ISSUES AND PROBLEMS IN THE IMPLEMENTATION OF STANDARD INDUSTRIAL CLASSIFICATION -- THE BRAZILIAN CASE. by Magdalena Cronemberger Góes, IBGE, Brazil

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1 ESA/STAT/AC.63/8 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 IN THE IMPLEMENTATION OF STANDARD INDUSTRIAL CLASSIFICATION -- THE BRAZILIAN CASE by Magdalena Cronemberger Góes, IBGE, Brazil

2 Issues and problems in the implementation of standard industrial classification The Brazilian case Historical background Brazilian experience in the implementation of standard industrial classification is quite recent. Although statistics production and administrative records have traditionally used industrial classification for data organization, there was little concern on national or international standardization. Classifications used by the Brazilian National Statistical Institute-IBGE were, originally, based on the International Standard Industrial Classification ISIC-Rev1, at two digit level, but, along the years, national revisions were not necessarily in accordance with the ISIC revisions. Previous industrial classifications held by IBGE had not a comprehensive scope, limited to activities surveyed in economic censuses, and defined as a list of codes and activities, without description of their content. At different moments along the seventies and the eighties, governmental agencies have adapted and completed the scope of IBGE industrial classifications to use in their administrative records. Although they benefited from IBGE s assistance, the work was done without a systematic or synchronized discussion and revision of the classifications. Recent experience towards a national standard industrial classification Scenery has changed in the nineties. IBGE recognized the need of a deep revision of its industrial classification, taking ISIC-Rev3 as the basis for the purpose of international standardization. On the other hand, public agencies responsible for national administrative business registers, aware of the need of standardization, have agreed to follow IBGE s revision. In 1993, under the leadership of IBGE, revision of the industrial classification started, with a broad participation of private and public entities. The result was the Classificação Nacional de Atividades Econômicas CNAE, a standard national classification, that, since 1995, has been progressively implemented in statistics production and administrative records. CNAE keeps the structure of ISIC-Rev3 at the section and the division levels (two digits), with few adaptations, and introduces larger details at three and four digit levels, identifying 218 groups and 562 classes. CNAE s 1995 publication presents the structure of the classification and defines its contents. On the other hand, based on international experience, IBGE has developed a software to help the search of CNAE code based on the activity description (an activity index file). Besides broad dissemination of these tools, including through IBGE s Internet homepage, there is a specific e- mail address for direct consult about the CNAE codification. These tools, largely used in statistical production and administrative records and registers, have helped to improve the standardization in CNAE implementation.

3 CNAE implementation in statistical production The use of the new standard classification in statistical production was part of a broad program of revision of the whole organization of IBGE s economic surveys. Previous organization was based on economic censuses held each five years. New organization is based on a Central Business Register, combining information from administrative registers and economic surveys. Economic surveys have their samples designed based on the Business Register. The new approach of giving high priority to international standardization, following the structure of ISIC-Rev3, has resulted in a quite extensive and broad revision of previous classifications. On the other hand, IBGE was in the process of changing basic statistical unit for the economic surveys, from a practice of an extensive breakdown of manufacturing local units - specially in case of complex production process to the adoption of a concept close to the local unit. To deal with the double challenge of deep changes in the activity code and in the basic unit of investigation, a comprehensive survey of enterprises - Censo Cadastro 1995 was held with the specific aim of obtaining the necessary information to update IBGE s Business Register. In 1997, revised structural annual surveys covering Mine and Manufacturing and Wholesale and Retail Trade (base-year 1996) were designed based in the updated Business Register refered to the new classification. In 1999, a similar survey covering a large field of the services (base-year 1998) is planned to be implemented. Short term indicators will be under revision in the next two years. Next revision on National Accounts, taking 1998 as base-year, will complete the implementation of CNAE in economic statistics and data system. An adaptation of CNAE to be used in the 2000 Population Census and in household surveys is under discussion - the CNAE-Household. It has the same CNAE structure at two digit level (same as ISIC-Rev3). Below that level it regroups activities (three and four digit levels), aiming to define a set of activity classes that can be coded based on information given by surveyed household (usually less detailed or precise than the activity description given by enterprises in economic surveys). The structure of CNAE for household surveys has 60 Divisions and 214 classes (CNAE has 562 classes). On the other hand, in the scope of the Mercosur joint project for 2000 Population Census, it was agreed to report data on two levels of aggregation: ISIC- Rev3 two digit level (60 activities) and on 127 classes, defined as regroupings of ISIC-Rev3 at three and four digit levels, according to the same principles as CNAE-Household. As a matter of fact, CNAE-Household is a detailed version of Mercosur structure. CNAE implementation in administrative records Since 1995, federal public departments dealing with business administrative records and registers (like income tax, employment and wage records, social security, business registration, etc) have progressively adopted CNAE. So, CNAE is the standard code reported by business in the administrative forms that they have to fill in for various purposes, in areas under the federal control or scope. The use of a standard industrial classification by administrative registers is quite important for statistics production, for the updating of the Statistical Central Business Register and also, for enlarging the use of administrative records as economic data.

4 The fist steps towards the standardization had not included sub-national governmental levels (Brazil is a federation of states) and they continued working with their own industrial classifications (not harmonized among them or in relation to CNAE). Discussions about the implementation of a standard industrial classification at this level have started in 1997, aiming the unification of tax business registers of the three governmental levels. It is usual the use of the activity code for the identification of activities under different tax treatments at the sub national government level. Due to this fact, they need larger details in the definition of classes of activities. The solution was found through the definition of a fifth level in the CNAE structure, adding two extra digits, for the specific use of tax administration records and registers. This supplementary level is named CNAE- Fiscal, identifying 1094 subclasses. States and local tax administration are in the process of adopting and implementing CNAE-Fiscal, enlarging the movement towards the standardization of industrial classification. Appraisal of the Brazilian experience The benefits achieved so far are impressive. First, it is largely recognized that CNAE represents an important improvement in relation to previous classifications in terms of a better structure, sounder methodological principles, contents better defined, accordance to international standards and availability of tools to help the right codification. These gains in quality were important to support decisions of implementing CNAE in statistics production and administrative records in spite of the high expenses of a process of changing classification. An important aspect refers to the fact that the implementation of a standard classification has involved a significant cultural change among those people dealing with the subject. Specific emphasis was done in the coordination role in the organization of statistical production and the integration of various sources of data. Two meaningful institutional arrangements should be mentioned as well: at IBGE, the formal organization of a coordination of economic classifications: at a higher administrative level, the organization of an inter-agencies classification commission - Comissão Nacional de Classificação (Concla) with the participation of federal governmental agencies dealing with data organization and social and economic classifications, under the chairmanship of IBGE. Other relevant point refers to the leadership of the Statistical Institute over this process, which had its competence on the treatment of questions related to economic and social classification recognized along the time. Furthermore, this has been a way to improve the relationship between IBGE and other governmental agencies dealing with administrative records.

5 IBGE expertise on economic classification has been constructed along this process. Experience related to CNAE implementation in statistics production and in administrative register has improved our critical view of industrial classification, including on what concerns our own work. In spite of this, there is still a long way to go. Lack of human resources, however, has been a serious constraint. Publications and papers on international industrial classification are our main references but other countries experiences are also important sources of consultation. Training is essential, but we had few chances in this area (CESD/Madrid and TES/Eurostat). A few opportunities of expert consultations (from Statistics Canada) have helped a lot. Statistics Canada has provided a relevant support to IBGE. An important contribution was the access, in 1994, to the software they had created for facilitating the use, including the search of codes, of the activity index file and ISIC correspondence table comparing Rev.3, Rev.2, NACE, US and StatsCan classifications constructed on the collaborative work of Statistics Canada, Statistical Office for the European Communities (Eurostat) and United States Bureau of the Census. It became the main source of reference for decisions on the contents of our national classification, besides giving us the basic ideas for the development of our own activity file and software. Another relevant contribution was the opening of a permanent channel for clarifications on ISIC-Rev3 contents or consultations on any questions related to the management of economic classifications. At that time we strongly needed that support. Of course, now, UN Classifications Hot Line (CHL) performs this role in a very efficient way. It should be stressed the importance of CHL assistance as a necessary support to our work. However, when dealing with the implementation of the standard classification in administrative agencies an important issue in our program - we feel the lack of support in terms of references from other countries or even any general orientation. We realize that countries have different administrative organizational arrangements but, anyhow, we would like to suggest this topic to be included in a future agenda of the Expert Group. Future revisions Brazilian CNAE is linked to ISIC. So, discussion of future ISIC revision or updating necessarily implies that we join on the same direction. As mentioned before, Brazilian experience dealing with a standard industrial classification based on an international pattern is quite recent. Certainly, we identify the need for future revision of our classification. First, learning by doing, we would like to introduce changes in our adaptation of ISIC for national use. Second, we realize the need of revision of our international reference, in order to better fit the present productive system organization. Surely, an important reference now is the North American Industrial Classification System (NAICS), introducing some different approaches in the structuring of industrial classification. On the other hand, we have to consider the present stage of Brazilian experience. The implementation of a standard national classification has started in 1995, but it has not completed its whole cycle yet. On the statistical production side, only by the year 2000 the new standard classification will be fully implemented. On the administrative register side, sub-national agencies have just started the implementation of the standard classification. So, at this moment,

6 priority is given to complete the implementation and to strengthen the experience of the use of a standard classification. We would prefer to think the ISIC future revision in a two step program. First, and in a shorter time, an updating step dealing mainly with breakdowns of the present content of the classes, in a way that it would permit regroupings of classes to form categories better fitted to new relevant categories in the production organization, without introducing changes in ISIC basic structure. In this case, the implementation of an updated ISIC through its correspondent national classification would not demand an extensive process of code revision. We would think of a date around the year 2003 for starting the implementation of the ISIC updated version. The ISIC complete revision can be thought as a process starting from now, but with the perspective of a final definition and its effective implementation in a longer period. Some important questions that we are interested to address are: an effective participation of IBGE in the ISIC revision process; a joint discussions of industrial classification at the Mercosur level; training support Paper written for the Expert Group on International Economic and Social Classifications meeting on 2-4 November 1998 by Magdalena Cronemberger Góes, Head of the Coordination of Economic Statistics, IBGE, Brazil mgoes@ibge.gov.br

TRANSITION TO AN INTEGRATED SYSTEM OF BUSINESS SURVEYS THE BRAZILIAN CASE. Magdalena Cronemberger Góes

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