Agenda item 6 d ՀՀ ԱԶԳԱՅԻՆ ՎԻՃԱԿԱԳՐԱԿԱՆ ԾԱՌԱՅՈՒԹՅՈՒՆ

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

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. • 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. • Description of the IS labor productivities in each industry. Comparison with the labor productivity in the formal sector. Characteristics of informal sector enterprises. • Implementation of Eurostat Tabular approach to Exhaustiveness of GDP 2

BRIEF OVERVIEW OF NATIONAL ACCOUNTS IN ARMENIA National accounts of Armenia are compiled in accordance with the fundamental concepts, categories, accounts’ conception of SNA 1993. 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) -expenditure, annual and quarterly (current and constant prices, seasonally adjusted) -income (only for annual data, current prices) 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 1994. NOE in Armenia’s GDP includes: - underground production, - deficiencies in the basic data collection system - informal sector production and - 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) -labour force survey (total employment received from households) -ILCS -special one-off sample surveys (construction, education, healthcare, trade, NPISH) -other indirect methods Special round of surveys focused on informal activities was held during 1997 -1998: -small size enterprises - labor force survey - survey of self-employed 5

Exhaustiveness of NA, NOE in Armenia’s GDP by industries, % 2005 2006 2007 2008 2009 GDP 27, 3 27, 4 26, 3 25, 0 24, 8 Agriculture 24, 1 24, 7 22, 5 22, 3 22, 1 D Manufacturing 42, 7 41, 8 38, 5 36, 0 49, 7 E Electricity 0, 0 5, 2 7, 4 F Construction 36, 3 38, 0 41, 4 38, 4 36, 3 G Trade 55, 3 53, 5 49, 4 49, 2 45, 8 H Hotels and restaurants 5, 5 17, 0 8, 0 6, 4 21, 1 I Transport 11, 2 9, 1 8, 0 10, 0 13, 8 K Real estate, renting 20, 5 16, 9 17, 2 13, 9 11, 5 M Education 6, 5 7, 0 7, 4 7, 0 N Health 56, 0 50, 9 49, 9 31, 6 44, 7 O Other services 43, 0 34, 9 31, 4 25, 9 26, 1 A, B 6

Exhaustiveness of NA, NOE in Armenia’s GDP by industries, % 30. 0 25. 0 20. 0 15. 0 10. 0 5. 0 Agriculture 2005 Electricity Construction Trade 0. 0 Manufacturing Hotels and restaurants Transport Real estate, renting Education 2006 Health Other services 2007 2008 2009 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) No complete set of accounts With at least some market output 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 least some market production (HUEMs), - distinguishing informal employment from formal employment, - 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

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

Informal sector GVA by industries Share in total GVA of industry, % Share in informal sector total GVA TOTAL GVA 11. 2 100. 0 A, B C D E F Agriculture, hunting and forestry, fishing Mining and quarrying Manufacturing Electricity, gas and water supply Construction 22. 4 0. 0 5. 0 0. 0 15. 4 36. 2 0. 0 4. 3 0. 0 26. 6 G H Wholesale and retail trade, repairs, etc. Hotels and restaurants 14. 8 0. 0 18. 6 0. 0 I J Transport, storage, and communications Financial intermediation 3. 7 0. 0 2. 9 0. 0 K 8. 7 4. 2 L M N Real estate, renting, and business activities Public administration and defense, social security Education Health and social work 0. 0 7. 0 4. 9 0. 0 2. 5 1. 8 O Other community, social and personal services 16. 6 3. 0 12

Informal sector GVA by industries Trade: - average share in GDP 2002 -2008 – about 11. 0%, 2009 – 12. 7%, 2010 - 13. 0% - influenced by large imports of goods, which comprised about 3839% 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 2010 - informal production mainly in personal services like hairdressing 13

Informal Sector GVA by urbanity in Armenia RURAL 39. 89% URBAN 60. 11% 14

Agriculture and non-agriculture GVA in the Formal and Informal sectors 90. 00 84. 08 81. 80 80. 00 63. 79 70. 00 60. 00 50. 00 36. 21 40. 00 30. 00 20. 00 18. 20 15. 92 10. 00 in % Total Formal Agriculture Informal Non-agriculture * 15

Labor productivity Agriculture, hunting and forestry, fishing 3, 646 304 Construction 8, 613 2, 902 991 Education 11, 039 1, 758 Health and social work Manufacturing 2, 169 19, 718 4, 039 1, 081 991 Other service activities Real estate, renting and business activities Transport and communication Wholesale and retail trade; repair 15, 688 1, 332 20, 229 4, 065 4, 269 3, 199 0 5, 000 10, 000 15, 000 20, 000 25, 000 Thousand drams Formal labor productivity Informal labor Productivity 16

Type of premises where business activities are conducted Location Farm or individual agriculture / subsidiary plot Proportion (%) 84. 25 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 0. 38 17

Average Employment of IS Enterprises by Industry Workers Paid Workers Agriculture, hunting and forestry, fishing Manufacturing 2. 3 1. 9 1. 1 1. 0 Construction 1. 2 1. 1 Wholesale and Retail Trade 1. 3 1. 1 Transport and Communication 1. 3 1. 0 Real Estate, Renting 1. 0 Education 1. 0 Health and Social Work 1. 0 Other Service Activities 1. 25 1. 1 Industry 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 32. 5 19

Source of Financing of IS enterprises Source Proportion (%) Private bank 77. 7 Private money lender / pawnshop 12. 8 Relative / neighbor / friends 11. 2 1. 3 Cooperative Employer / landlord Others 0. 0 16. 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 1 A is already completed for all industries and 7 types of non-exhaustiveness and draft Table 2 A is completed for one industry. 21

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