Consumption of Fixed Capital and Capital Stock Nthabiseng

Consumption of Fixed Capital and Capital Stock Nthabiseng Molemoeng Seminar on Developing a Programme for the Implementation of the 2008 SNA and supporting statistics 17 -19 October 2012

Outline v. Definition v. Method v. Process of computation 2

Consumption of Fixed Capital 3

Definition v The consumption of fixed capital can be defined as the decline in the current value of the stock of fixed assets as a result of physical deterioration v The consumption of fixed capital is derived from gross fixed capital formation v Estimates are based on PIM - straight-line method v Service lives for different assets 4

Service Life Assumptions by Selected Countries Country Constructio n Transport equipment Other equipment Australia 60 30 -70 - 19 Belgium 60 30 -80 7 15 Canada 75 25 -70 10 22 Finland 50 10 -70 10 15 France - 25 -60 10 17 74 35 -80 8 13 - 13 -40 - 16 Japan 75 - - 10 Sweden 75 25 -80 3 25 UK 100 16 -100 10 25 US 80 16 -50 10 16 “Best 75 35 8 15 Germany Italy 5 Dwellings

Average service life – South Africa Type of asset Sector Lifetime Residential buildings 50 years Non-residential buildings 50 years Construction works Agriculture 80 years Mining 30 years General government 80 years Other 50 years Transport equipment 8 years Computer equipment 5 years Machinery & other equipment Manufacturing 8 years Mining & Electricity, gas 16 years and water 6 Other 10 years

Process of computation üPrivate business enterprise üPublic corporations üGeneral government üCurrent prices üConstant prices Formula programmed where X = Number of terms (i. e. service life) Y = GFCF 7 The results yield: CFC = (Y[t-X] + Y[t-(X-1)] + Y[t-(X-2)] +. . . + Y[t]) / X

Straight line method based on asset with 5 -year service life Year Y 1 s Y 2 Y 3 Y 4 Y 5 Y 6 Y 7 Y 8 Y 9 Y 10 GFC 250 F GFC F 500 GFC F 600 GFC F 700 GFC F 8 1000 Total 250 500 600 700 1000 Year Y 1 s Y 2 Y 3 Y 4 Y 5 CFC 50 50 50

Capital Stock 9 Consumption of Fixed Capital

Definition v Fixed capital stock is the accumulation of gross fixed capital formation over a particular period less consumption of fixed capital. v Valuation of fixed capital stock is essential for the balance sheet. v Estimates of capital stocks are used for the analysis of economic efficiency and productivity 10

Process of computation üPrivate business enterprise üPublic corporations üGeneral government üCurrent prices üConstant prices Formula programmed FCSt = FCSt-1 + GFCFt - CFCt where FCS = Fixed capital stock GFCF = Gross fixed capital formation CFC = Consumption of fixed capital formation 11

Method Year Y 1 s Y 2 Y 3 Y 4 Y 5 Y 6 Y 7 Y 8 Y 9 Y 10 GFC 250 F GFC F 500 GFC F 600 GFC F 700 GFC F 12 1000 Total 250 500 600 700 1000 Year Y 1 s Y 2 Y 3 Y 4 Y 5 CFC 50 50 100 100 100 120 120 CFC 50 120

Method – starting value Years GFCF Depreciated value Y 1 100 = GFCF *(1 -1)/5 0 Y 2 150 = GFCF *(2 -1)/5 30 Y 3 200 = GFCF *(3 -1)/5 80 Y 4 250 = GFCF *(4 -1)/5 150 Y 5 300 = GFCF *(5 -1)/5 240 Σ 13 Sum of depreciated value 500

Results Residenti al buildings Non. Res Constructio n Transpor t Computer equipmen t Machiner y Total Agric 266 252 730 1106 465 3878 6717 Mining 358 1575 5713 2117 1414 13104 24280 Manufacturing 8 2088 303 2634 484 61503 72015 Electricity 46 93 6218 713 138 2507 9716 Construction - 77 - 2057 193 3827 6154 Trade - 1699 32 5812 3168 10608 21320 Transport 4 668 5755 20784 5752 13621 46582 Finance 8250 1649 145 8485 6621 2683 37213 Services 857 3892 4755 818 3253 9741 23315 11992 23648 44548 26489 128170 24731 3 Total 14 12468

THANK YOU! 15