FEASIBILITY STUDY

FOR
ESTABLISHEMENT OF
FOOD COMPLEX
FACTORY

AT OROMIA REGION MODJO TOWN

PROMOTER:EYOB DADI JIMA

Augst,2020

Modjo,Ethiopia

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 Table of Contents

1. PROJECT DESCRIPTION............................................................................5

1.1 PROJECT LOCATION..................................................................................5

1.2 PROJECT RATIONALE................................................................................6

1.4 PROJECT IMPLEMENTATION SCHEDULE..................................................7

1.5 BENEFITS OF THE PROJECT.....................................................................7

2. PROMOTER’S BACKGROUND.....................................................................8

3. PRODUCT DEFINITION...............................................................................8

4. PROJECT MANAGEMENT AND HUMAN RESOURCE................................10

4.1 PROJECT MANAGEMENT.........................................................................10

4.2 HUMAN RESOURCE REQUIREMENT.......................................................10

4.3 TRAINING REQUIREMENT........................................................................11

5 MARKET ANALYSIS..................................................................................12

5.1 WHY AGRO-PROCESSING IS CRITICAL TO THE ETHIOPIAN ECONOMY? 12

5.2 SUPPLY....................................................................................................12

5.3 DEMAND..................................................................................................15

5.4 DEMAND AND SUPPLY GAP.....................................................................16

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5.5 MARKETING STRATEGY...........................................................................16

5.6 PRICE.......................................................................................................16

6 TECHNICAL STUDIES...............................................................................19

6.1 RAW MATERIAL AND INPUTS...................................................................19

6.2 PRODUCTION PROCESS..........................................................................21

6.4 PRODUCTION MACHINERY......................................................................23

6.5 VEHICLES................................................................................................24

6.6 OFFICE EQUIPMENT AND FURNITURE...................................................24

6.7 UTILITY SUPPLY.......................................................................................25

7 FINANCIAL APPRAISAL.............................................................................27

7.1 INITIAL INVESTMENT COST.....................................................................27

7.2 FINANCING STRUCTURE..........................................................................27

7.3 APPLIED FINANCIAL ASSUMPTIONS:.......................................................28

7.4 WORKING CAPITAL..................................................................................28

7.5 OPERATING COST, VOLUME AND REVENUE..........................................29

7.5.1 OPERATING COST..............................................................................29

7.5.2 PRODUCTION VOLUME AND REVENUE............................................30

7.6 PROJECT PROFITABILITY........................................................................31

7.7 PROJECT LIQUIDITY AND PAYBACK PERIOD..........................................32

7.8 NPV & IRR................................................................................................33

7.9 SENSITIVITY TO COST AND REVENUE VARIATIONS................................34

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7.10.....................................................................DEBT SERVICING SCHEDULE 35

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 EXCUTIVE SUMMARY

1) Project Name “Eyob Dadi Jima Food Processing Plant

2) Project Type Manufacturing, Food Processing (Biscuits, Noodles, ) and Flour plant

3) Project Owner Eyob Dadi Jima

4) Nationality Ethiopian
(Promoter)

5) Address  Location: Oromia Regional Government,Modjo Town,

 Contact Address: Tel.: +251 911614014

6) Project 3000 ton wheat flour and 3600 tons of Biscuits,200 tons Macaroni
Composition 200 tons Pasta, Noodles and etc., when it operates at full capacity.

7) Premises Owned 10,000M2

8) Total Investment A total of 75,390,000Ethiopian Birr is required, out of which, Birr

Capital 52,617,000(70%) is going to be covered by loan and the remaining Birr
22,617,000.00 (30%) is covered by the owner’s equity.

9) Employment The total job opportunity created by the project will be 300 which
Opportunity include both permanently and temporarily.

10) Benefits Expected

 Filling the demand gap by providing quality products;
 Stimulating the local economy by adding value to the sector of the
economy;
 It is a source of revenue for the local & national government;
 Creating employment opportunities;
 Technology transfer;
 Increases foreign currency.

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1.1. INTRODUCTION
Ethiopia has an agricultural based economy. As communication and technology
development has advanced so new opportunities developed where they did not exist before.
Agriculture is the dominant sector in the Ethiopia Economy and is mainly subsistence
farming and primary production of commodities which include coffee, skin and hides and
to limited extend pluses and oil crops. Coffee alone represents over 30% of total exports.
Agriculture constitutes about 42% of GDP and contributes to 85% of employment and 65%
of export.

A notable feature of Ethiopia’s has land mass is the diversity of its natural resources. A wide
range of climates, permit the production of both temperature ad tropical crops. However,
the immense natural potential the country is endowed with has not been fully utilized.

Ethiopia is the roof of Africa, five, times the size of the United Kingdom it is strategically
located within the Horn of Africa. It covers a land area of over 1.14 million square kilometers
encompassing huge rugged mountains and flat-toped plateau marked by deep gorges and
rivers. It has a population of about 85 million people speaking 80 different languages. Even
though the national language is Amharic, other languages such as Afan Oromo, Tigrigna,
Somaligna, English, Arabic language and the like are spoken broadly and most of these
languages are working and teaching languages in offices and schools.

Ethiopia’s climate varies from clod to temperate and from sub-tropical to tropical.

Addis Ababa, with about 4 million people, is the capital of Ethiopia. It is the seat of the
African union (AU), the economic commission for Africa (ECA) and other international
institutions. Lying at an altitude of 2400 meters, the average temperature in Addis Ababa is
16 0C.

The prevailing project is food complex that produces wheat flour and biscuit in an
integrated way. Food processing is among the oldest of Ethiopia’s manufacturing
industries. Currently, the food complex processing industry employed about 26%
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of all employees in the manufacturing sector. The food processing industry can be
broken into eight major subsectors: one of these categories is the wheat-based
products manufacturing which is the subject matter of this feasibility study.
The project promoter, with trade name of ‘Food processing and flour mill’ is a
sole proprietorship business owned by Ato Eyob Dadi Jima. The project is
located in Oromia regional state Modjo town administration on 10,000 square
meters of land require for 80 years.

The project is designed to produce wheat flour and biscuit. The market for all of
the envisaged products in the domestic market shows a consistent increment.
The short of supply as compared to demand forced the country to import each of
the products this project has planned to produce. Therefore, establishment of the
food complex not only helps to contribute to narrow the demand gap but also to
lessen the hard currency required to import the products. The desire to create
vertical integration to add more value to the flour products and the perception of
demand gap coupled with the government’s incentive helped the promoter to
enter into the Biscuit manufacturing business.

The total investment cost require for the project is Birr 75,390,000 million. It is
planned that 30% or Birr 18.00 million is contributed by the promoter and the
remaining 70% or Birr 42.00 million would be financed by bank. The Bank
financing of Birr 42.00 million is scheduled to be repaid within 8 years excluding
the two years’ grace period at 9.5% interest rate with quarter repayment.

However, such Food complex process is one of such facility intended to help the
development of Modjo town as center of manufacturing interaction. As known, the town is
on fast development. Considering the incentive put in place by the government to develop
the attractive town, we intended to plan for Wheat flour and biscuit production, in Modjo
town. We have also prepared and submitted detailed plan for our project, and machinery
and sales site of 10,000 m2 of land. We would also like to make known that we have
sufficient capacity to start our project.

In addition, the Establishment of the food complex plant is a contribution to the

country’s real GDP as it has positive impact in fixed asset generation and output

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quantity increments. Apart from creating employment opportunity for the
domestic labor, the project would reduce hard currency outlay.

The realization of the project as ascertained in the financial appraisal result

enables the promoter to generate higher net benefits, employment benefit to
domestic labor, indirect employment for input suppliers, tax revenue benefit and
import substitution effect on saving hard currency. These parameters are basic
indications of the projects social desirability and economic feasibility. Therefore,
it is advisable to finance it either with equity or with debt or in a combination of
both.

1. 2.PROJECT DESCRIPTION
The envisaged project is an integrated manufacturing of food complex. The factory
produces Wheat Flour and Biscuit, macaroni, pasta by processing raw wheat.
The installed plant capacity of wheat flour is 30,000 and Biscuit 3,600 tons,200
macaronni,200 tons pasta per year, respectively. 89% of the wheat flour
manufactured in the factory shall be sold in the local market, while the remaining
11% will be used for the production of biscuit. The percentage proportion is
determined based on the production capacity of the biscuit production
machinery.

1.3. Project Location

The food complex plant is located in Modjo town. Modjo is located about100
Kilometer South West of Addis Ababa on the Main Road from Addis Ababa to East
Shoa zone. While selecting location for such food complex factory; availability of
raw material, adequate storage and operation space, water and power supply,
market outlet for finished products and availability of labor are among the major
factors to be considered. The town is the host of other labor-intensive factories
due to its preferable attribute and proximity to the capital Addis Ababa.

1.4. Project Rationale

Food item is a commodity; its demand exists whenever human being exists. The
demand increases as population increases disregarding preference of consumers
over the type of feeds and their catering culture. Wheat flour based products such

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as biscuit are among the well-known and commonly available products in the
Ethiopian Market.

Food self-sufficiency is one of the prime objectives of the country. Labor intensive
agro processing industries play significant role in absorbing the large labor force
and thus contribute their share to the food self-sufficiency move. The Agricultural
products like wheat and the semi processed flour shall be traded in a vertically
integrated marketing methodology in order to ensure better wage to the farmer
and more value adding produces that preferably involve many labor to deploy the
cheap labor force of the country in productive sectors. The industry is a distinct
sector of the economy, which makes its direct contributions to the enhancement
of social wellbeing of productive citizens.

Apart from its attractive return, existence of stable demand and employment
generation as well as tax revenue to the government, establishment of such agro
processing industry is a good opportunity to the grain market stimulation and
thus to the framers. It is rationale, therefore, to involve into an activity that helps
to tap the well-known business opportunity.

1.5. GUARANTEES TO INVESTOR

Ethiopia provides the following guarantees to foreign investors;

A. Repatriation of Capital; and profits

Capital repatriation and remittance of dividends and interest is guaranteed to foreign
investors under the investment proclamation. Any foreign investor has the right in respect
of an approve investment to make the following remittances out of Ethiopia in convertible
currency at the prevailing rate of exchange on the fate of remittance.

 Profit and dividends accruing from an investment

 Principal and interest payments on external loans
 Payments related to technology transfer or management agreements
 Proceeds from sale or liquidation of an enterprise
 Proceeds from the sale of transfer of shares or assets
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  Compensation paid to a foreign investor.
B. Guarantees against Expropriation
The constitution of the Federal Democratic Republic of Ethiopia protects private property.
The investment proclamation also provides investment guarantees against measure of
expropriation and nationalization and nationalization that only may occur with the
requirements of the law. Where such expropriations are made the government guarantees
to provide adequate compensation corresponding to the prevailing market value of property
and such payment shall be effected promptly.

C. Other guarantees
Ethiopia is a member of the World Bank –affiliated multilateral investment guarantee
Agency (MIGA) that issues guarantees against non-commercial risks to enterprise which
invest in signatory countries. Ethiopia is at any time read to conclude bilateral investment
promotion and protection treaties with any country and is in fact currently concluding
such agreements with a number of developed countries.

Ethiopia has also signed the World Bank Treaty “The Convention on settlement of
Investment disputes between States and nationals of other States (ICSID)”. Investors are
protected against expropriation and nationalization. Ethiopia has ratified the convention
establishing the multilateral investment guaranteed Agency (MIGA). It has also signed
bilateral investment promotion and protection agreements with a number of Organization
of Economic Cooperation development (OECD) countries.

1.6. Benefits of the Project

The major benefits include net returns on investment, supply of quality products
to the local market and income tax to the government. Establishment of the
project is creating opportunity for productive and unemployed portion of the labor
force. Indirect benefits accrue to the country as a whole in the form of generating
potential investment capital and saving of foreign currency. Experience of this
project may be extended to the grain market by creating market the agricultural
produce.

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  SOURCE OF EMPLOYMENT

One of the problems that our country is faced is unemployment. Therefore, the current
objective of our government is working on tackling the problem of unemployment either
through creating self-employment or employment in other organization.

Hence, the envisaged multipurpose building to contribute somewhat to solve the problem
of unemployment. Upon completion, the project center assumed to generate employment
opportunities for about 300 persons.

 SOURCES OF SOCIAL SERVICE

In addition to serving as a source of employment and income for the region, the project
renders social services for different group of people. Hence, it is also providing the following
services:

 serve as a source of mental satisfaction for the different users,

 Since, the center encompasses different recreational areas; it will divert the
attention of the users from different evil deeds.
 It deemed to minimize the demand for shops and other bundles of services in
the area

2. PROMOTER’s BACKGROUND
Ato Solomon Alemu is very experienced business man who has been in business
for FOOD PROCESSING AND FLOUR MILL. He is young business man who
thoroughly studied all the end to end production and marketing process and
already started implementation of the project and also has accomplished more
than 40% of the building.

3. PRODUCT DEFINITION
 Wheat flour
It is a powder made from the grinding of wheat used for human consumption.
More wheat flour is produced than any other flour. In terms of the parts of the
grain (the grass fruit) used in flour—the endosperm or protein/starchy part, the
germ or protein/fat/vitamin-rich part, and the bran or fiber part—there are three
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general types of flours. White flour is made from the endosperm only. Whole grain
or whole meal flour is made from the entire grain, including bran, endosperm and
germ. Germ flour is made from the endosperm and germ, excluding the bran. The
project planned to produce germ flour type.

 Biscuits
A small, flat cake that is dry and usually sweet. Biscuit is a family of candy
group, which is largely, consumed by children and teenagers. Biscuits can be
savory, sweet, plain-baked, filled, or coated (or a mixture of several of these
options). Some biscuits supply special dietary needs such as those for high fiber
protein or external vitamins. Biscuit also contain fat and often sugar and are cut
or molded into layers and baked rapidly thoroughly. When they packed with
moisture proof material, they can have long shelf life.
Macaroni & pasta/ spaghetti production process

The production of pasta/macaroni mainly involves mixing, kneading, extrusion,

drying and packing. In preparing pasta dough, the semolina/ flour and water and

in some cases egg emulsion and other ingredients are measured in a pre-

determined ratio and put into a mixer where they are mixed into a consistency of

wet sand i.e. a conglomeration of millions of tiny moist granules. The mixing is

normally accomplished for 12-15 minutes and the mixture is usually made to

have about 30% moisture. The quantity of water depends on the drying

temperature employed in the manufacturing process.

In continuous press, mixing is effected under the application of vacuum. The

presence of air bubbles in the pasta dough gives the product a chalky appearance

and reduces its mechanical strength. At the end of mixer, the dough is received

into a specially designed augur, which is mounted in tightly sealed cast housing.

Here, the kneading of the dough, the feeding of the pasta/macaroni - forming die

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with the dough and the creation of pressure required for forcing the dough

through the extrusion die opening is effected. The kneading operation is

necessary to give uniform texture and color to the finished pasta/macaroni

product. Most presses have kneading plate of perforated metal at the end of the

screw. This breaks the dough into very small streams and recombines it to work

out any inequalities in the dough and filter out chunks of dry dough and

extraneous matter so that it will not plug the die.

During extrusion, a considerable amount of heat is generated, for the reason of

which extrusion cylinders are equipped with water - cooling jacket to dissipate

heat and hold the extrusion temperature constant. For the best results, the pasta

temperature should be held between 45oC and 50oC. After mixing and kneading,

the most critical step in pasta manufacturing is the drying process. Drying is the

elimination of a liquid; normally water, from a substance or a solid body, which

aims at obtaining a hard product that, will retain its shape and is capable of

being stored for an indefinite time without spoiling. To do this, the moisture

content of pasta/macaroni should be lowered from 30% to 12%. But this

apparently simple operation could lead to a moldy and sourly product if carried

out too slowly, and could cause the product to crack if carried out too rapidly.

Considering the size of the market and the available technology, a plant with a

floor capacity of 95,040 qt macaroni and 95040 quintal pasta in a year were

proposed, assuming 22 working days in a month. The annual production capacity

of the plant is presented as follows.

Production program

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 Year
Product Year1 Year2 Year3
Macaroni 79,200 84,480 95,040
Pasta 79,200 84,480 95,040
3.1.GTP plan
The agro-processing industry sector is one of the emphases areas of the GTP plan
aiming to increase the capacity utilization of the industries to 90% at the end of
the GTP plan 2019/20 from 60% in the year 2009/10.
In achieving this target, the government has also set a plan to increase the
productivity of in industrial crop which are the main inputs like wheat to
1,174.70 metric tons in the year 2019/20 from 629.7 metric ton in the year
2009/10 used as a base period. This simply shows that the project is one of the
government emphasis areas to meet the ultimate goal of food sufficiency;
otherwise the GTP plan has left only one and half year period which may be short
as we compared with the project life of 10 years. The following two tables of
extract from the GTP plan portray the above facts.

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3.3. PROJECT MANAGEMENT AND HUMAN RESOURCE
3.3.1. Project Management

The technical aspect of Wheat flour and biscuit production is a well-known

profession in the Ethiopian food-processing sector. As a result, qualified
professionals are available in the market hence; all the technical, marketing,
finance & Administration and Production functions are supervised and managed
by Ethiopians. The owner is also member of the top management group of the
factory and other qualified professionals assume the Production, Marketing &
Procurement as well as Finance & Administration functions.

The would be organizational structure of the factory is as shown below:-

General
Manager

Secretary Legal Advisor

Head - Finance &

Head Marketing
Production and Administration
& Procurment
Technique Manager

Head- Sales and

Head Production Head Finance
Promotion

Head
Head Technical Head
Procurment and
Services Administration
Store

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 3.4. Human Resource Requirement
A total number of 300 permanent local employees are projected for the
managerial, professional, technical, and non-professional posts of the project. The
20% staff benefit includes, 8% pension, transportation and other benefits.
Monthly and annual salary expense is Birr 650,400 and Birr 7,804,800,
respectively. The detail including the salary expense is shown in the following
table.
Monthly
No. of Monthl Salary Annual
Position posts y Pay Expense Pay
General Manager 1 10,000 10,000 120,000
Executive Secretary 1 3,000 3,000 36,000
Legal Advisor 1 4,000 4,000 48,000
sub-total 3 17,000 17,000 204,000
Head Finance and
Admin. Department 1 8,000 8,000 96,000
Secretary 1 2,500 2,500 30,000
Administration Division 1 5,000 5,000 60,000
Personnel officer 1 3,000 3,000 36,000
Office girl 1 1,000 1,000 12,000
Personnel Clerk 1 1,500 1,500 18,000
General Service Clerk 1 1,500 1,500 18,000
Telephone Operator 1 1,500 1,500 18,000
Drivers 2 2,000 4,000 48,000
Assistant Drivers 2 1,000 2,000 24,000
Guards 6 800 4,800 57,600
Janitors 2 800 1,600 19,200
Gardeners 1 800 800 9,600
Finance Division 1 5,000 5,000 60,000
Senior accountant 1 4,000 4,000 48,000
Accountant 3 3,000 9,000 108,000

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Data Entry Clerk 1 1,500 1,500 18,000
Casher 2 2,000 4,000 48,000
sub-total 29 44,900 60,700 728,400
Head Marketing and
Procurement 1 8,000 8,000 96,000
Procurement & store
division 1 5,000 5,000 60,000
Purchaser 1 3,000 3,000 36,000
Store keeper 2 2,000 4,000 48,000
Head Sales division 1 5,000 5,000 60,000
Sales Officers 2 3,000 6,000 72,000
Sales Clerk 2 1,500 3,000 36,000
Invoice clerk 1 1,500 1,500 18,000
sub-total 11 29,000 35,500 426,000
Production and
Technique Depar. Head 1 8,000 8,000 96,000
Production Division
Head 1 5,000 5,000 60,000
Shift leader 3 4,000 12,000 144,000
Different machines
operators 20 2,000 40,000 480,000
Different machines
assistant operators 20 1,500 30,000 360,000
Packing supervisors 3 2,500 7,500 90,000
Packing workers 200 1,500 300,000 3,600,000
Quality Controller-chemist 2 3,000 6,000 72,000
4,902,00
Sub-total 250 27,500 408,500 0
Technical Division Head 1 5,000 5,000 60,000
Mechanical Forman 1 3,500 3,500 42,000
Senior mechanic 1 3,000 3,000 36,000
Mechanic 1 2,500 2,500 30,000

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 Senior electrician 1 3,000 3,000 36,000
Electrician 1 2,500 2,500 30,000
Tool Keeper 1 800 800 9,600
sub-total 7 20,300 20,300 243,600
Total 300 138,700 542,000 6,504,000
20% benefit 108,400 1,300,800
Grand total 650,400 7,804,800

Training Requirement
Training shall be carried out during plant erection and commissioning by
machinery supplier. The training and erecting period is scheduled to be for 90
days. The cost of installation and training cost is included in the cost of
production machinery.

4. MARKET ANALYSIS
4.1. Why agro-processing is critical to the Ethiopian Economy?
It is obvious that Ethiopia, which depends on agriculture of nearly half of its GDP
should give top priority to the development of its agricultural sector. To this
effect, the government has adopted an Agricultural-Development Led
Industrialization (ADLI) strategy to ensure sustainable agricultural production for
food self-reliance and promote industrialization. The rigorous implementation of
the ADLI strategy is recognized to result in surplus production of agricultural
products. Rather than exporting surplus primary products such as cereals,
pulses, oilseeds and fresh produce, Ethiopia will increasingly realize the benefits
of exporting processed foods that add value to primary agricultural products.
Therefore, the prospects for expansion of the food processing sub-sector are
considerable. Food processing factories of cereals, oilseeds, pulses, sugarcane,
vegetables, fruits, meat, dairy products and spices are expected to be established
in large numbers. In all, agro-industry in general and food processing in
particular will play an increasingly important role in the Ethiopian economy.
In order to be competitive in the market, the Ethiopian food processing industry
should increase the degree of transformation of primary agricultural products

18
and improve upon the quality of food packaging. Therefore, use of modern
technology will be very critical element in food processing and packaging. In this
connection, market access, management knows how and transfer of technology
would take up most.

Given the large agricultural resources potential of the country and relatively
under developed status of the manufacturing sector, the Ethiopian Government
should as part of its ADLI strategy, initially focus on the development of the
country’s agro-industry, especially the food processing industry, both for the
export and the domestic markets. The domestic market is important because
growth in income of the general population, combined with increased
urbanization, will in time translate into increased domestic demand for processed
foods

4.2. Supply
The food processing industry in Ethiopia consists of three scale-based classes;
the dominant core, which consists of large-scale manufacturers producing well-
known brands account for a significant share of the market when it comes to
packaged foods such as biscuits and pasta/macaroni. The second & third class is
the competitive fringe consisting of medium and small scale enterprises that
collectively account for a larger share of the market for unbranded, staple
(commodity) food items such as flour & bread. The 2012 CSA Manufacturing
Business Survey reports the total production value of the food processing sector
to be 2,688,620,795 in 2011- which is about 11.93% of the manufacturing
industry as a whole.

Ethiopian Food Processing Industry

Number of Establishments by Size

2007/2008 2008/2009 2009/2010

S M S M Sm Me
Lg Lg Lg
ml ed ml ed l d

Vegetables/ Fruits 1 2 9 1 3 9 - 2 8

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 processing

Vegetable & animal

21 5 7 23 8 8 25 3 8
oils/fats

Dairy products - - 4 1 1 3 3 7 25

Mills 24 62 38 30 77 41 34 88 52

Animal Feed 1 2 40 1 1 12 2 2 3

Bakery 11 11
66 6 70 52 92 49 58
4 9

Sugar & Confectionery 11 4 6 6 9 6 5 9 7

Pasta & Macaroni 2 2 7 3 1 8 1 3 12

Unclassified 5 4 5 4 3 12 3 1 9

Total 17 14 12 18 17 15 16 16
182
9 7 2 8 3 1 5 4

Source: CSA Manufacturing Industry Report 2011

The wheat flour and Biscuit is mainly supplied by the local manufacturers. There
are also some traders that import these products irregularly from European &
Gulf countries. In the last five years, however, most of the consumption had been
supplied by local producers.
Regarding Investment licenses issued to the Food processing sector, it is observed
that although investment licenses issued to the food processing sector-including
beverages accounted in thousand every year, the proportion of projects that
turned out to operation each year is between 1% and 7%, average 4% during
the past 5 years (2007-2010). According to the CSA’s database the food
processing sector constitutes 4% of the total food and beverages processing. The
flour, biscuit, Macaroni and pasta firms constitute 40% of the food processing
firms.

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Applying the percentage proportion distribution of firms to the investment
licenses issued (historical trend) results that the number of new projects that
would be converted to operational status is nearly 1 in 2018.
Year and No of Project 2019 2020 2021 2022 2023
Compositions

No of Projects in Pre 1,275 2,094 1,427 1,420

Implementation…………. (1)

No of Projects In 57 72 60 37
Implementation……… ….(2)

Projects converted to 96 90 72 16
operational……...……….(3)

Total………………………...4 1,52 1,42 2,25 1,55 1,473

1 8 6 9

Food Licenses (4%) 60.84 57.12 90.24 62.36 58.92

……………………………5

Share of flour, biscuit, Macaroni, 24 23 36 25 24

Pasta Licenses (40%)..6

Percentage of Conversion to 7% 4% 5% 1%
operation.. ¾………7

Share of flour, biscuit Macaroni, 1.54 1.44 1.15 0.26

Pasta(No.) …...7 x 6

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Hence, more than the supply increment contributed by new entrants, the
capacity increment of the already established firms is significant. The historical
production volume trends in ton and the supply forecast based on the past trend
is shown in the following two tables: -

Production Volume of the Past ten years Trend:

Flour production Growth Biscuit Growth

Year in Ton rate production in ton rate
2000 185,437 - 11,781 -
2001 165,345 -11% 16,607 41%
2002 142,541 -14% 5,378 -68%
2003 136,669 -4% 5,639 5%
2004 155,669 14% 7,361 31%
2005 148,786 -4% 10,115 37%
2006 173,787 17% 10,429 3%
2007 177,263 2% 10,794 3%
2008 180,808 2% 11,172 4%
2009 184,424 2% 11,563 3%
2010 188,113 2% 11,968 4%
Average growth 1% 6%
Source: CSA reports of respective years.

The production capacity of the new entrant firm (nearly one) is unknown.
However, on top of the increase in capacity of the existing firms, prudently we
assumed a 1% increase per annum for each product (flour & Biscuit).

Supply Forecast-in tons

Year flour supply Biscuit supply

2011 191,875 12,806

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 2012 195,713 13,702
2013 199,627 14,661
2014 203,620 15,688
2015 207,692 16,786
2016 211,846 17,961
2017 216,083 19,218
2018 220,404 20,563
2019 224,812 22,003
2020 229,309 23,543
2021 233,895 25,191
2022 238,573 26,954
2023 243,344 28,841

Within the projected period, the total supply of wheat flour increases from
199,627 -243,344 tons and biscuit from 14,661 tons to 28,841 tons.

4.3 Demand

In order to forecast the demand for the next ten years, per capita consumption
rate is applied. Other things being constant, apparent consumption/demand is
the amount purchased and consumed. This equals Production + Import-Export.
The third variable is almost zero in Ethiopian case as there is no data on
significant exports so far. Therefore, Demand equals Local Production plus
Import. According to the business development service, Ethiopia’s per capita
consumption for Wheat Flour is 3.8 K.g and Biscuit 0.2 K.g. These rates are
considered for the forecast. Population growth of 2.4% plus 6% annual increase
due to the increment of expending power of the population is applied to forecast
the demand as shown below: The population projection figures in this issue are
based on the results of the May 2007, National population and Housing Census
of Ethiopia. Therefore, the projected figures for the year 2012 become
84,320,987.

Year Population per capita flour per capita biscuit

consumption in ton consumption in ton
2,012 84,320,987 320,420 16,864

23
 2,013 91,403,950 347,335 18,280
2,014 99,081,882 376,511 19,816
2,015 107,404,76
0 408,138 21,480
2,016 116,426,76
0 442,422 23,285
2,017 126,206,60
7 479,585 25,241
2,018 136,807,96
2 519,870 27,361
2,019 148,299,83
1 563,539 29,659
2,020 160,757,01
7 610,877 32,151
2,021 174,260,60
7 662,190 34,852
2,022 188,898,49
7 717,814 37,779
2,023 204,765,97
1 778,111 40,953

As shown above, the demand volume is expected to grow due to population

increment and per capita income improvement. According to the forecast, within
the years from 2013 up to 2023: Demand of wheat flour increases from 347,335-
778,111 tons and biscuit from 18,280-40,953 tons.

4.4. Demand and Supply Gap

The demand-supply variance shows positive demand gap indicating that even
after capacity increment of existing factories, demand for the products would fully
be met with additional imported portion.

Demand Gap
Year Flour in ton Biscuit in ton
2,012

24
 2,013 147,708 3,619
2,014 172,892 4,129
2,015 200,446 4,695
2,016 230,576 5,325
2,017 263,502 6,023
2,018 299,466 6,798
2,019 338,727 7,657
2,020 381,568 8,609
2,021 428,295 9,661
2,022 479,242 10,825
2,023 534,766 12,112

In aggregate all the products have adequate demand gap that can be supplied by
a number of new entrants including this project.
4.5 Marketing Strategy, segmentation and distribution
The major customers of our products are Wholesalers, Retailers & service-based
end-users. We plan to sell products in bulk primarily to the first segment,
wholesalers who in-turn sells it to retailers in smaller quantities. The second
segment comprises of large retail outlets such as supermarkets who buy bulk
quantities directly from the manufacturer and resell to the consumer.

The third customer segment, service-based end users comprises of institutions &
organizations that source products directly from the manufacturers either as raw
materials or supplies for their businesses/organizations.

The market & distribution system in Ethiopia consists of major wholesalers,

regional wholesale distributors, retailers, middlemen, traders and collectors in a
long and complex value chain. Major Wholesalers in particular have an excessively
significant role to play with the function of bulking; picking up large quantities for
smaller wholesalers in regional cities who in turn distribute it to retailers within
the city. Intermediaries such as regional distributors and middlemen are involved
in logistics by covering the difference between the location of the product and the

25
marketplace where consumers purchase products. Other traders & entrepreneurs
have multiple roles in getting goods to various customer groups.

Major Wholesalers are concentrated in Merkato, the wholesale center of the country.
Smaller wholesalers are scattered throughout regional cities and work in specific
territories. The regional wholesalers seldom buy directly from the manufacturers as
they often distribute a number of goods and merkato is a one-stop destination for
all goods distributed in the Country.

The smaller wholesalers are highly sensitive to price and local competition so they
may or may not carry the same type of products for a significant period. Thus,
Merkato becomes an ideal destination for the smaller wholesalers as it provides
them with variety and information on price comparisons as well as market
intelligence in terms of the volume of a particular product that has been sold to
their competitors. Using this information, the smaller wholesalers choose the
brands and/or product mix they are willing to take back to their respective
markets. This causes consistent fluctuations in sales and production schedule for
a manufacturer if regular market intelligence is not conducted. Large-scale food
processors have an advantage to determine price points if they have penetrated the
market well. For this purpose we will use penetration price strategy.

The development of the retail sector in terms of the emergence organized businesses
with high volume sales and high-traffic locations etc has fostered a growing direct-
to-retailer sales trend amongst manufacturers. Large-scale manufacturers are now
distributing their products to supermarkets and mini-marts through door-to-door
sales/delivery route system. This system allows the manufacturer and retailer to
earn a higher margin by cutting out the middlemen. Despite the benefits its offers,
manufacturers generate low volume from the route sales system since the
addressable customer size is very small. The majority of the Country’s retailers are
inaccessible neighborhood kiosks with low-volume sales. Thus, the Merkato-
wholesale distribution system, although very costly to local manufacturers is
assumed to be the most efficient way to deliver products making the intermediary
group ‘the primary distribution channel’.

26
The promoter will use aggressive promotion and product popularization through use
of electronic media especially via TV as visualizing the product will be more
convincing. For the purpose 0.5% of sales are allotted.

4.6. Price
Presently there are different types of flours and biscuits in the market both
imported and locally manufactured. Per our market survey currently, the factory
gate price of flour ranges from birr 900-1,000 and for locally manufactured biscuit
it ranges from birr 4,500-5,000 per quintal or 100 kg, respectively. As a
penetration price the average lowest price of birr 900 and birr 4,500 for flour and
biscuit is considered in the analysis. The minimum market price for the by-product
bran is birr 300 per quintal.
4.7Future Prospects

The project has an excellent and promising future since the life style of the
consumer base is changing in its favor. The following factors are expected to
contribute positively to the sustainable growth of the food sector in general.

 Urbanization:-Increased urbanization results in increased consumer demand

for processed food products like wheat flour, bread, pasta &biscuits. Increased
number of catering companies, hotels, universities, and Army consumption is
also expected to increase.
 Urban consumer trends:

 Decrease in consumption of home-produced Injera due to the rising prices of

Teff.
 Wheat bread replace traditional bread
 More food & drinks consumed outside from home
 Real income growth due to declining inflation rates
 Increased employment rates due to robust economic activity.

 Other Forces:- Population growth results in overall demand increase

5. TECHNICAL STUDIES

27
The most important technical considerations for this project is raw materials type
and selection, technology and capacity of plant, power source, water source,
production process and production support facilities like land and factory
buildings. Each of them is discussed in the subsequent parts.
5.1 Raw material and inputs
The major raw material is wheat. Ethiopia is the largest wheat producer in sub-
Sahara Africa. Wheat production is the fourth largest production in Ethiopia with
3,075,640 ton in area of 1.5 million hectare in the year 2010.

Production (Int
Rank Commodity $1000) Production (MT)

Roots and Tubers,

1 930197 5439400
nes

2 Maize 528815 3897160

3 Cereals, nes 821423 3207300

4 Wheat 466,686 3,075,640

5 Sorghum 452014 2971270

Source: FAOSTAT (2010)

28
The production is planned to increase through area expansion and yield
improvement. Ethiopia’s wheat production increase in recent years appears to be
a combination of both.
Wheat is the major raw material that accounts for approximately 74% of
manufacturing cost. It is made available locally, primarily through small-holder
farms & government owned farming enterprises. A cluster of privately held, large-
scale agricultural enterprises have been emerging in the past two years bringing
the prospect of enhanced quality & dependable supply into the horizon.

It is not legal for the private sector to import wheat. However, the government
supplies wheat for food manufacturers.

Packing materials, flavors & food chemicals such as preservatives, improvers,

colors etc. are not available locally making imports the only option.

Manufacturers can import any raw materials except for wheat and sugar. A
discounted import duty of 10% is afforded to local manufacturers to boost the
competitiveness of local products as opposed to the 30-35%% duty imposed on
importers in other sectors such as traders, service-based enterprises &
distributors.

Some raw materials and packaging such as sugar and cartons are normally
sourced locally although frequent shortages and price fluctuations cause a
significant instability within the supply chain.

The other raw material is water. Usually for biscuit about 30% of the dough
weight is constituted by water. However, the water content removed back after
the required shape is formed/Extruded/. The following annual raw material
requirement at full capacity is computed based on the following input output
relationship.

29
Wheat flour
Raw Intake Extraction Flour
Material Capacity/year Rate Yield Bran
Raw Wheat 300,000 0.76 226500 39,000

For 500kg biscuit we use the following amount of raw materials.

 flour- 335kg
 v. fat- 67kg
 sugar- 67kg
 ammonium bicarbonate- 4.5kg
 sodium bicarbonate - 4.5kg
 milk powder- 11kg
 flavors- 0.5kg
 glucose- 11kg

Input requirement for Biscuit line at full capacity

Inputs Qty in kgs prices Total cost
Sugar 482,400 14.5 6,994,800
Fat 482,400 29 13,989,600
Milk powder 79,200 24 1,900,800
Sodium Bicarbonate 32,400 5.76 186,624
Ammonium
Bicarbonate 32,400 5.24 169,776
Flavors 3,600 244 878,400
liquid glucose 79,200 12.64 1,001,088
Total 25,121,088

Quantity  Cost at full

Packaging pcs capacity
Wheat Flour Sacks 25 kg (50% of 404,7
production) 60 2,023,800

30
 Wheat Flour Sacks (50kg 50% of 202,3
production0 80 1,011,900
607,1
sub-total 40 3,035,700
39,0
PP Bag for Byproduct 00 195,000
15,0
Poly Film -Biscuit-in rolls 00 150,000.00
1,500,0
Cartoon for Biscuit 00 15,000,000
sub-total  15,345,000
Total  18,380,700

6.2 Production Process

6.2.1Cleaning
Whet received for milling contains field contamination, which includes plant
parts, weed seeds, stones, and lumps of soil. It may also have extraneous
materials like metal fragments and other grains. Raw wheat stored in bulk store
requires regular recycling and dosing of fumigation tablets. The wheat from the
dumping pit, via bucket elevator is fed to the vibro separator. Materials to be
separated fall freely through the inlet onto the coarse screen of the vibiro
separator, which removes coarse impurities as string, straws, and stones. Fine
sieves further remove broken kernels, sands and other fine impurities. Tailing
from sieve layer cleaned water is used at the outlet to separate light particles by
an aspiration channel.

6.2.2 Conditioning
Prior to milling water is added in process known as “tempering”. Hard wheat is
normally brought to 15-16% moisture, soft wheat 13-14% moisture. Tempered
wheat is held 18-24 hours’ at ambient temperature in conditioning bins. The
process toughness the seed coat /bran/ and softens the starchy endosperm so
that an efficient separation of bran and endosperm can take place.

31
6.2.3 Milling/Grinding/

The process of wheat milling is a complex procedure of repetitive grinding and

sieving. The grinding process is divided into the break, scratch and reduction
operations.
The tempered wheat is grounded on a serious of corrugated break rolls, the
objective being to open up and scrap the wheat kernel to release endosperm from
the bran. Each grinding operation is followed by sifting operation, in which the
coarse branny stock from the sifter is fed on successive break rolls. Each grinding
and bolting operation results in stream of flour of various breaks (1 st, 2nd, etc) that
are collected from finest sieves as intermediate granular particles. The final
products of wheat flour are ready to go for the biscuit line and to store.
An average well-matured grain of wheat has 55% endosperm, 13% bran, and 2%
germ. It is the endosperm of the wheat grain that is converted to flour in milling.
In theory, it should be possible to remove or extract approximately 85% of the
grains flour, however other structural features makes it an impossible task in
actual fact, the amount of flour produced may have some amount of bran, while
some flour is lost with the bran. Therefore, the commercial flour may have
extraction rate in the ranges of 73%-80%.
Biscuit
Biscuit manufacturing involves mixing of flour and other ingredients into
homogenous dough, forming the dough into a pre-established shape, backing the
dough pieces into biscuit. Cooling the biscuit and packaging it. These processes
are performed on artisanal or industrial scale. The biscuit manufacturing to be
employed is fully automatic. Flour from the silos is pneumatically transported to
the mixing unit; the dough from the mixer is then automatically transferred to the
forming unit, from the forming unit to the oven then the final product through the
cooling tunnel to the packing unit. The following chart shows the major process
flow of the products.
32
Wheat Flour and Biscuit processing flow Chart

CLEANIN CONDITIO GRINDIN

BISCUT
G -RAW NING RAW G/
WHEAT LINE
WHEAT MILLING

DOUGH MIXING/BIUSCUT
BACKING DOUGH FORMING
PREPARATION DOUGH

COOLING PACKAGING

33
7.Land

The crucial factor, which determines the implementation and overall success of
the project believed to be acquisition of land, its location, and suitability to the
project, its relative size and prices of acquisition.

Indetermination of the required size of the project plot area, the following basic
decision parameters taken in to consideration.

a) The total plant buildings built up area requirement

b) Aggregate current open space needed (for parking loading and un

loading, Green area, front, rear and sides of the blocks) and also
reserve area.

c) Specific features of site required.

d) Building regulations (Building by-low)

e) Land price and means of acquisition.

According to the desired envisaged plant capacity, functional and structural

requirements, the total space area required to accommodate all plant buildings is
estimated to be 10,000m2. Land use plan of the project is indicated in Table 3
below

34
  
Description
No   Unit Quantity
1 Workshop m2 2000

1.1 Inspection room m2 350

1.2 Tools and equipment store ‘’ 600

1.3 Packing area 600

Total production hall ‘’ 2950.00

2 Warehouse ‘’

2.1 Raw material and input ,, 2000

2.2. Finished product ‘’ 1500

Total warehouse area ‘’ 3,500.00

3 Office and show room ‘’

building(G+2)
3.1 Office ‘’ 250
7.2.

3.2 Show room ‘’ 100

Total office and show room   350

4 West accumulation Area ‘’ 300

5 Green area, parking, road and ,, 2900

buffer zone

Total area 10,000

Production Machinery and lay out
Both the flour and Biscuit processing machinery are would be selected from
different China suppliers; namely and others, the following points are our
selection criteria.
 Lower price
 They supply the complete plant while the others don’t supply the complete
plant

35
  The main parts of the plant are from very popular and reliable suppliers like
Siemens
 The type of material from which the machineries made are the best quality
 They have been in the business for the long time and have good reputation.
Moreover they have supplied to many countries including Ethiopia and we
have learnt from their customers that they provide good quality
machineries.
 They provide reliable spare parts
 The machineries run by latest technology.
The flour making machine has a designed production capacity of 30,000 tons per
year while the Biscuit machine can produce 3600 tons per year assuming 300
working days in a year.
The under shown table portrays the machinery and its associated
production machinery cost break down
Biscuit
Wheat Flour Machinery machinery Total flour & Biscuit
Production
Machinery 551,570 587,700 1,139,270
Sea freight 29,200 28,175 57,375
Port clearing &
Delivery charge 8,640 7,560 16,200
Installation cost 26,400 18,000 44,400
Total in USD 615,810 641,435 1,257,245
Exchange rate 18.5 18.5 18.5
11,392,48
Sub-total in Birr 5 11,866,548 23,259,033
Insurance 17,089 17,800 34,889
Inland freight 40,000 35,000 75,000
Bank charge 171,744 178,790 350,534
Ticket and
accommodation 370,000 185,000 555,000
Grand Total 11,991,31 12,283,138 24,274,455

36
 7

 For flour machine-Two expatriate engineers and 2 technicians with

monthly salary of USD 2,000 and USD 2,400 per month shall stay in
Addis for three months for installation.
 For Biscuit Machine-2 expatriate engineers from Supplier Company
with daily rate of USD 100 will stay for 90 days for installation.
 Round trip air ticket costs birr 25,000 each expatriate.
Accommodation and food charge is estimated to be birr 750 per day.

7.5 Vehicles
The total output (flour, biscuit and the byproduct) at 60% capacity is more than
53 ton per day. An Isuzu NPR truck can load 3.5 ton at a time. Assuming a single
truck can make two trips per day, the project demands at least 7 trucks.
However, with the assumption that most of the sales will be made at factory gate
and the promoter will use some vehicles on rental basis, it is planned to purchase
only two ISUZU trucks. Own vehicles will be used to reach far areas and address
urgent deliveries. The detail type and price of the vehicles is shown in the table
below.

Vehicles
Type quantity Unit/price Total
ISUZU NPR truck model
2012/3.5ton 2 725,000 1,450,000
2% registration fee 29,000
Total 1,479,000

7.6 Office Equipment and Furniture

The factory has to be equipped with the necessary office equipment, furniture for
the administrative, and finance staffs as well as for market integration of input

37
supply and finished product quality control. The details with related costs are
shown in the table below.
Furniture, Generator and Transformer
Description Unit cost/unit Total
Generator, transformer and
electric work one each 6,771,119 6,771,119
Dell computers with LCD monitor
& Speaker 25 14347.83 358,696
HP laser Jet printer 15 6086.96 91,304
Canon IR 2420 photo copy
machine 1 27826.09 27,826
Managerial table-one side arch 5 3302.61 16,513
managerial table-bean type
180x90x75 8 3144.35 25,155
Single Pedestal table 140x80 21 2151.3 45,177
Executive Book shelf 4 4538.26 18,153
Gust chair 12 499.13 5,990
managerial swivel chair 5 2049.57 10,248
managerial swivel chair 8 1763.48 14,108
managerial swivel chair 21 1669.57 35,061
Dixon shelf 3 1466.09 4,398
sub-total 6,839,964 7,423,748
15% VAT 1,113,562
Total 8,537,310

As indicated from the table the project requires total investment of birr 8,537,310
for furniture, transformer and generator acquisition.

7.7 Utility Supply

 Power Supply

38
The factory requires total 840KW (for flour mill 290+biscut line 550) power. The
electric installation cost including power transformer is indicated in the table
above under part. The following table shows the computation of annual power
cost to the factory.

Annual Consumption at
24 hrs/day, @100% Rate Per
POWER KW capacity Unit Birr
Flour Mill
Line 290 2,088,000 0.58 1,211,040
Biscuit
Line 550 3,960,000 0.58 2,296,800
3,507,84
Total 840 6,048,000 0

 Water
Water line is not availed to the project as a result estimated cost of birr 3,000 is
allotted in the pre-operating expenditure. For Flour and Biscuit production, water
is an essential input. Including the requirement for human use, the factory’s
annual water consumption reaches 3,000-m 3 at birr 3.25/m3 consumption per
day.
The detail is shown below
Annual Rate/
Water m3/DAY Consumption m33 total
Flour Mill and biscuit line 10 3,000 3.25 9,750

 Fuel Consumption
Fuel Consumption
KM/day km. distance /litter price Total
200 6 20 400,000
5% oil & Lubricant 20,000
Estimated hours power fuel consumption price Total

39
 off liter/hr
2 5 20 60,000
Total 480,000

As indicated above on average each vehicle is assumed to travel 200 km per day
and will travel 6 kilometers per liter of fuel. Price of fuel is birr 20/litter. The
annual fuel consumption for the two trucks will, thus, be birr 400,000. Oil and
lubricant expense is estimated to be 5 % of fuel. Likewise, a stand by generator
on average will work for 2 hours per day with 5 litter consumption per hour at
birr 20/litter, the annual fuel cost will be birr 60,000.
 Communication and Stationery
Telecommunication, Internet and fax service in today’s business world have great
importance in exchanging information between raw material suppliers,
intermediaries, consumers and producers. The area is equipped with mobile
network, landline, and internet service. Total cost for communication and
stationery is considered 3% of salary expense

8.FINANCIAL APPRAISAL
8.1 Initial Investment Cost
The total initial investment cost required for the project is 75,390,000 million.
The items and cost breakdown is shown in the following table.

Investment Cost Schedule

Description Total Investment cost
Uni
40
 t
319,2
Land use tax Advance Payment Birr 15
23,853,4
Factory Building Birr 49
16,274,4
Production Machinery Birr 55
1,479,0
Vehicles Birr 00
Generator, transformer and office 8,537,3
Equipment Birr 10
38,443,42
Sub-total Birr 9
14,6
Pre-operating Expenditure(water 3,000) Birr 60
Pre operating Interest Birr 5,050,145
18,390,0
Initial Working Capital Birr 00
27,000,00
Sub Total Birr 0
75,390,00
Total Birr 0

8.2 Applied Financial Assumptions:

1. Project life: Ten operational years excluding implementation period
2. Capacity Utilization Rate: Starts at 60% and increases by 20 % every
additional year up to attainable capacity of 90%.

41
 3. Working days per year: 300
4. Number of shifts: at full capacity = 3,
5. Working hours per shift : 8, total working hours per day, 24,
6. Tax holiday period: Nil,
7. Profit tax: 35% of IBIT and 15% VAT on sales.
8. Salvage value: Buildings 50%, Vehicles, Machinery, and Major Equipment,
20%.
9. Recovery rate: Full amount of the ending working capital amount,
10. Cost of Capital for discounting: 9.5%
11. Grace period: 2 years.
12. Financial Expense on debt finance: Fixed 9.5%,
13. Loan Repayment: Principal plus interest is paid per quarter within 8. years,
however, interest alone would be paid during grace period of 2 years,
14. Water average Rate Birr 3.25 Per M3
15. Power: average rate Birr 0.58 per KWH,
16. Stationery and Communication: 3% of salary expense,
17. Marketing and Promotion: 0.5% of sales revenue,
18. Uniform and miscellaneous : Birr 400 per employee/year,
19. Miscellaneous expense birr 20,000 per annum.
20. Salary Expense: Per the schedule shown in item 4.2,
21. Wage: Birr 50 per ton,
22. Depreciation: Buildings 5%, Machinery, Vehicle, Equipment and furniture
20%, land lease 1% based lease life.
23. Amortization: Pre-operating expense : 20%,
24. Property Insurance premium: would be 1.75 % for the buildings cost and
2.5% for Machinery and Vehicles,
25. Repair including tier, spare parts, etc: 0.10% of the cost of building,
Machinery, vehicle and equipment for the first 5 years, then will increase by
10% then after.
26. Lease Fee: Birr 58,500 per year per lease agreement.

8.4 Working Capital

42
 The major costs selected to be financed with debt are only cost of wheat,
packaging, sugar, flavors. Salary, wage, fuel, as well as power and light costs. As
indicated in the table below, the minimum day’s coverage considered for one
turnover is 30-90 days. The working capital amount is determined to be Birr
29.43 million for year one. The incremental working capital after year 1 due to
increase in production capacity will be financed from the internally generated
cash.

WORKING CAPITAL Schedule

Cost
Items/
MD
Year OC Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year-8
Cost of
21,600 23,400 25,200 27,000 28,800 30,600 32,400 32,400
Wheat 60 ,000 ,000 ,000 ,000 ,000 ,000 ,000 ,000
Packagi
2,205, 2,389, 2,573, 2,757, 2,940, 3,124, 3,308, 3,308,
ng 60 684 491 298 105 912 719 526 526
Sugar
and
other
4,521, 4,898, 5,275, 5,652, 6,029, 6,405, 6,782, 6,782,
flavors 90* 796 612 428 245 061 877 694 694
Power
and
210,47 228,01 245,54 263,08 280,62 298,16 315,70 315,70
Light 30 0 0 9 8 7 6 6 6
Salary
and
870,69 878,21 885,73 893,25 900,76 908,28 915,80 915,80
Wage 30 6 4 2 0 8 6 4 4
Fuel 30 28,800 31,200 33,600 36,000 38,400 40,800 43,200 43,200
22,617 31,825 34,213 36,601 38,989 41,377 43,765 43,765
Total ,000 ,527 ,607 ,688 ,768 ,849 ,929 ,929
Increm
ental
2,388, 2,388, 2,388, 2,388, 2,388, 2,388,
WC 081 081 081 081 081 081 0
*MDOC-minimum days of coverage

43
** Import of one L/C takes 90 days
8.5 Operating Cost, Volume and Revenue
8.5.1 Operating Cost
The table below shows the factory operating cost before depreciation and interest
expenses under different production capacity. The assumptions for each cost and
expense are indicated in the aforementioned discussion under part 7.3 above.
Operating cost schedule

Capacity
Utilization 100.0 60% 65% 70% 75% 80%
Description/
Year - Year 1 Year 2 Year 3 Year 4 Year 5
Cost of 107,000, 108,000, 117,000, 126,000, 135,000, 144,000,
Wheat Flour 000 000 000 000 000 000
Power and 3,507,84 2,104,70 2,280,09 2,455,48 2,630,88 2,806,27
Light 0 4 6 8 0 2
Sugar and 25,121,0 15,072,6 16,328,7 17,584,7 18,840,8 20,096,8
Other Flavors 88 53 07 62 16 70
Water 9,750 5,850 6,338 6,825 7,313 7,800
Fuel Cost 480,000 288,000 312,000 336,000 360,000 384,000
18,380,7 11,028,4 11,947,4 12,866,4 13,785,5 14,704,5
Packaging 00 20 55 90 25 60
Salary 7,804,80 7,804,80 7,804,80 7,804,80 7,804,80 7,804,80
expense 0 0 0 0 0 0
Wage (Birr 1,503,60 1,052,52 1,127,70 1,202,88
50/tone 0 902,160 977,340 0 0 0
Property
Insurance 328,162 328,162 328,162 328,162 328,162 328,162
Land Lease 58,500 58,500 58,500 58,500 58,500 58,500
Repair &
Maintenance 481,442 481,442 481,442 481,442 481,442 481,442
Stationery&
Communicati
on 234,144 140,486 152,194 163,901 175,608 187,315
Marketing
and 2,046,09 1,227,65 1,329,95 1,432,26 1,534,56 1,636,87
Promotion 2 5 9 4 9 3
Auditing fee 20,000 20,000 22,000 24,200 26,620 29,282
Uniform 120,000 120,000 132,000 145,200 159,720 175,692
miscellaneou
s expense 20,000 12,000 13,000 14,000 15,000 16,000
Operating 240,096, 147,582, 159,160, 170,740, 182,321, 193,904,
Cost Before 118 832 993 554 655 449
44
 Dep.
9,560,28 9,560,28 9,560,28 9,560,28 9,560,28
Depreciation 3 3 3 3 3
Operating
Cost Before 240,096, 157,143, 168,721, 180,300, 191,881, 203,464,
Interest 118 116 277 837 938 733
Interest 4,865,01 4,406,88 3,903,65 3,350,88 2,743,70
Expense 6 2 1 3 1
Total
Operating 240,096, 162,008, 173,128, 184,204, 195,232, 206,208,
Cost 118 132 159 488 821 433

Cont.

Capacity
Utilization 85% 90% 90% 90% 90%
Description/Year Year 6 Year 7 Year-8 Year-9 Year-10
Cost of Wheat 153,000,0 162,000,0 162,000,0 162,000,0 162,000,0
Flour 00 00 00 00 00
Power and Light 2,981,664 3,157,056 3,157,056 3,157,056 3,157,056
Sugar and Other 21,352,92 22,608,97 22,608,97 22,608,97 22,608,97
Flavours 5 9 9 9 9
Water 8,288 8,775 8,775 8,775 8,775
Fuel Cost 408,000 432,000 432,000 432,000 432,000
15,623,59 16,542,63 16,542,63 16,542,63 16,542,63
Packaging 5 0 0 0 0
Salary expense 7,804,800 7,804,800 7,804,800 7,804,800 7,804,800
Wage (Birr 50/tone 1,278,060 1,353,240 1,353,240 1,353,240 1,353,240
Property Insurance 328,162 328,162 328,162 328,162 328,162
Land Lease 58,500 58,500 58,500 58,500 58,500
Repair &
Maintenance 529,586 529,586 529,586 529,586 529,586
Stationery&
Communication 199,022 210,730 210,730 210,730 210,730
Marketing and
Promotion 1,739,178 1,841,482 1,841,482 1,841,482 1,841,482
Auditing fee 32,210 35,431 38,974 42,872 47,159
Uniform 193,261 212,587 233,846 257,231 282,954
miscellaneous
expense 17,000 18,000 18,000 18,000 18,000
Operating Cost 205,537,2 217,123,9 217,148,7 217,176,0 217,206,0
Before Dep. 51 59 61 43 53
Depreciation 696,663 696,663 696,663 696,663 696,663
Operating Cost 206,233,9 217,820,6 217,845,4 217,872,7 217,902,7
45
 Before Interest 14 22 24 06 16
Interest Expense 2,076,749 1,344,143 539,421 - -
Total Operating 208,310,6 219,164,7 218,384,8 217,872,7 217,902,7
Cost 63 65 45 06 16

Per the above successive tables, the total annual factory cost is estimated to be
Birr 162 million in the initial year and increases to birr 219 million when it
operates at attainable capacity of 90%.

8.5.2 Production Volume and Revenue

 Production Volume: the two-line machinery has an aggregate installed
production capacity of 30,000 tons and 3,600 tons per annum of wheat and
biscuit, respectively.

 Per the table below the flour line will produce two types of flours of (grade 1
& 2 with equal proportion). At full capacity with extraction rate of 76% the
annual production of flour will reach total 226,500 quintals and 39,000
quintal of bran.

 From the total flour production, the biscuit line will use 11% or about
24,120 quintals while the remaining 89% or about 202,380 quintals will be
sold to local market. The flowing table shows the production volume in
detail for each of the production capacity.

Production Schedule In Quintal/100-kg

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
 At Full
Capacit
y
Product 60% 65% 70% 75% 80% 85% 90%

Production of Wheat 113,25 101,92

Flour Grade 1 0 67,950 73,613 79,275 84,938 90,600 96,263 5

Production of Wheat 113,25 101,92

Flour Grade 2 0 67,950 73,613 79,275 84,938 90,600 96,263 5

226,50 135,90 147,22 158,55 169,87 181,20 192,52 203,85

Total-Flour 0 0 5 0 5 0 5 0
Flour to the Market
(89%) 202,38 121,42 131,54 141,66 151,78 161,90 172,02 182,14
46
 0 8 7 6 5 4 3 2

Bran 39,000 23,400 25,350 27,300 29,250 31,200 33,150 35,100

Flour consumed by
biscuit use (11%) 24,120 14,472 15,678 16,884 18,090 19,296 20,502 21,708
Production of Biscuits in
qtl 36,000 21,600 23,400 25,200 27,000 28,800 30,600 32,400

Sales Revenue:
The net revenue of the project’s products starts with Birr 235 million and
increases to Birr 358 million when it operates at attainable capacity. The under
shown table depicts the revenue for each year under different capacity.
Revenue Schedule
Description Year 7-
/Year Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 10
Capacity
Utilization 60% 65% 70% 75% 80% 85% 90%

109,285 118,392 127,499 136,606 145,713 154,820, 163,927,

Flour Sale ,200 ,300 ,400 ,500 ,600 700 800

97,200, 105,300 113,400 121,500 129,600 137,700, 145,800,

Biscuit Sale 000 ,000 ,000 ,000 ,000 000 000

7,020,0 7,605,0 8,190,0 8,775,0 9,360,0 9,945,00 10,530,0

Bran Sale 00 00 00 00 00 0 00

Total 213,505, 231,297, 249,089, 266,881, 284,673, 302,465 320,257

Revenue 200 300 400 500 600 ,700 ,800
245,530, 265,991, 286,452, 306,913, 327,374, 347,835 368,296
with VAT 980 895 810 725 640 ,555 ,470

47
 8.6 Project Profitability
The project would be profitable throughout the considered life years. It is
expected to generate from Birr 23 million up to 66 million net profits. The
following table shows the forecasted income statement of the project within its ten
operational years.

Projected Income/Loss Statement –connt.

Description/
Year Year 6 Year 7 Year-8 Year-9 Year-10

302,465,7 320,257,8 320,257,8 320,257,8 320,257,8

Revenue 00 00 00 00 00

Total Expense 206,233,9 217,820,6 217,845,4 217,872,7 217,902,7

Before Interest 14 22 24 06 16

96,231,7 102,437,1 102,412,3 102,385,0 102,355,0

Gross profit 86 78 76 94 84
Interest
Expenses 2,076,749 1,344,143 539,421   -

94,155,03 101,093,0 101,872,9 102,385,0 102,355,0

Net Income 7 35 55 94 84

32,946,31 35,374,61 35,647,58 35,826,83 35,816,32

Profit Tax 3 2 4 3 9
Net Income
48
 61,208,7 65,718,42 66,225,37 66,558,26 66,538,75
After Tax 24 3 1 1 5

8.7 Project Liquidity and Payback period

The project would produce positive net cash inflow starting from the first year
and throughout its life. The cumulative net cash inflow for year one and at the
end of 10th year would be Birr 28 million and 478 million, respectively. The initial
investment costs would be paid back with the gross value of net-cash inflows at
the end of 3rd operational year

Cash Flow Statement For Financial Planning purpose

Description/
Year - Year 1 Year 2 Year 3 Year 4 Year 5
33,481, 37,817, 42,183,1 46,579,5 42,000,0
Net Income 044 892 43 92 00
Depreciation
and 9,560,2 9,560,2 9,560,28 9,560,28 9,560,28
Amortization 83 83 3 3 3
22,617,
Equity 000 - - - - -
42,000,
Bank Loan 000 - - - - -
Working
Capital
Recovery
Salvage
Value
Total cash 75,390, 43,041, 47,378, 51,743,4 56,139,8 60,570,5
Inflow 000 328 175 26 75 92
Initial 75,390,

Investment
49
Cost 000
Principal 4,654,0 5,112,1 5,615,38 6,168,15 6,775,33
Repayment 17 50 2 0 2
Incremental
working 2,388,0 2,388,08 2,388,08 2,388,08
capital - 81 1 1 1
Total cash 75,390, 4,654,0 7,500,2 8,003,46 8,556,23 9,163,41
outflow 000 17 31 2 1 3
38,387, 39,877, 43,739,9 47,583,6 51,407,1
Net cash 0 311 944 64 44 79
Cumulative 38,387, 78,265, 122,005, 169,588, 220,996,
cash inflow 311 255 219 864 043

Cont.
Description/
Year Year 6 Year 7 Year-8 Year-9 Year-10
Net Income 61,208,724 65,718,423 66,225,371 66,558,261 66,538,755
Depreciation and
Amortization 696,663 696,663 696,663 696,663 696,663
Equity - - - - -
Bank Loan - - - - -
Working Capital
Recovery 43,765,929
Salvage Value 13,784,877
124,786,22
Total cash Inflow 61,905,387 66,415,086 66,922,034 67,254,924 4
Initial Investment
Cost
Principal
Repayment 7,442,284 8,174,890 8,979,612 - -
Incremental
working capital 2,388,081 2,388,081 - - -

50
 Total cash
outflow 9,830,365 10,562,970 8,979,612 0 0
124,786,22
Net cash 42,000,000 55,852,115 57,942,422 67,254,924 4
Cumulative cash 328,923,18 386,865,60 454,120,52 578,906,75
inflow 273,071,065 0 2 6 0

8.8 NPV & IRR

The harmonizing up of the discounted cash inflows at the rate of 9.5% less the
original outlay cost resulted in (NPV) of Birr 241 million. The internal rate of
return (IRR) is 53%, which is a good deal on top of the considered cost of capital.

Cash Flow statement for Discounting

Description/
Year y-0 Year 1 Year 2 Year 3 Year 4 Year 5
23,475,5 33,812,3 35,177,6 37,574,0 42,000,0
Net Income 0 24 71 22 71 00
Dep. and 9,568,77 9,568,77 9,568,77 9,568,77 9,568,77
Amortization 7 7 7 7 7
Interest 4,865,01 4,406,88 3,903,65 3,350,88 2,743,70
expense 6 2 1 3 1
W/Capital
Recovery
Salvage Value
Total Cash 47,909,3 51,788,0 55,650,0 59,493,7 63,317,2
Inflow 0 16 30 50 30 65
Initial
Investment 60,,000,0
Cost 00
Principal 4,654,01 5,112,15 5,615,38 6,168,15 6,775,33
Repayment 0 7 0 2 0 2
Incremental - 2,388,08 2,388,08 2,388,08 2,388,08

working 1 1 1 1
51
capital
Total cash 60,,000,0 4,654,01 7,500,23 8,003,46 8,556,23 9,163,41
outflow 00 7 1 2 1 3
-
60,,000,0 43,255,2 44,287,7 47,646,5 50,937,5 54,153,8
Net cash flow 00 99 99 88 00 52
NPV @ RRR 241,707,7
9.5% 28

IRR 53%

Cash Flow statement for Discounting, cnt.

Description/Year Year 6 Year 7 Year-8 Year-9 Year-10

61,208, 65,718, 66,225, 66,558, 66,538,7

Net Income 724 423 371 261 55
Depreciation and
Amortization 696,663 696,663 696,663 696,663 696,663

2,076,7 1,344,1
Interest expense 49 43 539,421 - -

Working Capital 43,765,9

Recovery   - - - 29

13,784,8
Salvage Value   - - 77
63,982, 67,759, 67,461, 67,254, 124,786,
Total Cash Inflow 135 228 454 924 224
Initial Investment          

52
Cost
Principal 7,442,2 8,174,8 8,979,6
Repayment 84 90 12 0 0

Incremental 2,388,0 2,388,0

working capital 81 81 - - -
Total cash 9,830,3 10,562, 8,979,6
outflow 65 970 12 0 0
54,151, 57,196, 58,481, 67,254, 124,786,
Net cash flow 771 258 843 924 224

8.9 Sensitivity to Cost and Revenue Variations

Four scenarios are tested to assess how the net benefits of the project behave
towards adverse changes each by 10%. That is.

 Revenue decline
 fixed cost increment
 Operating cost increment, and
 Simultaneous increase in investment and operating cost

the project is not sensitive to increments in fixed investment cost but it is

sensitive to revenue and cost, suggesting a parallel decrease in operating cost
and increase in revenue, respectively. In all cases the however, NPV is
positive with minimum IRR 36% which is far from the discount rate of 9.5%.

8.10 Debt Servicing Schedule

The anticipated bank loan would be paid within 8 years excluding 2 years
grace period, at quarterly repayments and 9.5% nominal interest rate per
annum. The two years grace period includes one year construction period per
implementation plan indicated in part_1.4 above and one year pre-marketing
period. The schedule is shown in the following table.

53
 Loan Amortization, Equal Quarterly Repayment

Principal Payments Balance

Principal Interest
Year 0, 24
Months Grace 42,,000,0 10,055,1 42,,000,00
period. 00 - 45 0
42,,000,0 41,798,95
00 1,122,865 1,256,893 2
41,798,95 40,649,41
2 1,149,533 1,230,225 9
40,649,41 39,472,58
9 1,176,834 1,202,924 4
39,472,5 38,267,80
84 1,204,784 1,174,974 0
4,654,01 4,865,01
Year 1,Sub Total 7 6
38,267,80 37,034,40
0 1,233,398 1,146,360 2
37,034,4 35,771,71
02 1,262,691 1,117,067 1
35,771,71 34,479,03
1 1,292,680 1,087,078 1
34,479,0 1,323,38 33,155,65
31 1 1,056,377 0
Year 2,Sub 5,112,15 4,406,88
Total 0 2
33,155,65 31,800,83
0 1,354,811 1,024,947 8
31,800,83 30,413,85
8 1,386,988 992,770 0

54
 30,413,85 28,993,92
0 1,419,929 959,829 1
38,993,92 27,540,26
1 1,453,653 926,106 8
Year 3,Sub 5,615,38 3,903,65
Total 2 1
27,540,26 26,052,09
8 1,488,177 891,581 1
26,052,09 24,528,57
1 1,523,521 856,237 0
24,528,57 22,968,86
0 1,559,705 820,054 6
22,968,86 21,372,11
6 1,596,748 783,011 8
Year 4,Sub 6,168,15 3,350,88
Total 0 3
21,372,11 19,737,44
8 1,634,670 745,088 8
19,737,44 28,063,95
8 1,673,494 706,264 4
18,063,95 16,350,71
4 1,713,239 666,519 5
16,350,71 14,596,78
5 1,753,929 625,829 6
Year 5 Sub 6,775,33 2,743,70
Total 2 1
14,596,78 12,801,20
6 1,795,585 584,174 1
12,801,20 10,962,97
1 1,838,230 541,529 2
10,962,97
2 1,881,888 497,871 9,081,084

55
 9,081,084 1,926,582 453,176 7,154,502
Year 6 Sub 7,442,28 2,076,74
Total 4 9
7,154,502 1,972,339 407,419 5,182,163
15,182,16
3 2,019,182 360,576 3,162,981
13,162,98
1 2,067,137 312,621 9,095,844
11,095,84
4 2,116,232 263,526 8,979,612
Year 7 Sub 8,174,89 1,344,14
Total 0 3
8,979,612 2,166,492 213,266 6,813,120
6,813,120 2,217,947 161,812 4,595,173
4,595,173 2,270,623 109,135 2,324,550
2,324,550 2,324,550 55,208 (0)
Year 8 Sub 8,979,61
Total 2 539,421
42,,000,0 23,230,4 42,152,26
00 45 2

Depreciation and Amortization

Original Rates Year
Cost Item Cost Applied Year 1-5 19-23
Building 5%
13,853,449 692,672 692,67
56
 2

Machinery, Equipment, 6,858,15

Furniture & Vehicles 35,790,765 20% 3  
Land Lease-over lease
period of 80 years 319,215 1% 3,990 3,990

2,013,96
Pre-operating Expenditure 10,069,805 20% 1  

9,568,77 696,66
Total 75,390,000   7 3

Project Implementation Schedule

The following chart shows major activities to be done during the implementation
period.
Activity   M Ap M Ju Jul A Sep O No D J Feb
a ril ay ne y ug t ct v e a
rc c n
h
2019 2020
Land D                        
acquisition on
e
Document D                        
Preparation on
e
Construction         
of Factory
Buildings
Debt  
Financing

57
 Import of   
Machinery
Purchase of   
Vehicles &
Equip
Recruitment,   
Installation
and
Commissioni
ng
Operation 
Grace Period One year construction and one year for pre-marketing
period total two years

As indicated above and everything will go per our plan, the factory will be
operational in the month of January, 2019. One of the remaining activities is
processing debt financing from bank to supplement the implementation of the
project. Two years’ grace includes pre-implementation and pre-marketing period
to popularizing the factory’s product to the public so that higher sales would be
achieved.

58