic materials l800 Clothing and other wearing apparel(inc. Leather) 1910 Tanning and leather products (exc. Clothing/Footwear) e.g. Handbags, Souvenirs 1920 Footwear 2000 Wood and Wood Products excluding furniture but incl. building materials, and Straw Products (mats, baskets etc.) 2100 Paper and paper products e.g. Newsprint, tissues 2200 Printing and publishing (Incl. periodicals, journals etc.) 2400 Chemical and chemical products (incl. Soap, Paint) Fertilizers & Pesticides etc. 2500 Rubber and Plastic products (Incl. Tyres, Retreading) 2610 Cement Manufacturing 2620 Non-Metallic mineral products exc. cement but incl. Glass, Ceramic & Cement Products e.g. Bricks, Tiles, Pots 2700 Basic metals, e.g. Iron Foundries 2800 Fabricated metal products exc. machinery and equipment(incl Tanks & Steam Generators) 2900 Machinery and equipment incl. refrigerators and other domestic equipments (e.g. Engines, Turbines, Pumps) 3000 Office, accounting and computing machinery e.g. Photocopying Machines, Typewriters, etc. 3100 Electrical machinery and apparatus e.g. Lightning Arreters, Voltage Limiters etc. 3200 Radio television and communication equip and apparatus (e.g. TV, Cameras, Switchboards) 3300 Medical, precision, optical instruments, watches, clocks incl. Dental & Veterinary Instruments 3400 Motor vehicles, trailers and semi-trailers 3500 Other transport equipment, e.g. Ships & Boats, Railway Locomotives, Air Craft 3610 Furniture (all types incl. of wood, also mattresses) 3690 Manufacturing of other products n.e.c.. Pens, Pencils, Smoking Pipes etc. 3700 Recycling Processing of Metal & Non Metal Waste E: Electricity, Gas and Water Supply 4010 Electricity generation and supply (Not household/building electricians) 4020 Gas manufacture and distribution 4030 Steam/hot water supply 4100 Collection, purification, distillation of water (incl. village supply for sale) 4200 Borehole Syndicates

F: Construction 4510 Site preparation, e.g. Demolition and clearing of sites 4521 Construction of Buildings and Houses - Complete incl. repair/maintenance 4522 Construction/Civil Engineering - Roads, Dams, Water Projects 4530 Building installation work - Plumbing, Electrical, Air-Con incl. repair of these 4540 Building completion work - Paining, Tiles, Carpets incl. repair of these 4550 Renting of construction or demolition equipment incl. crane hire G: Wholesale & Retail Trade (Incl. Repair of Motor Vehicles & Personal/Household Goods) 5010 Sale of motor vehicles 5020 Maintenance and repair of motor vehicles 5030 Sale of motor vehicle parts and accessories 5040 Sale, maintenance and repair of motorcycles 5050 Sale of automotive fuel/petroleum products (filling stations) 5100 Wholesale and commission trade (exc. cattle dealers) 5151 Cattle Dealers 5210 Non-specialised retail trade, e.g. General Dept. Stores 5221 Retail stores specialising in food, beverages and tobacco excl. bottle stores 5222 Bottle Stores 5230 Retail stores specialising in goods except food, beverages and tobacco 5252 Retail trade through informal outlets: stalls, markets, hawkers 5260 Repair of personal and household goods e.g. TVs, Videos, Watches H: Hotels and Restaurants 5510 Hotels and other short stay accommodation e.g. hostels, camp sites 5521 Restaurants, cafes and canteens 5522 Bars/Bottle Stores (& shabeens) - mostly consumed on the premises I: Transport, Storage & Communications 6010 Rail transport 6023 Freight transport by road 6024 Passengers road transport e.g. Buses and Taxi/Combi Companies 6025 Taxis/Combis - Sole or small operators only 6030 Transport by pipeline 6100 Water transport 6200 Air transport 6304 Travel agents, tour operators, safari operators include. hunting 6305 Cargo handling, storage, warehousing 6309 Other transport n.e.c. e.g. Hand carts, Donkeys 6411 Postal services 6412 Courier activities - e.g. DHL, TNT 6420 Telecommunications J: Financial Intermediaries 6510 Banking 6590 Financial leasing and credit granting (ex banking/insurance) 6600 Insurance & pension funds 6700 Other financial activities (e.g. stockbroking) K: Real Estate, Renting and Business Activities 7000 Real estate 7110 Transport Rental e.g. Hire Car Rental 7120 Other Rental exc. Person and H hold Goods e.g., Machinery 7130 Rental of H hold and Personal Goods e.g. Video Tapes

7200 Computing and related activities incl. data entry/processing & software consultancy organisations 7300 Research and Development 7410 Legal, accounting, book-keeping, auditing: busn'ss/management consultancy 7421 Geological exploration and Prospecting 7422 Architectural, engineering and other technical activities e.g. surveying 7430 Advertising 7480 Security Organisations 7490 Business activities n.e.c. L: Public Administration 7540 Central Government Administration 7550 Local Government Administration M: Education 8010 Primary education(incl. pre-primary) 8021 Secondary education 8022 Technical & Vocational Education 8030 Higher education 8090 Adult and other education N: Health and Social Work 8510 Human health activities (Hospitals etc.) 8520 Veterinary activities 8530 Social work activities (incl. Children's day care centres) O: Other Community, social and Personal Service Activities 9000 Sewage and refuse disposal, sanitation etc. exc. pest control 9110 Business, employer and professional organisation 9120 Trade Unions 9191 Religious organisations 9192 Political Organisations 9198 Burial Societies 9199 Other membership organisations 9210 Motion picture, radio, TV, other entertainment 9220 News agency activities 9231 Libraries and Archives 9232 Museums and other cultural organisations 9240 Sporting and other recreational activities 9300 Other services activities (incl. dry cleaning, hairdressing, personal services, informal car washing, funerals) P: Private Households with Employed Persons (for Household Surveys only) 9500 Private households with employed persons (Maids, Gardeners, Security - NOTE only private household employees) Q: Foreign Missions, International Organisations 9900 Foreign missions: International organisations