PROJECT PROPOSAL- FOR ESTABLISHMENT OF PRINTING PAPER CUTTING/FINISHING PLANT

EXECUTIVE SUMMARY

this feasibility study is presented to illustrate the dynamics of the project

that is planned to be undertaken by the promoter, Ato Dawit Abera printing
paper cutting/finishing project and propose a the grant of 5,000 square
meters of land through lease from the Oromia Regional State Bureau of
Investment for the establishment of the aforementioned proposed plant that
would complement and benefit both the promoter and the region. The
promoter had already invested a substantial sum of his own money in
conducting pre-feasibility of the investment in the sector and other
associated pre-operating costs. The promoter has a deep attachment with
the industry with long years of experience gained through various business
ventures.

The total investment cost of the proposed printing paper cutting/finishing

project is estimated at birr 19,416,158.34, which will be covered from own
equity contribution of the promoter himself.

Based on our projected income statement the project will record revenues of
Birr 144.5 Million in the first year of operation and would start to generate
net profit of around 45 Million, both revenue and profit would increase to
reach around Birr 189 and 65 Million respectively at the fifth year of the
project life. Moreover, as per the projected cash flow statement the business
will generate cash flow of around Birr 45 Million in the first year of operation,
and this net cash flow would continue annually to reach around 65 Million
and a cumulative cash flow of 280.6 Million at the seventh year of the
project. Moreover, the project discounted at a rate of 12.5%, would have a
net present Value (NPV) of Birr 176,013,618.34 and the internal rate of return
IRR after tax is (255%) indicating the project’s viability.

Moreover, the project will create employment opportunities for 28 persons

and would generate considerable amount of revenue for the region in the
form of income tax.

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CHAPTER ONE - INTRODUCTION

The demand and use of pulp and paper have marked the levels of civilization
and development of many societies. As a result many developed nations use
plenty of pulp and paper. The demand for pulp and paper fiber resources is
largely determined by the society‟s dependence on paper, paper boards and
other related products for human welfare. Paper in society is used in
education, information storage, advertising, communication, in protection,
transportation and security of goods in transit; protection of human health
and sanitation in form of tissues and sanitary paper products. Paper making
process for long has mainly used wood from tree stems that are cut,
debarked, chipped and pulped. It is interesting to note that some
environment advocates have proposed the use of non-wood fibers in paper
making as a way to preserve natural forests. Both wood and non-wood
resources are currently exploited for the manufacturing of pulp, paper and
soft boards. However, still the major source of pulp which meets more than
80% demand is still wood from forests. However scientists all over the world
in the last two decade have been involved in intensive research for the
alternative sources of pulp for paper industry

Consumption of paper and paper products is growing faster in developing

countries like Ethiopia due to the expansion of education and rapid increase
of disposable income. Perpetuated by these factors, the craving for paper
has grown in Ethiopia. However, the country has not matched that appetite
with sufficient local production to meet the mounting demand.

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Data obtained from Chemicals and Construction Inputs Industry

Development Institute (CCIIDI) reveals that Ethiopia’s 2016/17 demand for
paper was 219,840 tons. Local companies, while operating at 62Pct capacity,
produced only 40,000 tons. The rest is fulfilled through import.

In the wake of digitization, many experts predicted that the global paper
industry could diminish in the near future. Although it is growing at slower
pace than before in Europe and North America, paper and forest-products
industry as a whole is mounting due to the increasing demand from
developing nations. In fact, the demand for paper and paper products is
projected to be valued at USD213.4 billion by 2020, according to a research
entitled ‘Global Paper Packaging & Paperboard Packaging Market Trends’
published by Research and Markets, the world’s largest market research
store in 2015.
Many studies have been conducted to identify the driving force behind the
demand for paper and paper products especially in the developing world. For
instance, in their book entitled ‘The Global Forest Sector: Changes, Practices,
and Prospects’ Eric Hansen and his colleagues 2010, Oregon State
University, Corvallis argued that in many developing economies, increasing
educational levels, are boosting demand for communication papers.

Almost a third of Ethiopia’s population, a staggering 30 million people,

roughly the size of the population of the West African nation Ghana, is
currently enrolled in different levels of education across the country and
entirely depends on paper products. As a result, Ethiopia’s paper
consumption has been on a sharp increase with the steep ascent of the
number of students. But the country is simply overwhelmed with the demand
and only meets a negligible 5Pct of the paper it needs for educational
supplies (that is mainly exercise books) through local supply.

Ethiopia imported just over 17,000 tons of exercise books worth ETB494
million in 2016/17 fiscal year, according to the information obtained from

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CCIIDI. Roughly a decade ago, the country imported 10,000 tons of exercise
books worth ETB135.4 million.
The country’s import of paper for books show a staggering rise in terms of
volume of paper and paper products dominating the local market. A total of
154,000 tons worth ETB3.7 billion was imported in 2016/17 fiscal year, which
is up from 82,000 tons in 2009/10, worth of ETB1 billion. Machine-finished
coated papers, coated fine papers, special fine papers are common paper
grades and wood free uncoated papers are some of the papers used for
books.

The other forces that determine demand for paper products are rapid
economic growth, along with increasing urbanization. In addition to these,
paper consumption is influenced by per capita income, according to Hansen
and colleagues.

Ethiopia that registered a remarkable economic growth in the last decade

can be a typical example in this regard. In fact, Ethiopia managed to become
the front runner in Africa in terms of economic growth. Nominal gross
domestic product (GDP) per capita now reached USD861, eight fold than two
decades ago. In the late 1980s, only about 11Pct of the population lived in
urban areas, which currently stood at 19.5Pct.
With increasing disposable income of the people, the need for packaging
products is increasing. For instance, the import of corrugated and non-
corrugated papers used for packaging purposes have also jumped from
1,500 tons worth ETB26.4 million in 2009/10, to 3,000 tons worth ETB99.4
million in 2016/17.

According to Hansen and colleague, paper and paper products are expected
to become the widely used packaging materials globally in the near future
surpassing plastic packaging materials. This is because paper and paper
products are more suitable and consider the environmental aspect of
production.

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The demand of tissue paper from the growing number of hotels have also
increased the import of sanitary napkins, which includes pads and paper
towels as well as baby diapers from 1,200 ton in 2009/10 worth of ETB39.5
million to 5,840 tons in 2016/17 worth of ETB459.22.

Despite the astronomical rise in demand, local production is not accelerating

to substitute imports. The major challenges crippling local production can be
attributed to the hefty investment that goes into paper production.

Paper production consists of three stages. The first stage is preparing pulp
from different wood fibers while the second is producing rolls of paper sheets
from the pulp or recycled paper. In the final stage, paper rolls will be
converted into different types of end-use paper products.

All the three paper production stages need industries that consume huge
investment in any scenario. And in Ethiopia, a country with roughly 100
million people, there are only six companies focusing on the second stage of
paper’s production. A few more companies operate in paper conversion, but
literally no company in Ethiopia is involved in making pulp from scratch

Virtually all of the inputs used by these six companies that produce rolls of
paper sheets are imported, adding fuel to fire on the country’s deep-rooted
forex crunch. The group of six (four of which are at the early stage of
production) Ethiopia Pulp & Paper, Anmol Products Ethiopia, DA Packaging,
Barguba Trading, Three Sisters Pulp & Paper Manufacturing and Suzo
Industry, face chronic capital shortage to import pulp.

This is despite the fact that the Ministry of Industry (MoI) has a plan to
increase local paper production to 410,000 tons from the current 40,000 tons
and pulp production to 315,000 tons by the end of the second phase of the
growth and transformation plan period. Two years into the second phase of
the five-year growth and transformation plan period, the local paper

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producers capacity remains stagnant at 62Pct and paper production made a

small increase from the 31,000 tons in 2015/16 that is 40,000 tons.

Stakeholders stress that all the demand in pulp, paper and end products is
never fulfilled in Ethiopia, due to lack of capacity, price hikes, and
inconsistent supply. In fact, locally produced paper is expensive, poor in
quality, small in quantity and unreliable.
“The price of locally sourced paper rolls is 50Pct higher than those imported.
On top of the price, the quality is extremely poor and none of the six
companies have the skills or knowhow that the sector requires.” a production
manager at one of the paper converting plants told EBR on conditions of
anonymity.

While the local paper roll is more expensive than the imported one, when it
comes to consumer-end goods like exercise books, the reverse is true.
“Locally produced exercise books are in fact cheaper. But students, mostly in
elementary grades, do not find them attractive due to their unattractive
design and poor quality.”The founder and webmaster at
volunteerlinkethiopia.com, a charity organization engaged in raising
educational resources to provide economically challenged students with
school supplies told EBR.

“95Pct of our inputs are imported because the local supply in its current
shape and form cannot meet our demand. Local industries are wrought with
lack of skills, and technologies.” Habib said. Yekatit Paper Company has an
annual demand of 20,000 tons of paper and imports almost all of it from
abroad. “There is no university or a technical and vocational training center
in the country providing training in the field of making paper and we literally
had to train our own staff.”

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CHAPTER TWO: BACKGROUND

2.1. Introduction
Pulp and paper mills are indispensable for any nation as far as the growth of
the nation is concerned. Due to fast growth in population, urbanization, and
industrialization, demand and consumption of paper have increased
tremendously. The demand and use of pulp and paper have marked the
levels of civilization and development of many societies. Though the
revolution of technology has reduced paper production everywhere around
the world, the amount of paper consumed each day is still tremendously
large. The pulp and paper mills mainly utilize wood sources for the
manufacturing of pulp and paper. Accordingly, the chief raw material used by
for papermaking is crude pulp manufactured from wood.

Nowadays, in the papermaking industry, environmental problems have

brought forward the need for cleaner technology through the minimization of
the use of wood resources. The cleaner technology is applied to achieve
increased production with minimum effect especially on the environment and
lessen the disposal cost, steadiness risks, and resource cost resulting in a
declined burden on the natural environment and also increases the profits in

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pulp and paper based industries. Besides, the pulp and paper industries
utilize a very large amount of wood which must be cut regularly and
delivered to the mills. This is a critical cause for deforestation and allied
climatic impacts on the livelihood the society.

With this regard, it is vital to incorporate the non-wood resources as it is or in

a blend with natural wood to tackle problems concerning social,
environmental protection, and overall management of the ecosystem. Also,
in some countries especially the developing countries, there are abundant
resources of non-wood potential substitutes. In Ethiopia, there are large
varieties of plants available both wood-based and non-wood cultivates. The
land and the environmental condition are essentially suitable for growing
multiple varieties of non-wood resources and this opportunity can be utilized
for the production of versatile grades of paper.

The focus of the present review is to indicate the available non-wood

resources and the possible beneficiation route for utilization of non-wood
resources for manufacturing pulp for the paper industry. The potential
beneficiation route can be adopted by utilizing the virgin non-wood plants
and their allied wastes. It is realized that both from the virgin and the waste
derivative suitable pulp can be manufactured for paper industries for a
varietal grade of paper.

2.2. Current trends in pulp and paper manufacturing

2.2.1. Global overview of paper consumption
The production and consumption of paper is a continuous process as the
everyday life of humankind in almost all countries and the forecast indicates
that its versatile use continues as well. The overall trend in the consumption
of paper and paperboard by different countries and the forecasted
consumption is. The global production of paper and paper board is 406
million tons per year which are derived from 225 million tonnes of recycled
paper, 176 million tonnes of wood pulp, and 12 million tonnes of other fibres

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pulp. The current utilization of paper in the world is dominated by North

American and Western European countries. Other dominant countries with
significant pulp and paper industries are Australia and South America.

The low producer and consumer countries like African countries are expected
to enhance their consumption scheme. Considering the significant variationin
consumption of papers per person from country to country global
consumption of paper and paper board is estimated at nearly 55 kg per
person per year.

2.2.2. Status of pulp and paper industry in Ethiopia

Currently, in Ethiopia, there are about 25 companies that are recorded in

papermaking according to national statistical agency reports but only 12 are
involved in on-site paper and paper product manufacturing. Mostly, the
paper manufacturing companies are privately owned and the product
diversity range is limited. The current status of paper manufacturing along
with products in Ethiopia based on the availability study report is shown in
Table 2. Among the paper companies in Ethiopia, only two companies use
the imported pulp for their paper mills while others import and produce
paper rolls for further processing. According to the CSA report from 2009 to
2016, the imported amount of paper and pulp by Ethiopia increased from
nearly 82,000 to 154,000 tons and from 4,000 to 8,000 tons respectively.
Only about 5% of the country’s paper demand is produced in the country and
the rest will be covered by importing finished paper from abroad. The key
problem associated with the pulp and paper industry is that Ethiopia does
not produce pulp indigenously, though there are potential demands by the
paper industries locally and globally. With this circumstance for paper
production, the companies either use imported pulp or depend on waste
paper through recycling as a raw material. Besides, the existing companies
are not utilizing their maximum efficiency.

2.3. Overview on pulping process for papermaking

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A huge variety and quantity of raw materials are available for the pulp and
paper industry. These raw materials are versatile and mainly cellulosic fibres
from wood are utilized. Wood is the primary raw material and major resource
used in the pulp and paper industry. Besides, in case of scarcity of virgin raw
material resources, recycled paper after proper treatment, through
appropriate blending and recycling process, is used in some paper-
manufacturing trends. The key ingredients of wood in paper making are
cellulose sheets. There are also other constituents derived from the woody
materials which must be removed in pulp preparation for the papermaking
process.

The major requirement from physicochemical point of view for materials to

be used as a precursor for the pulp manufacturing industry is their cellulose
composition. This makes wood the dominant raw material in most pulping
operations. Cellulose is a high molecular weight, stereo regular, and linear
polymer of repeating beta-D-glucopyranose units. It is the chief structural
element and a major constituent of the cell wall of trees and plants. The
gross characteristic composition of wood indicates its major constituents are
cellulose, lignin, and hemi cellulose. It also contains a trace amount of
extractives of different types. Quantitative observation revealed that wood
contains around 40–50% of cellulose. Considering ultimate properties such
as strength and printability of paper, it is possible to use hardwood and
softwoods separately or in combination in the manufacturing process. The
typical composition of wood summarized from different reports.

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CHAPTER THREE: PROJECT RATIONALE

Ethiopia's government is moving towards economic liberalization in a bid to
attract foreign investment as it implements an ambitious programme that
seeks to make manufacturing a key part of economic activity.

Ethiopia receives a score of 30.6 out of 100 for Trade and Investment Risk,
ranking sixth place out of 11 states in East Africa, behind regional peers such
as Kenya, Tanzania and Uganda.

Attracting foreign investment is a key objective for the Ethiopian government

and is embedded within its current GTP II (2016-2020). In particular, the
government is seeking to attract investment in the high-priority sectors
including heavy and light manufacturing, agri-business, textiles, sugar,
chemicals, pharmaceuticals, and mineral and metals processing. The largest

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volume of foreign investment in Ethiopia comes from China, followed by

Saudi Arabia and Turkey.

The government is taking steps to streamline the investment process by

developing a more efficient one-stop-shop facility for foreign investors.
Investment policies and legislations are currently being revised to facilitate
investment and ease operations. We expect to see changes aimed at
clarifying regulations, standardising appropriate accounting practices to
more accurately assess tax and other operating liabilities, increasing
protection for shareholders and provisions for bankruptcy filings, and
modernising trade and registration processes. This will help the development
of new industrial sites, which will improve domestic manufacturing capacity.

Investors involved in disputes will face a judicial system that is perceived to

be unreliable and inefficient, resulting in potential delays and additional
costs. While investment disputes in Ethiopia can be resolved in international
arbitration forums at the agreement of both parties, there is no guarantee
that the award of an international arbitral tribunal will be fully accepted.

Official and unofficial barriers to foreign investments persist. Preference can

still be given to state-owned enterprises (SOEs) for investment, access to
credit, FX, land, procurement contracts and import duties even though the
government has taken a number of crucial first steps to rein in the risks
posed by SOEs.

 Tax

The tax burden on private entities in Ethiopia is considerable owing to the

range of direct and indirect taxes applicable to businesses. Corporate income
tax is charged at the same rate for both resident and non-resident
businesses on all income derived from within Ethiopia (30% of profits). The
administration of tax payments is rather onerous, with the country having
the longest time to pay taxes in East Africa at 300 hours.

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 Income tax exemption

The exemption period depends on the sub-sector, investment type (new
versus expansion or upgrading existing enterprises) as well as on the
location (Addis Ababa and the Special Zone of Oromia surrounding Addis
Ababa versus other areas).

The exemption period depends on the sub-sector, investment type (new

versus expansion or upgrading existing enterprises) as well as on the
location (Addis Ababa and the Special Zone of Oromia surrounding Addis
Ababa versus other areas).

Investment in other areas is eligible for 100% income tax exemption for a
period of one year to six years.

In addition, investors expanding or upgrading their existing facilities will be

entitled to these income tax incentives. Investors establishing their en,
terprises in certain specified states (mainly underprivileged) will receive an
additional 30% income tax deduction for an additional three years following
the expiration of the general incentive period.

Businesses exporting more than 80% of their manufactured products or

supply inputs to another business that exports its output are eligible for an
additional two years of tax exemption if they are located in an industrial zone
in Addis Ababa or the Special Zone of Oromia or for four additional years if it
is located in an industrial zone in other areas.

Apart from the attractive incentives set in place for the manufacturing sector
by the government and the general encouraging investment and operating
atmosphere around the industry and the proposed location, the promoter of
the envisaged paper cutting/finishing project is drawn to the premise due to
its high commercial, technical and financial feasibility.

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CHAPTER FOUR: MARKET ANALYSIS

4.1. Background
Ethiopia's paper import and export are set to remain largely unchanged
over the next five years. Ethiopian paper import is projected to reach
32,440 metric tons by 2026, a slight decrease of 1.4% year-on-year on
average since 1998. In 2021, imports are estimated to reach 30,510
metric tons. Meanwhile, exports of paper from Ethiopia are expected to
remain unchanged, with 2020 figures at 0 metric tons, down from 3
metric tons the previous year. Since 2012, exports have dropped 100%
year-on-year. Overall, Ethiopia's paper import and export are forecast to
remain largely the same over the next five years.

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Ethiopia Imports of Paper and paperboard, articles of pulp, paper and board
was US$119.05 Million during 2020, according to the United Nations
COMTRADE database on international trade. Ethiopia Imports of Paper and
paperboard, articles of pulp, paper and board - data, historical chart and
statistics - was last updated on October of 2023.

The finding suggested that Ethiopia spent millions of USD to import different
paper and paper products. This indicated that Ethiopia spent a million USD to
import paper and paper products between 2005 and 2019. This showed that
the demand for paper and paper products in Ethiopia has increased from
time to time, whereas there was a limitation of paper processing industries
and raw materials in the country. The big expense of the country to import
paper and paper products could also be related to the lack of raw materials
and the presence of very few wood processing industries in the country. This
data stated that, even if the wood processing is very few, it can fill the gap of
the demand for the product; however, the main problem is lack of raw
material. Ethiopia exported a small amount of paper and paper products
between 1997 and 2016, except in 1998 and 2013. The trend of expense to
import different paper and paper products, and at the same time, the trend
of the quantities of paper products imported was increasing from 1997 to

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2016. On average, the expense to import paper and paper products into
Ethiopia and the quantities of paper products imported were increased from
year to year. FAO stated that the paper-producing industries in Ethiopia are
based on imported wood pulp and chemical wood pulp. FAO suggested that
in the years 2008-2012, Ethiopia imported Bleached Sulphate pulp, Semi
chemical wood pulp, Wood pulp, and chemical wood pulp that cost an
average of 3.2, 1.2, 5.2, and $US 0.37 million /year respectively.

Ethiopia imported paper and paper products from different countries of the
world. The major exporter of the products was Indonesia, India, China, United
Arab Emirates, Sweden, Saudi Arabia, Thailand, Singapore, Germany, South
Africa, Egypt, and the Russian federation. This study also in covenant, which
showed the most processed wood product including paper and paper
products were imported from Indonesia, China, India, Egypt, Sweden, South
Africa, Thailand, Spain, the Russian Federation, and Germany. Even though
most of Africa’s countries are the net importer of paper and paper products,
some of them export a small amount of paper and paper products to
different countries of the world. Except for South Africa, Ethiopia, Egypt,
Kenya, and Swaziland, all African countries are net importers of paper
products. This study is again in agreement with the finding of larinde et al.
which stated that, except for Kenya, South Africa, Swaziland, Tanzania, and
Zimbabwe, all countries in Africa import nearly their entire paper
requirement.

Ethiopia exported a small amount of paper and paper products to different

countries in different years. The major paper and paper products exported
were: - Felt paper and paperboard in rolls or sheets, paper and paperboard,
Household sanitary or hospital articles of paper, Box files letter trays storage
boxes of paper, Newspapers journals, and periodicals. Mostly, Ethiopia
exported these products to Djibouti, United Arab Emirates, Saudi Arabia,
Sweden, the United States, India, Bahrain, Somalia, the United Kingdom, and
Turkey. Ethiopia spent a too much higher amount of money to import paper

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and paper products than the income generated from exporting them.
According to this finding, Ethiopia faced a trade deficit in the paper and
paper product trade, because the amount of paper product imported was too
much higher than the exported paper product and at the same time the cost
incurred to import paper and paper products were much higher than that of
generated income from the exported one. This finding aligned with FAO
which indicated that between 2008 and 2012, the average price to import
forest products including paper products in Ethiopia was higher than
generated income from exporting the products. Again, this finding is in
corresponds with who stated that the expense to import paper and paper
products was much higher than the income generated from the exported
paper and paper products in Ethiopia.

4.2. Demand

It is difficult to obtain a fully organized and reliable data that depicts the
supply of paper products over a continuous period of time.

Data obtained from Chemicals and Construction Inputs Industry

Development Institute (CCIIDI) reveals that Ethiopia’s 2018 demand for
paper was 219,840 tons. Local companies, while operating at 62Pct capacity,
produced only 42,692 tons during the same period. The rest was fulfilled
through import. The supply of paper products have greatly fluctuated over
the past five years due to inconsistency on volume of domestic production
and volume of imports (mainly driven by foreign currency shortages). The
volume of supply of paper products declined from 21,984 metric tonnes on
2018 to 20,802 metric tonnes on 2022. The following table shows domestic
production and import of paper products from 2018 up to 2022.

Table: Supply of paper products from 2018 up to 2022

Domestic
Production Import Total Supply
Year (tonnes) (tonnes) (tonnes)
2018 42,692 177,148 219,840

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2019 23,908 179,362 241,824

2020 51,230 131,754 182,984
2021 43,546 142,825 186,371
2022 33,095 174,933 208,028
Source: CSA, World Bank, CCIIDI, ERCA

4.3. Projected Supply

During the past five years domestic production of paper products grew on n
average rate of 8% despite huge deviations observed between periods. On
the other hand, import increased on an average rate of 1% during the same
span of period. Therefore assuming the same trend would continue to take
place for both dimensions of supply, the total supply of paper products is
expected to reach 21,242 metric tonnes on 2023.

Table: Projected supply of paper products from 2023 up to 2027

Dometic Total
Production Import Supply
Year (tonnes) (tonnes) (tonnes)
2023 35,742 176,682 212,425
2024 38,602 178,449 217,051
2025 41,690 180,234 221,924
2026 45,025 182,036 227,061
2027 48,627 183,856 232,484
Source: Own Projection

4.4. Projected Demand

The demand for paper products is increasing nationally due to factors such
as population growth, urbanization, and rising e-commerce activities,
education and so on. The projected demand for the proposed project’s
products is mainly determined by applying annual population growth rate in
order to make a reasonable and more realistic projection. Accordingly, the
projected demand for paper products is expected to reach 21,427 metric
tonnes increasing by 3% from the base year (2022).

The projected demand of paper, to be met either through domestic

production or imports, is forecasted on the table below.

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Table: Projected supply of paper products from 2023 up to 2027

Year Projected Demand (tonnes)
2023 214,269
2024 220,697
2025 227,318
2026 234,137
2027 241,161

4.5. Demand Supply Gap

Deriving from the above assumptions and projections of demand and supply
of paper products, it’s forecasted that there would be demand for over 1,224
metric tonnes of paper products that would be unmet through domestic
production and imports. The demand supply gap projections of the proposed
paper cutting/finishing project is shown on the table below.

Table: Projected demand supply gap of paper products from 2023

up to 2027
Projected Projected Supply Demand Supply Gap
Year Demand (tonnes) (tonnes) (tonnes)
2023 224,670 212,425 12,245
2024 242,644 217,051 25,593
2025 262,055 221,924 40,132
2026 283,020 227,061 55,958
2027 305,661 232,484 73,178

As can be seen from the above table, the volume of demand that is forecasted to be
left unsatisfied through imports and domestic production is expected increase
throughout the following five years.

CHAPTER FIVE - TECHNICAL ANALYSIS

5.1. Technology/Machinery

After pre-appraising the cost, function and applicability of various machineries

equipped with state of the art technology, promoters of the envisaged project have
settled on import of a vertically and Horizontally Multi-Knife Cutter sets from a
reputed manufacturer. The total cost of the machinery, including transportation and
installation is described below.

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Unit Price
No. Machinery Type Qty. (USD)
YDF paper cutting machine
1 one-roll 1 Set 68,000.00
Total Cost (USD) 68,000.00
Total Cost (ETB - @ Exchange
rate of 55.41 on October 19,
2023 3,767,880.00
Transportation & Installation
(10% of total machinery cost) 376,788.00
Grand Total 4,144,668.00

Performa Invoice
Supplier Name: Qingdao Yidafa International Trade Co., Ltd.
Address: H-1 Floor10 Tianzhi International Building, No. 63 Beijingeast Road, Free
Trade Zone, Qingdao, Shandong, China
Contact: Mr. Yidafa
Telephone: 86-532-86766551
Mobile Phone: 86-18678615355
Showroom: http://yidafa.en.made-in-china.com
BUYER:
Address: Addis Ababa
Ethiopia

Specifications of Machinery & Equipment

The proposed paper cutting Performance and features: This machine is suitable for
cutting large roll packaging materials such as various papers, self-adhesives, paper-
plastic composites, and non-woven fabrics. This machine adopts servo motor to
control fixed-length cutting. The transmission system adopts centralized control
such as pneumatic and photoelectric sensors. This machine integrates light,
electricity and gas. It has the advantages ofsimple operation, high cutting precision,
mechanical stability and low noise. (Pneumatic feeding is optional) Motor frequency
conversion speed regulation, automatic counting, alarm stop, magnetic powder
taper automatic tension adjustment function. It is an ideal equipment for cutting
large-scale coils with high quality in China.

Features:

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1. Main engine frequency conversion speed regulation, Panasonic PLC touch screen
control system, automatic counting, automatic fixed length, alarm stop, automatic
control and other functions.
2. The frame adopts16mmsteel plate structure, the cross-cut knife seat adopts
heavy-duty casting structure, and the guide roller adopts dynamic balance
treatment aluminum alloy guide roller.
3. The drive positioning traction adopts the drive shaft structure of the servo
system, and the feeding traction mode is that the motor drives the sprocket to drive
the traction rubber shaft. 4. This machine is an ideal online cross-cutting
equipment with high precision and high speed.

Picture: YDF paper cutting machine one-roll

Table: Description of Machinery & Equipment

Model YDF
Raw material diameter 1,400 mm
Warranty 1 Year
Maximum Width of Cutting 1,100 mm
Maximum Diameter of Unwinding 1,300 mm
Length of Cutting 297 mm
Cutting Speed 20-150 Times Per Minute
Precision 0.2 mm
Total Power 14 kw

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Weight 5,00kg
Product Packing Seaworthy
Product Standard 9220*2210*2000mm
Product Origin Shandong Province China

5.2. Generator
The plant would a backup generator, which shall be used during black outs and
period of power shortages, and help the plant maintain production operations
uninterrupted.

Unit
No Cost Total Cost
. Description UOM QTY (USD) (ETB)
Perkins Generator (200
1 KW) PC 1 9,999.00 554,045
Total 554,045

5.3. Land, Building and Civil works

The total area of land required for the plant is estimated to be around 5,000 square
meters, out of which around 70% of land or 3,500 square meters is proposed to be
used for various types of buildings, including plant building, stores, offices,
toilets/changing rooms, cafeteria for employees and other facilities. The production
building has been built out of hollow block walls, corrugated iron sheets roofing and
cement screed floor. The processing room possess accessibility to ventilation, is
suitable to prevent duct accumulation and deterring and controlling insects and
rodents. The warehouses for raw materials and finished goods cover 500M2 and
750M2 respectively.

The construction cost of building and civil works has been estimated at birr
5,350,220 as summarized in the table below (Specification and Bill of Quantities
are attached herewith). However, the construction of these facilities is expected in
three phases. The first phase of construction is aligned with the production capacity
of the - to be imported machinery and the project’s current objectives and
estimates of production capacity. The remaining two consecutive phases of
construction and acquisition works would take place in accordance with the
promoter’s expansion plans.

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5.4. Raw & Auxiliary Materials

Since the proposed plant’s main operating objective is limited to finishing/cutting

paper products, its primary raw/auxiliary material is rolled uncut/unfinished paper
and other packing materials.

5.5. Utilities: -
Electricity and water are the major utilities required for the factory operation.
Energy consumption of the machinery is around 55 kwh/day depending on the
plant’s operating capacity. For the project in question, the electric consumption is
estimated to be 144,000kwh/year. Similarly, the factory requires large liters of
water per day so that water consumption is assumed to be 8,640 liters per annum.
Furthermore, as for oil and lubricants, it is estimated to consume 3,000 liters per
annum. Annual utility requirement and the corresponding estimated costs are
presented below.

Table 4.2: utilities requirement and cost at installed capacity

No. Description UOM QTY Unit Cost Total Cost
1 Electricity KWH 144,000 4.95 712,800.00
Meter
2 Water Cube 8,640 13.57 117,244.80
3 Fuel (oil) Liter 3,000 68 204,000.00
1,034,044.
Total 80

5.6. Plant capacity and program process

Considering the time needed for developing production and industrial skill by the
plant, it is assumed the project is not expected to start at full capacity, rather it
shall begin with a lower level and shall attain its maximum capacity through time.
Accordingly, it is assumed to start operation at a capacity of 80% and progressively
increase this capacity utilization annually until it attains the maximum of 95% at the
sixth year and continue the same onwards. The production capacity is based on 3
shifts of 8 working hours a day and 300 working days a year considering reductions
of Sundays and public holidays in a year and possible downtime due to repair and
maintenance works.

The product mix and production level planned in this project are shown below

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Product mix and production

Production Year
Product 1 2 3 4 4
615,60
A 4 paper (in packs) 518,400 550,800 583,200 615,600 0
Capacity Utilization Rate
(%) 80 85 90 95 95

CHAPTER SIX - ORGANIZATIONAL SET-UP AND MANAGEMENT

6.1. Organizational Structure

The plant will depend on an organized division and distribution of responsibilities in

order to run an efficient, diversified enterprise. Main decision and responsibilities

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would rest with the General Manager who would be recruited by the owners based
on his/her competence. The General Manager would focus on maintaining high
quality and a cohesive business entity.

General
Manager

Executive
Secretary

Production Finance & Marketing

Dep’t Head Acct. Dep’t Dep’t Head
Head

- Accountant - Purchaser
- Machine - Cashiers - Sales Person
operators
- Electrician
- Driver
- Laborers
- Janitors
- Guards

6.2. Man Power Requirement

The paper finishing/cutting plant requires both production and administrative

manpower. The total manpower required would be 28 people. A detail of manpower
requirement and estimated annual salary expenditure including fringe benefits is
given below.

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Monthly Annual
No Position Qty. Salary Salary
Management
1 General manager 1 20,000.00 240,000.00
2 Executive-Secretary 1 3,500.00 42,000.00
Production Department 0.00
3 Department Manager 1 10,000.00 120,000.00
4 Machine Operators 4 3,500.00 168,000.00
5 Electrician 2 3,500.00 84,000.00
6 Drivers 2 2,500.00 60,000.00
7 Laborers 6 1,500.00 108,000.00
8 Guards 2 1,500.00 36,000.00
9 Janitors 2 1,200.00 28,800.00
Finance Department 0.00
10 Department Manager 1 10,000.00 120,000.00
11 Accountant 1 3,500.00 42,000.00
12 Cashier 2 2,500.00 60,000.00
Marketing Department 0.00
13 Department Manager 1 10,000.00 120,000.00
12 Purchaser 1 3,500.00 42,000.00
15 Sales Person 1 3,000.00 36,000.00
Sub Total 28 88,700.00 1,306,800.00
Benefits (at 20% of Basic
Salary) 261,360.00
Grand Total 1,568,160.00

6.3. Major duties and responsibilities

General Manager

 Provides overall leadership and management support to all departments.

 Maintaining good relations with outside public, suppliers, business concerns,
government department.
 Responsible for performance of all employees, making sure that the
employees complete their duties in timely and accurate manner by collecting
reports.
 Managing procurement and supply chain of the product.
 Maximize the productivity of the organization by optimizing the effectiveness
of its employees while simultaneously improving the work life and treatment of
employees as valuable resources.
 Makes decision on employee recruitment, training and appraisal.

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Production Department Head

Quality Control and Production Manager of the plant would report to the General
Manager and has for the following duties and responsibilities.

 Concerned with the manufacturing of products and sets standards and

targets for each section for each section of production process. Monitoring of
the quantity and quality of products coming from the production line.
 Is responsible for providing the raw materials, components and equipment
required to keep the production process running smoothly.
 Is responsible for maintaining an equitable amount of raw materials, tools,
spares parts and equipment required for the manufacturing process.
 Is responsible for the maintenance of the production line. This includes
maintenance and other necessary repairs.
 Maintain a plant free from safety or health concerns, developing and
maintaining health and safety procedures.

Finance and Accounting Manager

Finance and Accounting Manager would be accountable for the General Manager,
and shall have the following duties and responsibilities

 Receive and verify invoices and responsibilities for goods and services.
 Preparing journal entries, maintaining balance sheet schedules and ledgers
and account & bank reconciliation.
 Prepare, verify and process invoices and coding payment documents
 Preparation of audit, annual budget, taxation issues, advice on business
operations including revenue and expenditure trends, financial commitments
and future revenues.

Sales and Marketing Department Head

Sales and Marketing Manager of the plant would report to the General Manager and
has for the following duties and responsibilities.

 Responsible for making contact with customers and obtaining orders from
those contacts, keeping customer profile and persuading field sales activities.

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 Preparation and issuance of order forms, delivery note, quotation forms,

credit product uplift note, sales planning slip, overdue payment advice, credit
note, order acknowledgment.
 Recording daily sales and ensuring timely delivery of products
 Develop and promote effective sales planning, promotion, expanding market
share, distribution and sales volume (versus competitors)

6.4. Plans for Consultancy and Training

6.4.1.Training
Induction and on the job training would be delivered during the preliminary stages
of operation by an independent consultant and the project manager. This training
will not only include produce quality maintenance and cost reduction through
quality management, but also expand a much greater understanding of the market
trends and entire supply chain, new technology aids, and time management among
other variables. This is to ensure the company maintains a proactive approach to
continuously changing market conditions, so as to gain and maintain a competitive
advantage.

6.4.2.Feedback and Control

 The management would advocate a transparent and open working environment

that encourages employees to put forward any suggestions they may have
regarding improvements on any of the plant’s functions. Such culture would
enhance innovation and creativity, in turn leading to job satisfaction and
enrichment.
 Important developments would be continually communicated to employees to
keep them abreast of developments and promoting a sense of belongingness and
unity in the organization.
 The management intends to ensure that employees understand and embrace the
objectives/goals of the company, are customer focused, proud of their work and
work as a team. This would enhance employee morale, compounds customer
focus and organizational values.

6.4.3.Corporate Social Responsibility

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CSR involves a business identifying its stakeholder groups and incorporating their
needs and values within a strategic and day to day decision making process. The
notion of companies looking beyond profits for to their role in society is generally
termed as corporate social responsibility.

Thus, this project recognizes the fact that the broader community in which we
operate affords us our ‘license to trade’. The company intends to establish
relationships based on trust and mutual advantage through engaging in a wide
range of active social responsibility programs. Our efforts on community service will
show that the company has its own community at heart, contributing towards the
establishment of a good and reputable image. We intend to be responsible
corporate citizen fully contributing positively towards the environment in which we
shall operate.

CHAPTER SEVEN - FINANCIAL ANALYSIS

7.1. Means of financing and effective application of funds

Large, capital intensive projects present unique financial challenges. Their size,
complexity and cost necessitate the involvement of many participant entities. The
participants include developers, sponsors, other equity participants, financiers,
construction contractors, specialized operators, suppliers, and off-takers. The capital

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requirements exceed the capabilities and exposure limits of any single institution
and thus require financing groups whether it is conventional banking system with
interest or Islamic banking system without interest.

Summary of Additional Investment

1. Fixed Capital……………………………...Birr 15,304,430.00

2. Working Capital……………………… Birr 4,111,728.34
3. Total (1+2)………………………………Birr 19,416,158.34

Accordingly, the total investment cost of the project including pre-operating

expenditures is estimated to reach Birr 19,416,158.34

Source of Finance

There are two sources of financing the required investment capital of the business:
equity contribution and bank loan. 70% of the required financed which is to be
invested on fixed assets and working capital requirement of the company is
expected to be acquired through owner’s investment.

Cash flow projection for first year of operation

Assumptions:

1. Sales figure would increase by 10% annually each year.

2. 5% increase in sales is anticipated during new year and religious holidays.
3. The business expects to secure at least two major contracts with government
bureaus
4. Implementation and grace period would be 1 year.
5. Payroll taxes shall be paid at the end of each month
6. Tax rivets and other receivables are collected at the end of the fiscal year
after all accounts are closed.
7. Depreciation expense is computed using straight line method.

Category Rate
Land Lease ……………………………… 2%
Building………………………………….. 5%
Plant Machinery………………………... 10%
Vehicle…………………. 20%

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………………………………………………..
Office equipment and furniture………… 15%
8. Replacement Schedule: After 5 years
9. Implementation Period = 1 year

10.Source of finance;
 Equity contribution = 100%
11.Discount Rate = 12.5% per annum.
12.Tax Holliday = 3 years

7.2. Project Cost

Project cost is defined as all itemized things that are converted to their financial
costs broadly classified in to capital costs and annual operating costs.

7.2.1. Capital Costs

Capital costs are also further classified into initial investment capital and working
capital as described below.

7.2.1.1. Initial Investment Capital

Initial investment costs include all costs incurred for activities related to land lease,
preparation of land, construction of buildings and infrastructure, machineries and
equipment of paper cutting/finishing plant, transport and freight vehicles, office
furniture and equipment.

A. Land acquisition and preparation for Investment

A.1. Land Lease Payment

The total area of land required for the plant is estimated to be 5,000 square meters,
out of which paper processing plant and its facilities would cover about 3,500
square meters. The cost of land, at lease rate of 976.01 per square meter and
holding tenure of 99 years, would be Birr 4,880,050 which had been paid in annual
installments.

A.2. Construction and Civil works

The pre-construction phase is decisive for the project realization and other
implementation phases. Under this phase, legal and permit issues, securing of fund,
Authorization of enough plot of land at suitable and appropriate location,

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engineering design and approval are the main activities to be undertaken. In this
project all the above mentioned activities are already completed except for securing
a long term loan for the envisaged projects, which is expected to be completed by
the coming month.

The construction phase is mainly a stage of physical construction as per the design
and specification of the projects. Activities under this phase include; identifying &
deciding method of construction (selection of the contractor and consultant),
construction materials purchase, and commencement of construction and furnishing
of the building.

The production building has been built out of hollow block walls, corrugated iron
sheets roofing and cement screed floor. The processing room possess accessibility
to ventilation, is suitable to prevent duct accumulation and deterring and controlling
insects and rodents. The plant building including plant building, stores, offices,
toilets/changing rooms, cafeteria for employees and other facilities is expected to
take space of 3,500 meter squares. The total cost of the production plant had is
estimated to be Birr 5.35 Million.

Acquisition of Machinery, Equipment & Installation Costs

State of the art technology suitable for the proposed paper products
cutting/finishing plant had been located and planned to be acquired. The entire
processing machineries and equipment are expected to cost up to Birr
4,144,668.00 ETB which doesn’t include contingencies, detail design, and bank
commission charges.

Since all items are imported from abroad in foreign currency, only 10% of the costs
charged as domestic costs paid for local transportation and labor during installation.

B. Factory Set-up Expenditure

This cost includes electricity facility installation. It is estimated 5% of total cost of
plant and machinery expenditure and is estimated to cost 170,662.80 ETB.

C. Total Sum of Initial Investment Capital

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The above described initial investment capital cost items are summarized in the
table below. Accordingly the project would need an initial investment of around
19,416,158.34 ETB.

Investment Cost

No. Description Total Cost

4,880,050.
1 Land Lease 00
5,350,220.
2 Building & Civil Work 00
4,144,668.
3 Plant Machineries & Equipment 00
4 Generator 554,045.00
6 Electricity Installation 325,447.00
7 Pre-operating Expenditure 50,000.00
4,111,728.
8 Working Capital 34
19,416,15
Total 8.34

6.2.2. Direct Costs

Direct production costs of the plant include all costs that are to be incurred during
the production process, that include direct labor, machinery, and utility costs.

6.2.2.1. Annual Direct Material Cost

Annual direct material cost of the envisioned plant to be incurred on purchase of
rolled paper and packing materials is shown on the table below.
Table: Raw and Auxiliary Materials Requirement
Unit
No Cost Total Cost
. Description UOM QTY (USD) (USD)
1 Rolled paper Tons 298 5380 1,603,240.00
2 Packing materials Tons 122,225.23
3 Others 25,000.00
1,750,465.2
Total Cost (USD) 3
Total Cost (Birr) @ Current 96,993,278.
exchange rate of 55.41 39

6.2.2.2. Annual Direct Utility Costs

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Annual direct utility costs of the envisioned plant to be incurred on electricity, water
and oil & lubricants is shown on the table below.

Table: Annual Direct Utility Costs

No. Description UOM QTY Unit Cost Total Cost
1 Electricity KWH 144,000 4.95 712,800.00
2 Water Meter Cube 8,640 13.57 117,244.80
3 Fuel (oil) Liter 3,000 68 204,000.00
1,034,044.8
Total 0

6.2.2.3. Costs of Direct Labor

Out of the total workers to be employed for the project, those who would be directly
involved in the production process (excluding other administrative and support
staff) would constitute the expense that would be considered as direct labor cost of
production for the envisaged paper products cutting/finishing plant.

Accordingly, out of the total employees, only 18 would be considered to be directly

engaged in the production process and whose salary and wages would be included
in the calculation of direct labor costs. The annual direct labor cost of the plant
would be illustrated on the table below.

Table: Annual Cost of Direct Labor

N Qt Monthly Annual
o Position y. Salary Salary
1 Product Department Manager 1 20,000.00 240,000.00
2 Machine Operators 4 3,500.00 168,000.00
4 Electrician 2 3,500.00 84,000.00
6 Drivers 2 2,500.00 60,000.00
7 Laborers 6 1,500.00 108,000.00
8 Guards 2 1,500.00 36,000.00
9 Janitors 2 1,200.00 28,800.00
Sub Total 19 724,800.00
Benefits (at 20% of Basic
Salary) 144,960.00
Grand Total 869,760.00

6.2.2.4. Repair and Maintenance

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Since Repair and maintenance costs of plant and machineries are considered as part of
the plant’s direct production cost it would be calculated as;
Repair and maintenance cost is determined below.
Repair & Maintenance
No Investment Cost % Annual Cost
5,350,220 13,375.55
1 Building & Civil Work .00 0.25%
3,413,256 34,132.56
2 Machinery and Equipment .00 1%
554,045.0 5,540.45
3 Generator 0 1%
9,317,521
Total .00 53,048.56

6.2.2.5. Machinery Depreciation Cost

Since depreciation costs of plant and machineries are considered as part of the plant’s
direct production cost it would be calculated as;

Machinery depreciation cost is determined below.

Depreciation
No Investment Cost % Annual Cost
1 Land Lease 4,880,050 2% 97,601.00
.00
5,350,220. 267,511.00
2 Building & Civil Work 00 5%
3,413,256. 341,325.60
3 Machinery and Equipment 00 10%
4 Generator 554,045.00 20% 110,809.00
17,712,96
Total 5.82 817,246.60

6.2.2.6. Summary of Direct Costs

Based on the above information, the envisaged paper finishing/cutting plant’s
annual direct production cost would be estimated at Birr 19,111,671.76. The total
annual direct costs are summarized on the table below.

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Table: Summary of Direct Costs

No Unit
. Description UOM Qty Price Cost
1 Rolled paper Tons 298 5380 88,835,528.40
2 Packing materials Tons 6,496,534.37
3 Others 1,385,250.00
Sub Total 96,717,312.77
4 Electricity KWH 144,000 4.95 712,800.00
5 Water Meter Cube 8,640 13.57 117,244.80
6 Oil & Lubricants Kg 3,000 68.00 204,000.00
Sub Total 1,034,044.80
7 Sub Total of Annual Direct Labor Cost + 25% benefit 869,760.00
8 Sub Total of Machinery Maintenance & Repairs cost 53,048.56
9 Sub Total of Machinery Depreciation cost 817,246.60
Grand Total 98,674,166.13

7.3. Over Head costs of the envisaged Project

Management & Administrative Staff Salary

Excluding those employees who’d be directly engaged in the production process,
the total annual salary for administrative and support staff is shown on the table
below.

Table: Annual Cost of Administrative Staff

Monthly Annual
No Position Qty. Salary Salary
240,000.0
1 General manager 1 20,000.00 0
2 Executive-Secretary 1 3,500.00 42,000.00
120,000.0
3 Finance Department Manager 1 10,000.00 0
4 Accountant 1 3,500.00 42,000.00
5 Cashier 2 2,500.00 60,000.00
Marketing Department 120,000.0
6 Manager 1 10,000.00 0
7 Purchaser 1 3,500.00 42,000.00
8 Sales Person 1 3,000.00 36,000.00
702,000.
Sub Total 9 00
Benefits (at 20% of Basic 140,400.0
Salary) 0
Grand Total 842,400.

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00

 Other Administration costs such as stationery, marketing, fuel & lubricants,

legal fee, audit fee, etc, are assumed to be 5% of total revenue.
 Insurance cost is determined below.
o Building 0.25% per annum
o Motor Vehicles 2.5% per annum.

Insurance
No Investment Cost % Annual Cost
5,350,220.
1 Building and Civil Works 00 0.25% 13,375.55
3,413,256.
2 Machinery and Equipment 00 2.50% 85,331.40
3 Generator 554,045.00 2.50% 13,851.13
9,317,521
Total .00 112,558.08

Summary of Overhead Costs

No Description Cost
.

1 Salary & Benefit 842,400.00

2 Insurance 377,521.34
1,787,500.0
5 Administrative Expense 0
3,007,421.
Total 34

7.4. Working Capital

Working capital requirement of the envisaged plant under coverage span of 120
days for direct material, 15 days for utility costs, 15 days for annual direct labor and
machinery repair and maintenance costs and 30 days coverage of administrative
expenses is shown on the table below.

7.5. Sales Plan

The promoters plan to commence operation at a slower operating capacity rate of
60% and refine only 602,250 liters of edible oil. The assumptions employed for
projection of sales are an annual 10% increase in production capacity and selling
price, which shall both be reconsidered when the promoters expand the proposed

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project after securing additional land. Accordingly, the proposed paper products
cutting/finishing plant would generate sales of birr 37,001,250.00 in its first year.

Table: Projected Sales

Description Full
/Year Capacity Year-1 Year-2 Year-3 Year-4 Year-5
Capacity
Utilization 100% 80% 85% 90% 95% 95%
Income from sale 144,480,0 161,185,50 170,667,0 180,148,50 189,155,92
of paper 180,600,000 00 0 00 0 5
180,600,00 144,480, 161,185,5 170,667, 180,148,5 189,155,9
Total Revenue 0 000 00 000 00 25
7.6. Financial Evaluation
7.6.1. Profitability
Based on the projected profit and loss statement, the project will generate a profit
throughout its operation life. Annual net profit after tax will grow from Birr 45 million
to Birr 65 million during the life of the project. Moreover, at the end of the project
life the accumulated net cash flow amounts to Birr 43.9 million. For profit and loss
statement and cash flow projection see the attached appendices.

7.6.2. Ratios
In financial analysis, financial ratios and efficiency ratios are used as an index or
yardstick for evaluating the financial position of a firm. It is also an indicator for the
strength and weakness of the firm or a project. Using the year-end balance sheet
figures and other relevant data, the most important ratios such as return on sales
which is computed by dividing net income by revenue, return on assets (operating
income divided by assets), return on equity (net profit divided by equity) and return
on total investment (net profit plus interest divided by total investment) has been
carried out over the period of the project life and all the results are found to be
satisfactory

7.6.3. Pay-back Period

The pay -back period, also called pay – off period is defined as the period required
for recovering the original investment outlay through the accumulated net cash
flows earned by the project. Accordingly, based on the projected cash flow it is
estimated that the project’s initial investment will be fully recovered within 1 year.

7.6.4. Internal Rate of Return

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The internal rate of return (IRR) is the annualized effective compounded return rate
that can be earned on the invested capital, i.e., the yield on the investment. Put
another way, the internal rate of return for an investment is the discount rate that
makes the net present value of the investment's income stream total to zero. It is
an indicator of the efficiency or quality of an investment. A project is a good
investment proposition if its IRR is greater than the rate of return that could be
earned by alternate investments or putting the money in a bank account.
Accordingly, the IRR of this project is computed to be 255% indicating the viability
of the proposed project. Moreover, as the table below demonstrates the project
would have acceptable IFRS rates under three different scenarios.

7.6.5. Net Present Value

Net present value (NPV) is defined as the total present (discounted) value of a time
series of cash flows. NPV aggregates cash flows that occur during different periods
of time during the life of a project in to a common measuring unit i.e. present value.
It is a standard method for using the time value of money to appraise long-term
projects. NPV is an indicator of how much value an investment or project adds to
the capital invested. In principle, a project is accepted if the NPV is non-negative.
Accordingly, the net present value of the project at 1.5% discount rate is found to
be Birr 176 million which is acceptable.

Table: NPV and IRR

NPV after tax

Scenario in Birr (million) IRR after Tax
Base 176,713,547.03 255%
1 118,099,062.98 178%
2 145,781,486.41 213%
3 176,713,547.03 255%

6.7. Economic Benefits

The project can create employment for 28 persons. In addition to supply of the
domestic needs, the project will generate Birr 120 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.

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ANNEXES

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Table 1: Operating/Running Cost Schedule:

Capacity Utilization 100% 80% 85% 90% 95% 95%
Description/Year Year-1 Year-2 Year-3 Year-4 Year-5
98,674,16 78,939,33 88,806,75
83,873,041 93,740,458 93,740,458
Direct Raw Material 6 3 0
Direct Utility 1,034,045 827,236 878,938 930,640 982,343 982,343
Direct labor 869,760 695,808 739,296 782,784 826,272 826,272
Direct Depreciation 817,247 817,247 817,247 817,247 817,247 817,247
98,674,16 78,939,3 83,873,04 88,806,7 93,740,45 93,740,45
Sub Total 6 33 1 50 8 8
Administrative Salary &
842,400 673,920 716,040 758,160 800,280 800,280
Wages
Repair & maintenance 53,049 42,439 45,091 47,744 50,396 50,396
240,000.0
300,000 255,000 270,000 285,000 285,000
Markering 0
Miscellaneous expense 50,000 40,000 42,500 45,000 47,500 47,500
Insurance 13,851 13,851 13,851 13,851 13,851 13,851
Operat cost before Dep. 79,949,5 84,945,52 89,941,5 94,937,48 94,937,48
1,259,300
& Amrt. 43 4 04 5 5
Deperciation &
- - - -
Amortization
Operating Cost before 79,949,5 84,945,52 89,941,5 94,937,48 94,937,48
int. 43 4 04 5 5
Bank Interest
Total Operating 79,949,5 84,945,52 89,941,5 94,937,48 94,937,48
Expense 43 4 04 5 5

Table 2: Revenue Projection Sheet:

Full
Year-1 Year-2 Year-3 Year-4 Year-5
Description /Year Capacity
Capacity Utilization 100% 80% 85% 90% 95% 95%
180,600,0 144,480,0 161,185,50 170,667,0 180,148,50 189,155,92
Income from sale of paper 00 00 0 00 0 5

180,600,0 144,480, 161,185,5 170,667, 180,148,5 189,155,9

Total Revenue 00 000 00 000 00 25

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 PROJECT PROPOSAL- FOR ESTABLISHMENT OF PRINTING PAPER CUTTING/FINISHING PLANT

Table 3: Projected Income/Loss Statement:

Description /Year Year 1 Year 2 Year 3 Year 4 Year 5

161,185, 170,667,0 180,148, 189,155,9
Revenue 144,480,000 500 00 500 25
Total Cost Before 84,945,5 94,937,4
Interest 79,949,543 24 89,941,504 85 94,937,485
76,239,9 80,725,49 85,211,0 94,218,44
Gross Profit 64,530,457 76 6 15 0

Interest Expense
76,239,9 85,211,0
Net income 64,530,457 76 80,725,496 15 94,218,440
22,871,9 25,563,3
Profit Tax 19,359,137 93 24,217,649 04 28,265,532
Net Income After 53,367,9 56,507,84 59,647,7 65,952,90
Tax 45,171,320 83 7 10 8

Table 4: Cash Flow Statement For Financial Planning Purpose:

Description/Year Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Net Income After 45,171,3 56,507,84
Tax 20 53,367,983 7 59,647,710 65,952,908
Depreciation and
Amortization - - - - -

Equity 18,684,442

Bank Loan
45,171,3 53,367,98 56,507,8 59,647,71 65,952,90
Total cash Inflow 20 3 47 0 8
Initial Investment
Cost 18,684,442

Principal Repayment

Total cash outflow 18,684,442 0 0 0 0 0

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45,171,3 56,507,84
Net cash Outflow -18,684,442 20 53,367,983 7 59,647,710 65,952,908
Cumulative cash 45,171,3 98,539,30 155,047, 214,694,8 280,647,7
inflow 20 3 150 61 69

Table 5: Cash Flow Statement For Discounting Purpose:

Item Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

144,480,0 161,185,5 170,667,00 180,148,50 189,155,92
Sales Revenue 00 00 0 0 5
144,480, 161,185, 170,667,0 180,148,5 189,155,9
Total Cash Inflow 000 500 00 00 25
18,684,441.5
Fixed Investment 9
Fixed Asset
Recovery
Operating Cost less 79,949,54 84,945,52
Dep. & Int. 3 4 89,941,504 94,937,485 94,937,485
19,359,13 22,871,99
Profit Tax 7 3 24,217,649 25,563,304 28,265,532
Total Cash 99,308,6 107,817, 114,159,1 120,500,7 123,203,0
Outflow 80 517 53 90 17
(18,684,44 45,171,3 53,367,9 56,507,84 59,647,71 65,952,90
Investment Cost 1.59) 20 83 7 0 8
$176,713,5
NPV 47.03

IRR 255%
6. Sensitivity Analysis:
6.1) If Sales Revenue Decreases by 10%
Item Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
130,032,00 153,600,3 162,133,6 170,240,3
Sales Revenue 0 145,066,950 00 50 33
Total Cash 130,032,0 145,066,95 153,600,3 162,133,6 170,240,3
Inflow 00 0 00 50 33
Investment Cost 18,684,442
Fixed Asset
Recovery
Operating Cost 89,941,50 94,937,48 94,937,48
less Dep. & Int. 79,949,543 84,945,524 4 5 5
Working Capital
Increment
24,217,64 25,563,30 28,265,53
Profit Tax 19,359,137 22,871,993 9 4 2
Total Cash 99,308,68 107,817,51 114,159,1 120,500,7 123,203,0
Outflow 0 7 53 90 17

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(18,684,44 30,723,32 39,441,14 41,632,86 47,037,31

Investment Cost 2) 0 37,249,433 7 0 5
118,099,0
NPV 63
IRR 178%

6.2) If Operating Expense Increases by 10%

Item Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

144,480,00 170,667,00 180,148,50 189,155,92

Sales Revenue 0 161,185,500 0 0 5

144,480,0 161,185,50 170,667,0 180,148,5 189,155,9

Total Cash Inflow 00 0 00 00 25

Investment Cost 18,684,442

Fixed Asset
Recovery

Operating Cost 104,431,23 104,431,23

less Dep. & Int. 87,944,497 93,440,076 98,935,655 4 4
Working Capital
Increment - - - -

Profit Tax 19,359,137 22,871,993 24,217,649 25,563,304 28,265,532

Total Cash 107,303,6 116,312,06 123,153,3 129,994,5 132,696,7

Outflow 34 9 03 38 66

(18,684,44 37,176,36 47,513,69 50,153,96 56,459,15

Investment Cost 2) 6 44,873,431 7 2 9
145,781,4
NPV 86
IRR 213%

6.3) If Investment Cost Increases by 10%

Item Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

144,480,0 161,185,50 170,667,0 180,148,50 189,155,92

Sales Revenue 00 0 00 0 5

144,480, 161,185,5 170,667, 180,148,5 189,155,9

Total Cash Inflow 000 00 000 00 25
Investment Cost

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18,684,442
Fixed Asset
Recovery

Operating Cost less 79,949,54 89,941,50

Dep. & Int. 3 84,945,524 4 94,937,485 94,937,485
Working Capital
Increment - - - -

19,359,13 24,217,64
Profit Tax 7 22,871,993 9 25,563,304 28,265,532

Total Cash 99,308,6 107,817,5 114,159, 120,500,7 123,203,0

Outflow 80 17 153 90 17

Net Cash 45,171,3 53,367,98 56,507,8 59,647,71 65,952,90

Surplus/Deficit (18,684,442) 20 3 47 0 8
NPV 176,713,547
IRR 255%

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