211.

PROFILE ON PRODUCTION OF
CANVAS FABRICS
 211-2

TABLE OF CONTENTS

PAGE

I. SUMMARY 211-3

II. PRODUCT DESCRIPTION & APPLICATION 211-3

III. MARKET STUDY AND PLANT CAPACITY 211-4

A. MARKET STUDY 211-4
B. PLANT CAPACITY & PRODUCTION PROGRAMME 211-6

IV. RAW MATERIALS AND INPUTS 211-7

A. RAW & AUXILIARY MATERIALS 211-7
B. UTILITIES 211-8

V. TECHNOLOGY & ENGINEERING 211-8

A. TECHNOLOGY 211-8
B. ENGINEERING 211-10

VI. MANPOWER & TRAINING REQUIREMENT 211-12

A. MANPOWER REQUIREMENT 211-12
B. TRAINING REQUIREMENT 211-12

VII. FINANCIAL ANALYSIS 211-13

A. TOTAL INITIAL INVESTMENT COST 211-14
B. PRODUCTION COST 211-15
C. FINANCIAL EVALUATION 211-16
D. ECONOMIC BENEFITS 211-17
 211-3

I. SUMMARY

This profile envisages the establishment of a plant for the production of canvas fabrics
with a capacity of 200 tones per annum.

The present demand for the proposed product is estimated at 197 tones per annum. The
demand is expected to reach 328 tones by the year 2020.

The plant will create employment opportunities for 49 persons.

The total investment requirement is estimated at about Birr 38.75 million, out of which
Birr 31.98 million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 16.35 % and a net
present value (NPV) of Birr 10.12 million discounted at 8.5 %.

II. PRODUCT DESCRIPTION & APPLICATION

Canvas fabrics is a coarse cloth made of cotton or other fibers. The most distinctive
feature of this woven fabric is its weight and therefore its high resistance – the weight is
500 gm/m2. Other features include water resistance and rot resistance, and depend on the
end use of the canvas.

The uses of canvas fabrics may be various especially in the field of the protection of
persons and goods against atmospheric conditions: solar radiation, rain, cold weather,
wind, etc. The performance of clothes made of cotton or hemp are the best since these
fibers are more durable and comfortable than synthetic products in these applications.

The main uses of canvas fabrics are for manufacturing tents, sacks, bags, rucksacks,
awnings, tarpaulins, sails, temporary covering and other similar articles. Another large
 211-4

field of application is the manufacture of shoes, especially of training shoes, which at

present have a large market in the country.

III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

The local demand for canvas fabric is supplied from import. Ethiopia imports a variety of
canvas fabrics from the world market. The major types of canvas fabrics that are
imported from the world market include unbleached or bleached canvas fabrics. The
imported quantity of canvas fabrics is shown in Table 3.1.

Table 3.2
IMPORT OF CANVAS FABRICS

Quantity in
Year Ton
2000 253
2001 354
2002 121
2003 237
2004 57
2005 81
2006 278

Source: - Compiled from Customs Authority.

As could be seen from Table 3.1, import of canvas fabric fluctuates from year to year.
The import level which was about 354 tones in the year 2001 has dropped to 121 tones in
 211-5

2002 which however increased to 237 tones in the year 2003 and again decreased to 57
and 81 tones in 2004 and 2005 respectively. The average import during the period under
consideration was 197 tones.

Due to the fluctuating nature of import, to arrive at the total current demand for the
product the average import figure is assumed to approximate present demand.
Accordingly, current total demand is estimated at 197 tones.

2. Projected Demand

It is clearly indicated that the entire demand for the product is met through import. As an
import substitution project there is a wide market. The demand for the product will grow
with population and income rise. For the purpose this project demand is assumed to grow
by 4 % which is equivalent to population growth rate. Accordingly, the projected
demand is shown in Table 3.2.

Table 3.2
PROJECTED DEMAND (tone)

Projected
Year Demand
2008 205
2009 213
2010 222
2011 231
2012 240
2013 250
2014 260
2015 270
2016 281
2017 292
2018 304
2019 316
2020 328
 211-6

3. Pricing and Distribution

The price of canvas fabrics varies according to their finishing type. The canvas fabrics to
be produced could be either plain, colored printed etc. Accordingly the average ex-
factory price is set at Birr 6,250.43 per 1000 sq.mts or Birr 6.25 per one sq.mt.

Currently, distribution of fabrics is undertaken by long established wholesalers, most of

them located in Merkato area of Addis Ababa and other big towns and cities. The
envisaged plant can also adopt the existing distribution channel.

B. PLANT CAPACITY & PRODUCTION PROGRAMME

1. Plant Capacity

The market study indicated above shows that the demand of canvas fabrics in 2008 will
be 205 tones. This demand will grow to 270 tones in 2015 and to 328 tones in 2020.
Based on the demand figures, it is proposed that the canvas fabrics manufacturing plant
will have annual production capacity of 200 tones. This is equivalent to 400,000 m2 of
canvas fabrics. Assuming that the width of the canvas fabric is 1.5 m, the plant will
produce about 266,667 meters of canvas fabrics. The plant will operate single shift 8
hours a day and for 300 days a year.

2. Production Programme

Production will normally start at a lower level of plant capacity since time is required for
production workers to master the skill of operation of production equipment, and for the
plant to establish potential market outlets. In view of this, the plant will start operation at
65% of plant capacity at the first year of operation, and then production will rise to 75%,
85% and finally to 100% full capacity during the 2nd, 3rd,4th year and then after,
respectively. Production build-up programme together with corresponding capacity
utilization is shown in Table 3.3 below.
 211-7

Table 3.3
PRODUCTION PROGRAMME

Year 1 2 3 4 and above

Capacity utilization (%) 65 75 85 100
Production
a) In tone 130 150 170 200
2
b) In M 260,000 300,000 340,000 400,000

IV. MATERIALS AND INPUTS

A. RAW MATERIAL

The major raw material considered for the production of canvas fabrics is cotton. The
proposed cloth is made of woven cotton starting from bales of cotton, so that the cotton is
the only required raw material. The yield of cloth is assumed to be 90% by weight of
cotton supplied as an input. The canvas fabric has an average weight of 500 gm/m2.
Thus, the weight of cotton required to produce 400,000 m2 of canvas fabric will be: (0.5
x 400,000) /0.9 or 222.22 tones. Table 4.1 below shows the annual requirement of cotton
and related cost. It is also assumed that the raw material will be procured from local
markets.
Table 4.1
RAW MATERIAL REQUIREMENT

No. Description Qty Cost (‘000 Birr)

LC FC TC
A. Raw Material
Raw Cotton (tone) 222.22 2222.20 - 2222.20
Costs associated with raw - 200 - 200
material
Total - 2422.20 - 24222.20
 211-8

B. UTILITIES

Utilities required consists of electricity, water, steam, fuel oil, oil and lubricants. Annual
requirements of these items and related costs at full capacity production is given in Table
4.2 below.

Table 4.2
ANNUAL REQUIREMENT OF UTILITIES

No. Description Qty Cost (Birr)

1 Electricity (kWh) 275,000 130,350
2 Water (M3) 15,000 150,000
3 Fuel oil (liters) 5,000 27,050
4 Oils and lubricants (kg) 120 2,200
Total - 309,600

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Production Process

The project takes into consideration all the process steps from cotton bale plucking to the
woven fabric. Other operations such mercerizing, bleaching, dyeing or impregnation are
presumed as being carried out in Awassa textile factory.

In connection with the high strength required by the end-use, the classic ring spinning in
the carded system is suggested and no combing machine is included. Consequently the
production process consists of the following unit operations:
• Yarn Spinning
• Thread preparation
• Cloth preparation
 211-9

a) Yarn Spinning: This unit operation consists of the following sub processes:

- Bale plucking
- Fibers beating and cleaning
- Carding
- Multiple coupling and drawing
- Roving frame
- Ring spinning frame

b) Thread Preparation: The preparation of thread can be carried out through the
following sub processes:

- Cone winding
- Double winding
- Double twist frames

c) Cloth preparation: Cloth is prepared by carrying out weaving operations.

It is to be noted here that the warp preparation as well as the finishing or dyeing treatment
are presumed as being accomplished in the departments of Awassa Textile Factory, as the
installation of new machinery for such a small capacity is not economically viable.

2) Source of Technology

The technology of canvas fabrics production is an age long skill developed and applied in
Europe and Asia, China, Korea, Japan, Taiwan and European countries have well
developed knowledge in producing machineries used in canvas fabrics production.
Address of a machinery supplier is given below.

Shanghai Small Enterprises Trade

Development Service Centre
 211-10

International Cooperation Division

Shanghai 200032
Fax: (008621) 642201814

B. ENGINEERING

1. Machinery and Equipment

Machinery and equipment required for the envisaged plant is listed in table 5.1 below.
 211-11

Table 5.1
LIST OF PLANT MACHINERY & EQUIPMENT

No. Description Qty Cost (‘000 Birr)

LC FC TC
1 Spinning department
a) Bale plucker 1 - 5650 25650
b) Cleaning and beating 2
units 1
c) Carding machine 1
d) First draw frame 1
e) Second draw frame 1
f) Roving frame 1
g) Spinning frame 1
2 Thread preparation room
a) Automatic cone winder 1 5435 15435
fitted with 48 spindles
b) Doubling winders with
24 spindles 2
c) Twisters with spindles
2
3 Loom department
a) Rapier weaving machine (in - 9900 9900
1900mm width) equipped with
cam system, automatic pick
finder, central lube oil system 2
b) Loom, fitted with a dobby
system for the moving of 1
heddles
4 Auxiliary units
a) Air conditioning units for 3 9800 19800
winding, threading and loom
departments
b) Compressed air system 2
(one stand-by)
c) Anti-fine system of
sprinkler type Set
d) Boiler
FOB price 30785 70785
Freight, insurance, customs, 1200 - 1200
bank charges, materials
handling cost.
CIF landed cost 1200 30785 31985
 211-12

The finishing treatments may include scorching, mercerizing, bleaching, drying, dyeing,
water proofing and packaging. All these treatments may be carried out in Awassa textile
factory. All these treatments are evaluated at a cost ranging from Birr 28 to Birr 29.50
per meter.

2. Land, Building and Civil Works

The total land area required for the envisaged plant is estimated at about 5000 m2. At the
rate of Birr 1.0 for 80 years the total land lease value will be Birr 400,000. The total
built-up area will be Birr 2500 m2, and at the rate of Birr 2000 per m2, the total cost of
building will be Birr 5 million.

3. Proposed Location

Location of the plant needs to consider proximity to raw materials, availability of

infrastructure, and distance to potential market outlets. . In view of these two woredas,
namely Lemo and Sodo Zuria were identified as potential locations. Of these Lemo is
selected as appropriate woreda. It is therefore proposed that the canvas fabrics
manufacturing plant will be located in Hosanna town.

VI. MANPOWER AND TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT

The plant requires manpower for production and administrative activities. Production
manpower is comprised of skilled operators and unskilled assistants. Administrative
manpower includes managerial staff and administrative crew. The details of manpower
including monthly and annual salaries are given in Table 6.1 below.
 211-13

B. TRAINING REQUIREMENT

Training will be given to machinery operators, production head, shift foreman,

technicians and quality control expert. One-month training on the techniques of
machinery operation and quality control will be provided in Awassa textile factory.
Experts of machinery supplier will take the responsibility to conduct the training
programme. A total of Birr 30,000 will be allocated to cover the expenses of the training
programme.

Table 6.1
MANPOWER REQUIREMENT

No. Job Title Nos. Monthly Annual Salary

Salary
A. Administration
1 Plant manager 1 2500 30,000
2 Executive secretary 1 1000 12,000
3 Administration and finance head 1 1500 18,000
4 Personnel officer 1 800 9,600
5 Sales head 1 1000 12,000
6 Stored head 1 1000 12,000
7 Secretary 2 600 7,200
8 Cashier 1 600 7,200
9 Clerk 1 500 6,000
10 Driver 1 500 6,000
11 Guard 3 250 9,000
12 Janitors 3 200 7,200
Sub total 17 136,200
B. Production
1 Production head 1 1500 18,000
2 Foreman (one for each dept) 3 1200 43,200
3 Skilled operators 15 700 126,000
4 Unskilled workers 6 400 28,800
5 Production clerk 1 500 6,000
6 Auxiliary equipment experts 3 800 28,800
7 Technicians (electrician, 3 800 28,000
mechanic & instrument expert)
Sub total 32 - 279,600
Workers’ Benefit - - 103,950
Total 49 - 519,750
 211-14

VII. FINANCIAL ANALYSIS

The financial analysis of the canvas fabrics project is based on the data presented in the
previous chapters and the following assumptions:-

Construction period 1 year

Source of finance 30 % equity
70 % loan
Tax holidays 3 years
Bank interest 8.5 %
Discount cash flow 8.5 %
Accounts receivable 30 days
Raw material local 30 days
Work in progress 3 days
Finished products 30 days
Cash in hand 10 days
Accounts payable 30 days

A. TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr
38.75 million, of which 32 per cent will be required in foreign currency.

The major breakdown of the total initial investment cost is shown in Table 7.1.
 211-15

Table 7.1
INITIAL INVESTMENT COST

Sr. Total Cost

No. Cost Items (‘000
Birr)
1 Land lease value 400
2 Building and Civil Work 5,000.00
3 Plant Machinery and Equipment 31,985.00
4 Office Furniture and Equipment 175
5 Vehicle 450
6 Pre-production Expenditure* 150
7 Working Capital 590.04
Total Investment cost
38,750.0
Foreign Share 32

* N.B Pre-production expenditure includes interest during construction ( Birr 2.32

million ) training (Birr 30 thousand ) and Birr 120 thousand costs of registration,
licensing and formation of the company including legal fees, commissioning expenses,
etc.

B. PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 2.16
million (see Table 7.2). The material and utility cost accounts for 29.40 per cent, while
repair and maintenance take 1.94 per cent of the production cost.
 211-16

Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Cost %
Raw Material and Inputs
2,422.20 26.06
Utilities
309.6 3.33
Maintenance and repair
180 1.94
Labour direct
383.55 4.13
Administration Costs
114.18 1.23
Total Operating Costs
136.2 1.47
Depreciation
3,545.73 38.15
Cost of Finance
3586 38.59
Total Production Cost 2161.49 23.26

C. FINANCIAL EVALUATION

1. Profitability

According to the projected income statement, the project will start generating profit in the
first year of operation. Important ratios such as profit to total sales, net profit to equity
(Return on equity) and net profit plus interest on total investment (return on total
investment) show an increasing trend during the life-time of the project.

The income statement and the other indicators of profitability show that the project is
viable.
 211-17

2. Break-even Analysis

The break-even point of the project including cost of finance when it starts to operate at
full capacity (year ) is estimated by using income statement projection.

BE = Fixed Cost = 42 %
Sales – Variable Cost

3. Payback Period

The investment cost and income statement projection are used to project the pay-back
period. The project’s initial investment will be fully recovered within 5 years.

4. Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 16 % and the net
present value at 8.5 % discount rate is Birr 10.12 million.

D. ECONOMIC BENEFITS

The project can create employment for 49 persons. In addition to supply of the domestic
needs, the project will generate Birr 8.45 million in terms of tax revenue. The
establishment of such factory will have a foreign exchange saving effect to the country by
substituting the current imports.