addis and zewditu project final (repaired)

7/28/2019 Addis and Zewditu Project Final (Repaired)

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I. Executive SummaryEthiopia is endowed with diverse agro-climatic zones that are suitable for beekeeping.

However, the benefit the country gets from honey and beeswax export is insignificant

compared to the huge potential it has for earning foreign exchange as well as generating

income to many smallholder beekeepers and other actors in the subsector. Honey is

traditionally a very precious product and plays an important role in generating cash income

for farmers.

The company establishes for the processing of honey with a capacity of 90 tons per annum.

The present demand for the proposed product in Ethiopia is estimated at 4,340 tons per

annum. The demand is expected to reach at 11,257 by the year 2021.

The plant will create employment opportunities for 19 persons. The total investment

requirement is estimated at about Birr 6.1million, out of which Birr 3 million is for plant and

machinery, 1.5 million for building and civil works.

The project is financially viable with an internal rate of return (IRR) of 30 % and a net

present value (NPV) of birr7,199,355 birr discounted at 10%.


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Brief information about the project

Name of the Licensee: . Nahom honey processingcompany

License Type: medium scale honey production License Area: Tigray regional state, Mekele city Total area of the project 600 meter square (20x30) Annual Aggregate Production: ..81 tons Project Life: .10 years Fixed Capital Expenditure: ..... 5,900,000 birr Annual Operational Cost: ... 3,455,523 birr Pre-production Cost: 200,000 birr Depreciation Period: ..10 years for vehicles & 20 years for building Salvage Value: .....5% of Fixed Capital Expenditures Total Sales Revenue for the first year: 6,066,900 birr Income Tax 35% of the profit Net Cumulative Profit, 10 years 18,699,524 birr Pay Back Period ... 4 years Net Present Value ....7,199,355 birr Financial Internal Rate of Return ... 30 % Economic Internal rate of return 62%


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II. Socio Economic and Climatic Condition

Ethiopia is the largest country in East Africa. As a landlocked country, Ethiopia shares

boundaries with Eritrea to the north, Kenya to the south, Somalia and Djibouti to the east and

Sudan to the west. The majority of the population (85 percent) is rural and engaged in

agricultural production.

Tigray State is located in the northern part of Ethiopia, with a population of 4.5 million. 80

percent of the population is lived in rural areas and 20 percent is lived in urban areas.

Tigray is one of the 11th

Regional States of the Federal Democratic Republic of Ethiopia and

situated in the Northern part of the country. The Region has an area of 50,000 Km Square

divided in to seven zones, Southern, south-eastern, Mekelle, Eastern, Central, South-Western

and Western zones, and sub divided in to 46 woredas/districts. The region has also a total

population of 4.5 million.

Mekelle is the sixth largest city in Ethiopia and the capital of Tigray State. Mekelle enjoys a

mild highland climate with an average temperature of 25C. The rainy season in the Mekelle

is from June to September, while the dry season is from October to May. The average annual

rainfall is approximately 579mm. The total population in the city of Mekelle is estimated at

215,546. The annual population growth rate is approximately 2.6 percent


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1. Introduction

1.1 Background of the Study

In Ethiopia, honey is traditionally a very precious product and plays an important role in

generating cash income for farmers. It serves as raw material in the production of traditional

alcoholic beverage, Tej. It is also widely used in different traditional medicament and ritual

ceremonies.

There are an estimated 10 million bee colonies in Ethiopia out of which about 7.5 million are

confined in hives and the remaining exist in the forest and crevices.

Ethiopia, having the highest number of bee colonies and surplus honey sources of flora, is the

leading producer of honey and beeswax in Africa. On a world level, Ethiopia is fourth in

beeswax and 9th

in honey production. Honey and beeswax also play a big role in the

economic, cultural and religious life of the people. The annual production of Ethiopian honey

is estimated at 45,000 tons per annum and that of beeswax 3600 tons per annum. (MORAD,

Dec. 2008)

With regard to good opportunity to investment the project will be implemented in Mekele

town.

Mekeles annual population growth rate is approximately 2.6 percent per annum. People

migrate to Mekele for better opportunities like, job, health and education. Tigray honey is

considered to be of superior quality, and it has a moderate climate due to its highland

position, which is favorable for honey production. The Mekelle region has a large bee

population (about 37 thousand bee colonies; 20 percent of the Tigray total). Tigray honey has

a special aroma that would provide a competitive advantage in niche markets


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1.2 The Owner

Name of the project; . Maerey honey Processing Company Manager (would be); w/t Addisababa worku Address; Mekele city administration, Kebele. 18, H.No, 832 Business; ..Honey processing company Form Of organization; Private limited company Registration; on progress Business license; on progress Investment permit; .. by Ethiopian investment Authority on first of May 2011

Status of project; .New

1.3 Objectives of the Company;

To maximize profit

To increase market share

To produce quality of honey

To create job opportunities and enable communities improve their income.

To increase the owners capital

1.4 Brief information about the Owners

w/t Addisababa worku and W/ro zewditu hagos solely owns the business. Both of the

entrepreneurs have an age old experience in the business and can always avail them self on

fulltime basis to properly run the business. W/rt Addisababa worku is the manager of the

company, she has enrolled at Addis Ababa University; she gets her first degree in marketing

management . W/rt Addisababa as manager of the company; she has a well experienced and

has experienced in managing private business. w/ro zewditu hagos has a BA degree in

Accounting from Addis Ababa University. She has enrolled at the Addis Ababa University

he gets her first Degree. Both W/rt Addisababa and w/ro zewditu hagos are well known in

their respective field of specialization in their vicinity.


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1.5 Brief on the project

The project will be located in Mekele city Kebele 18 in the vicinity commonly called

Adishindihun

The project area has suitable infrastructure such as access for transportation, and it is

assumed that necessary utilities like electric power, water, telephone and accessible road are

there. The raw materials like crude honey and other inputs for the production process are

readily available in the Mekele region market.

1.6 Credit relation

The company has no credit commitment with Banks and other financial institutions until this

date of report. Recognizing the importance of having its own building and premises, the

honey processing company has negotiated and deals to finance the acquisitions from bank

loan.

2. Security available for loan purpose

A, Plant building to be constructed & machinery ..3 million birr

B, Business mortgage... 3.1 million birrTotal Birr6.1 million birr

3, Technical Assessment

3.1 Location of the Project

The honey processing company is situated at Mekele city administration, Kebele 18 in

vicinity called Adishindihun. According to the resource potential study of the region, the

raw material is identified in most parts of the Tigray region. The honey producers of the

region especially the eastern, southern and south eastern zones are well suited for the

production of quality honey.

The Tigray region is nationally considered high quality producer of honey (white & butter

colour) when compared to other Regions of our country, and also based on the availability of


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raw material (crude honey). Mekele region Produces 20% of the Tigray region honey

production. According to the availability of infrastructure, based on the utility and market

availability Mekele town is selected and recommended to be the location of the company

(project).

3.2 Project Layout

The plant requires a total area of 600 meter square (20x30) of land out of which 300 meter

square is built-up area which includes Processing area, raw material stock area, offices etc

and the remaining will be parking and other areas. This building has 8 classes which are used

for production process, store house, offices and other purpose.

3.3, Machinery, Equipment, Furniture and Fixtures

Maerey honey processing company will fully equip with the standard that it can serve and

facilitate for production process. Major machineries and equipments would be installed in the

appropriate rooms. The machinery and equipment required by the project will be procured

from foreign sources. Fixture, furniture and other necessary office equipments like;

Liquefier, Filter press, Evaporator, Vacuum pump, Storage/settling tank, Water circulation

pump, Pre heating tank, Processing tank etc will also be fulfilled.

3.4. Office Equipment and Material SuppliesThe company would supply processed packed honey and wax for beneficiaries. The

company would also facilitate uniforms masks, gloves and other necessary materials, for the

operational workers per need. Raw materials like crude honey and chemicals are sufficiently

available on time for the purpose of facilitating the production.

3.5 Other Utilities

Electricity, water and telephone are already available in the vicinity and will be easily

installed to the project. The raw materials (inputs) like crude honey and other inputs are

available in the city market.


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3.6 Production Description

Honey consists essentially of different sugars, predominantly glucose and fructose. Besides,

honey contains protein, amino acids, enzymes, organic acids, mineral substances etc. The

colour of honey varies from nearly colorless to dark brown. The flavor and aroma vary but

are usually derived from its plant origin.

In Ethiopia, honey is used almost everywhere for the preparation of the favorite national

drink called Tej and also for food in the form of bread spread or as sweetener in home baking

and medication.

3.7 Production Process and Engineering

3.7.1, Production Process

Honey contains pollen, dust and air bubbles, which tend to include granulation

(crystallization). Heating the honey to 45 C0

to dissolve the crystals present in honey can

retard the granulation. Filtration then removes part of pollen, foreign particles and wax.

To prevent fermentation and to destroy yeasts, honey is heated to a temperature of 65 C0

-70

C0

for specified time. Proper temperature and control and heating time is a most important

factor in honey processing activity.(Profile of honey Processing Project 2007)

The Process of Honey is Divided in to three Steps

Filtration to remove wax, foreign particles after heating honey to 45 C0. It may benoted that heating up to 45 C

0

(below the melting point of bee wax) is required to

decrease the viscosity of honey.

Honey is then heated to 60 C0-65 C0 for 10 to 15 min and passed in to a falling filmevaporator. Vacuum is simultaneously applied to boil the water in honey at a lower

temperature so that moisture is separated which can be collected separately. This

procedure also helps in destroying yeasts.

Cooling the honey to atmospheric temperature and storing in closed vessel for 24-48hours is the next step. Storing honey for period of 24-28 hours is necessary to allow

air bubbles to go out. Honey is then packed and sealed immediately.


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3.7.2, Engineering

A. Machinery and Equipment

The machinery and equipment required by the project will be procured from foreign sources.

The total cost of machinery and equipment is estimated to be Birr 3,000,000. The plant needs

two vehicles (one pick-up and one minibus) for transportation of raw materials, finished

products and for office activities. The total cost of the vehicles is estimated at Birr 1,000,000.

B. Plant Capacity and Production Program

Plant Capacity; According to the market study, the demand of honey in the year 2012 will

be 4,774 tones, whereas this demand will grow to 11,257 Tones by the year 2017. The

envisaged plant will have an annual production capacity of 90 tones of honey will be

installed. Production capacity is based on a schedule of 300 working days per annum.Production Program; The project is assumed to start operation at 70% of its rated

capacity, which reaches 90% of the capacity production, will be attained in the fourth year

and thereafter.

4. MARKET STUDY

4.1 General (States Of Other Countries in Producing Honey)

Ethiopia is 1

st

in Africa and 9

th

globally in terms of production of honey. It has also thehighest number of bee colonies and surplus honey sources of flora. Likewise, Ethiopia stands

1st

in Africa and 4th

in the world in beeswax production.

Currently, Ethiopia produces 45,000 tons of honey annually. The country also produces

3,000 tons of beeswax annually that generated only 1.5 million dollar. Over the 97% of the

total honey produced is marketed, of which 85% goes to the preparation of local drink Tej.

(Ministry of rural & agricultural development (MORAD), Dec. 2010)

Ethiopian honey and other bee products have competitive advantage over other countrys

products in the following sense. Ethiopia has a diverse ecology and this makes it suitable to

produce diverse honey plants in different flowering seasons. This, in turn, contributes in the


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production of fresh honey throughout the year. The honey ranges from dark blue to extra

white, which can meet the demands and preferences of different buyers.

Its scope for diversification is also phenomenal. One can produce bee products such as table

honey, honey for Tej, beeswax, pollen, royal jelly, and cream honey.

The company will buy a total of63 tons of honey from local honey producers starting from

year 1, and increasing to 81 tons in subsequent year. In the Mekele region the production of

honey estimates about 400 ton and from the eastern and southern zones their production

estimates about 780 tones (Bureau of rural and agricultural development 2010).

In Tigray region there is only one honey processing company. The annual production of the

region Estimated about 2000 tones; i.e 20 % the countries total production (MOARD,

2009), so there is no shortage of supply in that region.

The honey will be processed using internationally accepted modern processing and packing

equipment all of the processed honey will be bottled and labeled for sale in local markets of

the country.

Pro-Poor Potential; - According to information secured from MOARD over 1.5 million

households in the rural community are involved in beekeeping. In other words, 1 out of 10

farmers in Ethiopia are involved in beekeeping which would make promoting the Honey and

other bee products. Records from (MOARD2009 show that, currently, household income

from honey production is estimated at US 66 million/annum.

Productivity of beehives; The average yield of the traditional beehive was 12.6 kg in 2008 It

has increased slightly to 13 kg in 2009 and increased 15 kg in 2010. It was not possible to

compute the productivity of transitional beehive owing to the presence of only one

transitional beehive. The productivity of modern beehive has increased from 30 kg in 2008 to

30.5 kg in 2010.

Socio economic aspects; The main socio-economic benefits the company is going to

generate:


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Livelihoods and food security of the area via being source of income/market for thesurrounding farmers and generation of employment,

Enhancing the productivity of apicultural production in the region by way oftechnology transfer,

Contributing to the regions income by way of taxes and other payments, Generates profit for the owner of the company Avails employment opportunities to about 19 employees

4.2. Demand Analysis for honey for honey at national level

To estimate the current effective demand of natural honey for human consumption the export

potential and the local consumption estimated through per capita has been added.

If we take the existing average price of honey globally which is 9 USD - 10USD/kg and if

Ethiopia could produce its potential which is 500,000 ton per annum (according to MOARD

documents), this would mean that the country has the potential to generate 1.25 - 1.5 billion

USD that would make all the more rational to select the Honey and other bee products for

promotion and development in Ethiopia. And, if we take beeswax the country has the

potential to produce 50,000 tons (according to MOARD documents) and could generate 225

million USD if we compute it using the current average global price of honey; i.e. 4500USD/ton. This would clearly mean that the beekeepers will have the significant part of the

slice of the pie in terms of increasing household income for the poor farmer.

Demand for processed honey is influenced by population growth, income, and the export

potential. Population is growing at a rate of 3% and GDP in the past five years has increased

by 10%.

Table 4.2 Projected Demands for Honey in Ton at National Level

Year Quantity

2012 4,774

2013 5,251

2014 5,777


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2015 6.354

2016 6,990

2017 7,688

2018 8,457

2019 9,303

2020 10,233

2021 11,257

The demand projection shows that a number of plants can be established in various parts of

our country up to absorb the market.

At Regional level

Mekeles annual population growth rate is approximately 2.6 percent per annum. People

migrate to Mekele for better opportunities like, job, health and education. Tigray honey is

considered to be of superior quality, and it has a moderate climate due to its highland

position, which is favorable for honey production. The Mekelle region has a large bee

population (about 37 thousand bee colonies; 20 percent of the Tigray total). Tigray honey has

a special aroma that would provide a competitive advantage in niche markets. This means the

region have an opportunity to invest in honey processing company.

According to the countries average production of processed honey, currently the region hasthe ability to produceprocessed honey about 2000 tons per annum with increasing 10%

annually. Still now the region has only one honey processing company which is called DIMA

honey processing private limited company with the capacity of producing 120 tons/year.

4.3. Supply Analysis

The past five years some enterprises have been active to introduce table honey to Super

markets in Addis Ababa and other regional states.

The average price of the processed honey was birr 98/k.g. But currently the average price

increases to 130 birr per kilo gram.


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In the past five years Productivity of traditional honeybees is very low and only an average of

8-10 kg of honey could be cropped per hive per year. However, in areas where improved

technology and box hives have been introduced, an average of 25 30 kg/hive/harvest has

been recorded.

According to CSA (2009), House Hold Income, Consumption and Expenditure survey, the

per capital consumption of processed honey is about 60 grams. This indicates a national

consumption of about 4,340 tons.

The past progress of processed honey production in Ethiopia

According to ministry of trade and industry, there are only 25 honey producer companies In

Ethiopia, and only 1 company in Tigray. Tthe annual productivity in average increases 8%

annually.

Table 4.1 Number honey processing companies and their volume of production (2007-

2010)

Year Number of companies Their volume of Production

2007 23 3587

2008 24 3873

2009 25 4208

2010 25 4300

Source, Ministry of Trade and Industry (MTI) 2010

Export experience of processed honey in Ethiopia

The price of honey in Ethiopia is increasingly becoming less competitive with that of the

international price, especially when compared with those of China, and some Latin American

countries. In the last four years Ethiopia exports an average amount of 321 tons/year.

Table 6: Export of Honey and value generated (2006-2009)


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Year Quantity Value in birr

2006 250 7,500,000

2007 280 8,960,000

2008 312 10,606,000

2009 442 14,832,000

Average 321 10,474,000

Source: MOARD 2010

Projected supply for the next 10 Years

Supply for honey currently estimates about 4730 tons/year, then according to MOARD, 2010

production honey processing increases by 10% annually.

Table 4.2 Projected supply of honey in ton

Year Quantity

2012 4350

2013 4,823

2014 5,360

2015 5,949

2016 6,950

2017 7,660

2018 8,360

2019 8,960

2020 9,980

2021 11,213

4.4 Market Prospect

From the above tables, it can be deducted that there is a growing demand and supply gap

national level for honey processing company. Hence there is a room and an urgent need to

open a honey processing company expected to produce 81 tons of honey per year. Thinking

of the minimum situation, the number of honey processing companies (production capacity

needed

Table 4.4 Demand & Supply Gap for Honey Processing Companies


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Year Demand Supply Gap

2012 4350 4,774 424

2013 4,823 5,251 428

2014 5,360 5,777 417

2015 5,949 6,354 405

2016 6,950 6,990 40

2017 7,660 7,688 28

2018 8,360 8,457 97

2019 8960 9,303 343

2020 9980 10,233 253

2021 11,213 11,257 44

According to the projection, the number of honey processing company in the country for the

coming 10 consecutive years cannot satisfying the need of consumers.

In general, besides the favorable situation to the existing honey processing company, the

market prospect for honey processing is still wide open for new investors. But the question is

that demand is one thing and purchasing power of the consumers is the other which is the

most important factor to maximize profit. Hence accessing market would be important in this

regard.

4.5 Price Determination

It would important to examine the possible level of price based on the purchasing power of

the consumers and competitors action. The price of honey varies according to its colour,

purity and season. The price of processed table honey at supermarkets in Ethiopia varies

from Supermarket to supermarket. In this connection, the existing prices of similar hospitals

are assessed for the benefit of comparison. The price level DIMA, Beza, Tadele and Tesfu

honey processing companies are presented here;


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Table 4.5 price comparison

Name of the company Average price /kg

Dima 130

Beza 120

Tadele 125

Tesfu 110

Total average price 125/kg

Marketing Strategies

Grading, labeling, quality packaging and advertising will be key elements of the marketing

strategy. The company also wants to have an innovative approach of marketing by displaying

its quality products at the market. And the price of processed honey will be set at 100 birr/kg

in order to be competent.

4.6 Capacity Utilization

The capacity utilization is predictably assumed, in the first year, it is forecasted to be 70% of

the full capacity and then increased by 10% each year until it reaches 95% of attainable

capacity.

5. Organization, Management and Manpower

5.1. Organization and Management

The organizational structure should be in a way that the company able to achieve its

objectives as well as to the satisfaction of standard requirement.

Te project will have the following main functional units:

The major functions of the units in the organizational structure are presented in the nextsections. The detailed job descriptions, qualifications shall be worked of out during

implementation of the project

Under the company there will be 3 departments;


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The Administrative staff, which deals in general the company shall undertake planning,

coordination, and control of the overall activities of the project.

The Technical staffs will hold responsibilities of running Operations and technique

Assistant: this unit has responsible for the technical activities, purchasing and collection and

processing and logistics operations.

The Finance department is responsible for overall accounting and financial management of

the company.

5.2, Man Power

Maerey s honey processing PLC is in the category of medium scale manufacturing industry

known in the ministry of trade and industry (TAI) at high standard. Therefore, (TAI) criteria

have been taken to plan man power requirement of the company. Technical workers arecategorized in their area of study (specialties) and assumed to be 6 in number.

Administrative staff are considered as supportive personnel and expected to be 8, finance

staff is also assumed to be 5.Therefore, the total number of workers is assumed to be about

19 persons. In general the organizational and manpower arrangement is expected to provide

good working atmosphere in the companys day to day activities.


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5.3 Organizational Structure of the company

6. Financial Analyses

The financial analysis of the honey processing project is based on the data presented in the

previous sections and the following assumptions:-

Construction period 6 month

Source of finance 51 % equity

49 % loan

Bank interest 10%

Discount cash flow 10%

Accounts receivable 30 days 30 days

General Manager

Secretary

Technical staff Administration staffFinance staff


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6.1 Investment Costs and Sources of Finance

TABLE 6.1 Investment Costs and Sources of Finance

Total Cost Own contribution Bank loan

No. Cost Items Amount % Amount %

2 Building and Civil Work 1,500,000 - - 1,500,000 100

3 Plant Machinery and Equipment 3,000,000 1,500,000 50 1,500,000 50

4 Office Furniture and Equipment 200,000 200,000 100 - -

5 Vehicle 1,000,000 1,000,000 100 - -

Total initial fixed investment 5,700,000 2,700,000 47.36 3,000,000 52.63

6 Pre-production Expenditure 200,000 200,000 100 - -

7 Working Capital 215,900 215,900 100 - -

Total Investment cost 6,115,900 3,115,900 51 3,000,000 49

6.2 Results of Financial Forecasts

Profitability

The projected income statement revels that the project is profitable all throughout its life. The

annual net profit of about birr932,556 in the first year will steadily increase through time

and reaches about birr2,893,231 in year 10.

Financial Position

A project balance sheet of the corporation with bank additional financing shows quite good

financial position. The net worth,birr1,032,556 at the end of first year will increase to about

birr16,724,543 at the end of project years.


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Liquidity

The cash flow projection indicates an overall liquidity of the project. The cumulative cash

balance at the end of the project years would be about birr18,699,524.

Financial internal rate of return and net present value

This indicator measures the power of the project to generate return by comparing the result

either with opportunity cost of capital or the bank interest rate. The projected discount cash

flow has resulted in 30 % FIRR and the net present value at 10% discount rate is Birr

7,199,355 million.

This result indicates a very attractive rate of return and implies the capacity of the business to

accommodate any adverse situation.

Payback Period

The investment cost and income statement projection are used to project the pay-back period.

The projects initial investment will be fully recovered within 4 years.

IRR Sensitivity Analysis

The sensitivity analysis shows what will happen to the profitability of a project when there

are changes in the most sensitive parameters that have an influence on the results of the

project. Hence, it also shows the risks of the investments that have to be done.

The factors that will cause the highest risks for the profitability of the project are: Reduction

in Sales, Increase in Cost of Production and increase in Investment cost. The sensitivity

analysis carried out with the effect of these three parameters on the NPV and the FIRR of the

project is shown below.

(1)Reduction in sales: a 5% reduction in sales will make FIRR 25%a10% reduction in sales will make FIRR 16%

(2)Increase in operating costs: a 10% increase in production costs the FIRR becomes 26%a 20% increase in production costs the FIRR becomes 21%

(3)Increase in investment cost: a10% increase in investment costs the IRR becomes 28%a20% increase in investment costs the IRR becomes 25%


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7. Risk Analysis

Based on the type of businesses and the request facility, the following risks are identified and

the corresponding mitigates are given here under. The risks were drawn from the universally

accepted lending policies.

7.1 Characteristics (Personal Risk)

This is the most important risk, which should be seriously considered. As to this company,

the owner and the manager have sufficient years of work experience in both government and

private organizations.

7.2. Business Risk

The fate of the business, which is the company production generally found to be dependable.

The demand-supply analysis exhibits the need of the production of the company. Generally,

competitors and their pricing will have a direct effect on the potential of firms trade

opportunities. However, According to the overall demand of honey processing companies in

Tigray, the effect of competitors in the sector would not be an immediate alarming threat for

the coming few years.

7.3 Collateral Risk

Collateral risk is the second way out in case of any failure in loan repayment. In this regard,

the company building and the machineries and the business as a whole are dependable

securities. The debt to register able collateral (building) ratio is found to be above 1:2

excluding machineries equipments, other fixed assets and the business mortgage part.

Therefore, there is little risk regarding collateral.

7.4. Construction Risk

The construction work of the honey processing company building will be made by phase

with the owner supervision. Hence, there is no as such serious risk related to construction

work.


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All the identified risks which are related to the university accepted lending policies, are to the

acceptable level that keeps the lenders interest in a safe position. In addition, the quality of

the assets of the company is dependable and the projected financial reports imply a good

leverage condition that the company will have a capacity to pay the principal and interest

without any problem.

8. Summary, Conclusion

Maerey honey processing PLC is a business organization at medium scale processing

industry level. It is located in Tigray region in Mekele city, Kebele 18. It is registered with a

capital of birr6.1 million

The owners of the company are W/rt Addisababa worku and w/ro Zewditu Hagos. W/rt

Addisababa worku is the manager of the company. She is well experienced and capable of

running the company without any problem.

The owners the company contributed 3.1 million birr. Now they intended to construct

through external financing. They have agreed to borrow birr 3 million.

The project area has suitable infrastructure such as access for transportation, and it is

assumed that necessary utilities like electric power, water, telephone and accessible road are

there. The raw materials like crude honey and other inputs for the production process are

readily available in the Mekele region market.

According to the resource potential study of the region, the raw material is identified in most

parts of the Tigray region. The Tigray region is nationally considered high quality producer

of honey (white & butter colour) when compared to other Regions of our country, and also

based on the availability of raw material (crude honey).

The company would supply processed packed honey and wax for beneficiaries. Raw

materials like crude honey and chemicals are sufficiently available on time for the purpose of

facilitating the production.

One of the Social benefits of the project is creates job opportunities. The planed manpower of

the project amounts to 19.these will create jobs that will contribute to the reducing of


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alarming unemployment growth rate in the country. The employees will benefit from salaries

and wages, while the project owner and Gov.ts shall gain revenue from the project.

Cross cutting issues: The project has given high emphasis for the HIV/ADIS, Gender issues

mainstreams. The project gives attention for to protecting the diseases and creates the

awareness of gender mainstreaming by giving the chance to discuss monthly within the

employees.

The company establishes for the processing of honey with a capacity of 90 tons per annum.

The present demand for the proposed product in Ethiopia is estimated at 4,340 tons per

annum. The demand is expected to reach at 11,257 by the year 2020.

The plant will create employment opportunities for 19 persons. The total investment

requirement is estimated at about Birr 6.1million, out of which Birr 3 million is for plant and

machinery, 1.5 million for building and civil works.

The projected income statement reveals that the annual profit that the annual profit will

increase from birr932,556 in 2005 E.C to birr 2,893,231 at the end in year 2014E.C. The

average net income will be 1,888,952.The net worth will be about birr717,556 at the end of

2005 E.C and reaches birr 18,584,524 at the end of projected years. The cash flow forfinancial planning indicates that the project will not face any liquidity problem. The project is

financially viable with financial internal rate of return (FIRR) of30 % & its benefit cost ratio

is1.298.

Moreover, the sensitivity analysis for financial analysis exhibited that the business will be

safe to the Extent of more than 20 % decrease of sales or20 % increase in fixed assets or

operating costs. The initial investment can safely be recovered until the end of 4th

year. In

general, the projected financial results justify the acceptance of the intended business.

The project economic analysis shows that it has a great contribution in generating national

income. The Economic internal rate of return (EIRR) is 62% & its present value is birr


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18,129,023. the benefit cost ratio is 1.589.This shows high contribution to the national

economy besides its financial viability.

The economic impact of project in terms of the main socio-economic benefits that company

is going to generate Livelihoods and food security of the area via being source of

income/market for the surrounding farmers and generation of employment, enhancing the

productivity of honey production in the region ,can be considered as elements of contribution

as a whole.

Loan Needed

Based on the overall assessments of the project, the medium processing industry requires a

loan of birr 3,000,000 from external sources to half cover for the machineries and fully cover

the building construction that would be located in Tigray region in Mekele city, Kebele 18.

As the detail assessment results shows the Loan will be settled without any problem.

Terms of Loan

Disbursement: The loan is proposed to be transferred to the account of the companyin three phases (installment).

Loan repaymentA, principal repayment

The principal amount of birr 3,000,000 shall be repaid in 60 equal monthly installments.

B, interest payment: 10 % of the loan per annum on the outstanding balance is payable on

monthly basis together with the principal repayment amount.

C, other bank charges: 0.5 % of the loan per annum outstanding balance payable on

monthly basis.

D, Grace period: 1 year from the date of loan disbursement.

9. Assumptions Employed in the Project Financial Analysis

9.1 Operating Costs

Salaries . 266,640


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Repair and maintenance 2 % of the fixed assets

UTILITIES:

Electric power and water are the two basic utilities required by the plant. When the plant

operates at full capacity, it will require 18,025 kWh of electric power and 10,500 litter

Furnace oil. Likewise, the plant is expected to consume 180 m3

of water per annum.

Estimated annual Utility cost

Fuel and lubricant 450 liters x12x21113,400 birr Supplies 10,000 birr Insurance 1% of the fixed investment 57,000 birr and

No. Cost Items Value in birr Repair and maintenance

1 Building and Civil Work 1,500,000 30,0000

2 Plant Machinery and Equipment 3,000,000 60,000

3 Furniture and fixture 200,000 4,000

4 Vehicles 1,000,000 20,000

Total fixed Investment cost 5,700,000 114,000

Annual Cost

No. Description Measure Consumptio

n

Unit

cost

Total cost

1 Electric power kWh 18,025 1 18,025

2 Water M 1,800 10,800

3 Communication 6,000

4 Furnace oil Liter 10,500 6.5 68,250

Total 103,075


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2 % of the salaries of the employees . 4,848 birr

Uniform and Gowns 10 gowns x 100 =100 birr and 4 uniforms for two

guards x 300 = 1200 birr

Annual Depreciation Straight Line Method

Interest rate .. 10% the loan Sales tax 15% Corporate tax . 35% of net income Miscellaneous expenses6,000

9 .2 Capacity Utilization

Production is assumed to be commence at 70 % of installed capacity and increased by 10 %

each year until it reaches the assumed attainable capacity, 90 %

No. Cost Items Original values Depreciation

rate

Depreciated

value per year

1 Building and Civil Work 1,500,000 5 75,000

2 Plant Machinery and Equipment 3,000,000 5 150,000

3 Office Furniture and fixture 200,000 10 20,000

4 Vehicle 1,000,000 20 50,000

5 Pre-production Expenditure 200,000 20 40,000

Total Investment cost 5,900,000 385,000


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9.3. Revenue

9.4 Disbursement

At the time of building construction starts = birr 1,500,000

At the purchasing period of the fixed assets = birr 1,500,000

3,000,000

Equity contribution: . Birr 3,115,900 Repayment is assumed to begin a year later as it began Grace period would be one year after first disbursement. Number of repayments 60 equal monthly repayments.

Initial working capital 1 month salaries 22, 220 Raw material and inputs 176,610 Supplies .. 830 Utilities5,690 Fuel and lubricant .9,450 Uniforms and gowns.. 1,100

Total. 215,900

Man power requirement

The proposed project will require 16 employees of whom 10 are direct production workers

and 6 are administrative workers. The annual labour cost of the project is estimated to be

No. Types of goods sold Income at

100 %

Income at 70

%

Income at

80%

Income at

90 %

1 Processed honey 8,100,000 5,670,000 6,480,000 7,290,000

2 Wax 567,000 396,900 453,600 510,300

Total 8,667,000 6,066,900 6,933,600 7,800,300


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266,640 Birr. The list of employees together with the corresponding salary cost is presented

in

Table 9.1.10 Technical, Administrative accounting and finance staffs salaries

Machinery, office equipments, furniture and medical equipment

No. of persons

Salary ( Birr)

No. Position Monthly Annual

1 Plant manager 1 2500 30,000

2 Personnel 1 1200 14,400

3 Chemist 1 1500 18,000

4 Secretary 1 1000 12,000

5 Purchaser 2 2*1000 24,000

6 Sales man 1 800 9,600

7 Casher 1 1000 12,000

8 Quality controller 1 1200 14,400

9 Accountant 1 1400 16,800

10 Operator-mechanics 1 1400 16,800

11 Production workers 3 3*1000 36,000

12 Guards 2 2*400 9,600

13 Cleaner 1 400 4,800

14 Drivers 2 2*1000 24,000

Sub Total 20,200 242,400

Workers benefit (10% of Basic

salary)

19 2,020 24,240

Grand total - 22,220 266,640


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A. Machinery & Office Equipments

No. Description

1 Liquefier

2 Filter press

3 Falling film Evaporator

4 Vacuum pump

5 Storage/settling tank

6 Water circulation pump

7 Pre heating tank

8 Processing tank

9 Cooling tank/condenser

10 Moisture condensing tank

11 Honey circulation SS gear pump

12 Insulation (Optional)

13 Control panel, Level indicators, pressure gauges, temperature

gauges, SS pipes and fittings.

14 Computers and printers

B, furniture and Fixture

No. Description

1 Furniture

2 Chairs and table tables


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C, Annual raw material and input requirement

D. Building and Civil Works

The plant requires a total of 600 m2 area of land out of which 300 m2 is built-up area which

includes Processing area, raw material stock area, offices etc. The total cost of construction is

estimated to be Birr1,452,000. The total cost, for a period of80 years with cost of Birr 1 per

m2

, is estimated at Birr 48,000. The total investment cost for land, building and civil works is

estimated at Birr1,500,000.

No. Description Unit of

measure

Qty Unit Cost in

Birr

Total Cost in

Birr

1 Crude honey kg 45,000 50 2,250,000

2 Sanitary chemicals kg 1,200 9 10,800

4 Glass jars pc 63,000 1 63,000

5 Plastic containers pc 50 200 10,0008 Cartons pc 4,340 5 21,700

10 Labels pc 45,000 0.1 4,500

Total 2,344,400


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10. Annexes for financial and economic analysis

10.1 Financial analysis projections

10.1.1 Total investment costs

Description/year 0 1 2 3 4 5 6 7 8 9 10

Total fixed investment costs 5,700,000 0 0 0 0 0 0 0 0 0 0

Total pre production expenditures 200,000 0 0 0 0 0 0 0 0 0 0

Increase in net working capital 0 215,900 21,590 23,749 26,124 28,736 31,610 34,771 38,248 42,073 46,2

Total investment costs 5,900,000 215,900 21,590 23,749 26,124 28,736 31,610 34,771 38,248 42,073 46,2


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10.1.2 Operating costs projection

Description/year 1 2 3 4 5 6 7 8 9 10

Salary and wages 266,640 293,304 322,634 354,898 390,388 409,907 430,402 451,922 474,519 498

Cost of Goods sold 2,250,000 2,475,000 2,722,500 2,994,750 3,294,225 3,623,648 3,986,012 4,384,613 4,823,075 5,3

Supplies 10,000 11,000 12,100 13,310 14,641 16,105 17,716 19,487 21,436 23,

Repair and

maintenance

114,000 125,400 137,940 151,734 166,907 166,907 166,907 166,907 166,907 166

Utilities 103,075 113,383 124,721 137,193 150,912 150,912 150,912 150,912 150,912 150

Fuel and lubricant 113,400 124,740 137,214 150,935 166,029 166,029 166,029 166,029 166,029 166

Insurance 61,848 61,848 61,848 61,848 61,848 61,848 61,848 61,848 61,848 61,

Gowns and uniforms 2,200 2,420 2,662 2,928 3,221 3,221 3,221 3,221 3,221 3,22

Miscellaneous 6,000 6,300 6,615 6,946 7,293 7,293 7,293 7,293 7,293 7,29

Depreciation 385,000 385,000 385,000 385,000 385,000 345,000 345,000 345,000 345,000 345

Financial costs 300,000 240,000 180,000 120,000 60,000 0 0 0 0 0

Package costs 110,000 121,000 133,100 146,410 161,051 161,051 161,051 161,051 161,051 161

Total operating costs 3,455,523 3,666,091 3,903,700 4,171,054 4,471,128 4,702,014 5,065,989 5,466,362 5,906,772 6,3


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10.1.3 Revenue projection

Description/Year 1 2 3 4 5 6 7 8 9 10

Gross Revenue

6,066,90

0

6,933,6

00

7,800,3

00

8,190,3

15

8,599,8

31

9,029,8

22

9,481,3

13

9,955,3

79

10,453,

148

10,975,

805

Less Sales Tax (15%) 910,035

1,040,0

40

1,170,0

45

1,228,5

47

1,289,9

75

1,354,4

73

1,422,1

97

1,493,3

07

1,567,9

72

1,646,3

71

Net Revenue

5,156,86

5

5,893,5

60

6,630,2

55

6,961,7

68

7,309,8

56

7,675,3

49

8,059,1

16

8,462,0

72

8,885,1

76

9,329,4

35

10.1.4 Cash flow for financial planning

Description/Year

0 1 2 3 4 5 6 7 8 9 10 Scrap 11

Total cash inflow 6,115,900 5,372,765 5,915,150 6,654,004 6,987,892 7,338,592 7,706,959 8,093,887 8,500,320 8,927,249 9,375,715 2,250,000

Inflow funds 6,115,900 215,900 21,590 23,749 26,124 28,736 31,610 34,771 38,248 42,073 46,280

Inflow operation 5,156,865 5,893,560 6,630,255 6,961,768 7,309,856 7,675,349 8,059,116 8,462,072 8,885,176 9,329,435

salvage value 2,250,000

Total cash outflow 6,115,900 4,655,209 4,872,943 5,306,455 5,619,612 5,962,170 6,081,606 6,233,454 6,393,106 6,560,970 6,737,484 0

Increased in fixed assets 5,900,000

Increased in current assets 215,900 215,900 21,590 23,749 26,124 28,736 31,610 34,771 38,248 42,073 46,280

Operating costs 3,037,163 3,334,395 3,661,334 4,020,952 4,416,515 4,437,498 4,459,604 4,482,896 4,507,440 4,533,310

Income corporate tax 502,146 676,958 841,372 852,536 856,919 1,012,498 1,139,079 1,271,962 1,411,457 1,557,894

financial costs 300,000 240,000 180,000 120,000 60,000 0 0 0 0 0

loan repayment 600,000 600,000 600,000 600,000 600,000 600,000 600,000 600,000 600,000 600,000

Surplus 717,556 1,042,208 1,347,549 1,368,280 1,376,422 1,625,353 1,860,433 2,107,215 2,366,278 2,638,231 2,250,000

Cumulative cash balance 717,556 1,759,764 3,107,312 4,475,592 5,852,014 7,477,367 9,337,800 11,445,015 13,811,293 16,449,524 18,699,524


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10.1.5 Income Statement Projection

Description/Year 1 2 3 4 5 6 7 8 9 10

Revenue 5,156,865 5,893,560 6,630,255 6,961,768 7,309,856 7,675,349 8,059,116 8,462,072 8,885,176 9,32

Less Operating

costs 3,422,163 3,719,395 4,046,334 4,405,952 4,801,515 4,782,498 4,804,604 4,827,896 4,852,440 4,87

Operational

margin 1,734,702 2,174,166 2,583,921 2,555,816 2,508,341 2,892,851 3,254,512 3,634,177 4,032,735 4,45

In % of Revenue 34 37 39 37 34 38 40 43 45 48

Financial Cost 300,000 240,000 180,000 120,000 60,000 0 0 0 0 0

Gross Profit from

Operation 1,434,702 1,934,166 2,403,921 2,435,816 2,448,341 2,892,851 3,254,512 3,634,177 4,032,735 4,45

In % of Revenue 28 33 36 35 33 38 40 43 45 48

Income (Corporate

Tax) 502,146 676,958 841,372 852,536 856,919 1,012,498 1,139,079 1,271,962 1,411,457 1,55

Net Profit 932,556 1,257,208 1,562,549 1,583,280 1,591,422 1,880,353 2,115,433 2,362,215 2,621,278 2,893

Net worth 717,556 1,974,764 3,537,312 5,120,592 6,712,014 8,592,367 10,707,800 13,070,015 15,691,293 18,58

In % of Revenue 18 21 24 23 22 24 26 28 30 31

Ratios (%):

Net Profit to equity 30 31 36 34 34 40 42 45 48 50

Net profit to Net

Worth 130 64 44 31 24 22 20 18 17 16

Net Profit +

Interest to

Investment 20 24 28 28 27 30 34 37 41 45


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10.1.6 Cash Flow Projection for Discounting

Description/Year 0 1 2 3 4 5 6 7 8 9 10 Scr

otal cash inflow 0 5,156,865 5,893,560 6,630,255 6,961,768 7,309,856 7,675,349 8,059,116 8,462,072 8,885,176 9,329,435 2,25

nflow operation 0 5,156,865 5,893,560 6,630,255 6,961,768 7,309,856 7,675,349 8,059,116 8,462,072 8,885,176 9,329,435

alvage value 0 0 0 0 0 0 0 0 0 0 0 2,25

otal cash outflow 6,115,900 3,755,209 4,032,943 4,526,455 4,899,612 5,302,170 5,481,606 5,633,454 5,793,106 5,960,970 6,137,484

ncreased in fixedssets 6,115,900 0 0 0 0 0 0 0 0 0 0

ncreased in net work

apital

215,900

21,590 23,749 26,124 28,736 31,610 34,771 38,248 42,073 46,280

Operating costs 0 3,037,163 3,334,395 3,661,334 4,020,952 4,416,515 4,437,498 4,459,604 4,482,896 4,507,440 4,533,310

ncome (corporate)

ax 0 502,146 676,958 841,372 852,536 856,919 1,012,498 1,139,079 1,271,962 1,411,457 1,557,894

Net Cash Flow 6,115,900 1,401,656 1,860,618 2,103,800 2,062,156 2,007,686 2,193,743 2,425,663 2,668,967 2,924,206 3,191,951 2,25

umulative net cash

ow 6,115,900 4,714,244 2,853,627 -749,827 1,312,329 3,320,015 5,513,758 7,939,421 10,608,387 13,532,593 16,724,543 18,9

Net Present Value

At 10% 7,199,355

nternal Rate Of

eturn 30%

ay Back Period 4 years


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10.1.7 Sensitive analysis

Description IRR

Sales Decreased by 5 % 25

Sales Decreased by 10% 16

Operating Costs increased by

10 % 26

Operating Costs increased by

20% 21

Fixed Assets Increased by

10 % 28

Fixed Assets Increased by 25


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10.2 Economic analysis

10.2.1 Initial investment costs

Description financial costs Conversion factor economic price

Building and Civil Work 1,500,000 0.610 915,000

Plant Machinery and Equipment 3,000,000 1.019 3,057,000

Office Furniture and Equipment 200,000 1.000 200,000

Vehicle 1,000,000 0.824 824,000

Total fixed investment costs 5,700,000 4,996,000

Pre-production Expenditure 200,000 1.000 200,000

Working Capital

Salaries

For skilled labour 20,900 0.810 16,929


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For unskilled labour 1,320 0.390 515

Raw material and inputs 176,610 1.000 176,610

Supplies 830 0.880 730

Utilities 1,897 1.430 2,713

Fuel oil 3,793 0.866 3,285

Fuel and lubricant 9,450 1.050 9,923

Uniforms and gowns 1,100 0.698 768

Total working capital 215,900 211,472

Grand total investment costs 6,115,900 5,407,472


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10.2.2 Operating Costs

Description Financial costs

Conversion

factor economic price

Salaries

For skilled labour 250,800 0.810 203,148

For unskilled labour 15,840 0.390 6,178

Cost of Goods sold(crude honey) 2,250,000 1.00 2,250,00

Supplies 10,000 1.00 10,000

Repair and maintenance 114,000 1.000 114,000

Utility 34,825 1.430 49,800

Fuel oil 68,250 0.866 59,105

Fuel and lubricant 113,400 1.050 119,070

Uniform and Gowns 2,200 0.698 1,536

Miscellaneous 6,000 1.000 6,000

Sanitary Chemicals 10,800 0.88 9,504

Plastic & Glass jars 63,000 0.863 54,369

Plastic Containers 10,000 0.863 8,630

Cartons 21,700 0.883 19,161

Labels 4,500 0.883 3,974

Total operating costs 2,975,315 2,914,473


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10.2.3 Revenue projection

Types of goods

sold 1 2 3

4 5 6 7 8 9

Processed

honey and bee

wax

6,066,900 6,673,590 7,340,949 8,075,044 8,478,796.10 8,902,735.90 9,347,872.69 9,815,266.33 10,306,029.65 10,82

10.2.4 Operating cost projection

Salaries 1 2 3 4 5 6 7 8 9 1

For skilled labour 203,148 223,463 245,809 270,390 283,909 298,105 313,010 328,661 345,094 3

For unskilled labour 6,178 6,796 7,475 8,223 8,634 9,066 9,519 9,995 10,495 1

Cost of Goods sold 2,250,000 2,475,000 2,722,500 2,994,750 3,144,488 3,301,712 3,466,797 3,640,137 3,822,144 4

Supplies 10,000 10,000 10,000 10,000 10,500 11,025 11,576 12,155 12,763 1

Repair and maintenance 114,000 125,400 137,940 151,734 159,321 167,287 175,651 184,434 193,655 2

Utility 49,800 49,800 54,780 60,258 63,271 66,434 69,756 73,244 76,906 8

Fuel oil 59,105 65,016 71,517 78,669 82,602 86,732 91,069 95,622 100,403 1

Fuel and lubricant 119,070 130,977 144,075 158,482 166,406 174,727 183,463 192,636 202,268 2

Uniform and Gowns 1,534 1,687 1,856 2,042 2,144 2,251 2,364 2,482 2,606 2


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Miscellaneous 6,000 6,600 7,260 7,986 8,385 8,805 9,245 9,707 10,192 1

Sanitary chemicals 9,504 10,454 11,500 12,650 13,282 13,946 14,644 15,376 16,145 1

Plastic & glass jars 54,369 59,806 65,786 72,365 75,983 79,783 83,772 87,960 92,358 9

Plastic containers 8,630 9,493 10,442 11,487 12,061 12,664 13,297 13,962 14,660 1

Cartons 19,161 21,077 23,185 25,503 26,778 28,117 29,523 30,999 32,549 3

Labels 3,974 4,371 4,809 5,289 5,554 5,832 6,123 6,429 6,751 7

Total operating costs 2,914,473 3,199,940 3,518,934 3,869,828 4,063,319 4,266,485 4,479,809 4,703,800 4,938,990 5

10.2.5 Cash Flow Projection for Discounting

Description/Ye

ar 0 1 2 3 4 5 6 7 8 9 10 11

Total cash

inflow

0 6,066,90

0

6,673,5

90

7,340,9

49

8,075,0

44

8,478,796 8,902,73

6

9,347,8

73

9,815,2

66

10,306,0

30

10,821,

331

2

Inflow

operation

0 6,066,90

0

6,673,5

90

7,340,9

49

8,075,0

44

8,478,796 8,902,73

6

9,347,8

73

9,815,2

66

10,306,0

30

10,821,

331

Salvage value 0 0 0 0 0 0 0 0 0 0 0 2,

Total cash

outflow

5,407,472 3,125,94

5

3,497,3

68

3,847,1

04

4,231,8

15

4,267,080 4,480,43

4

4,704,4

56

4,939,6

78

5,186,66

2

5,445,9

96


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Increased in

fixed assets

5,407,472 0 0 0 0 0 0 0 0 0 0

Increased in net

working capital

0 211,472 291,44

7

320,59

2

352,65

1

193,958 203,656 213,839 224,531 235,757 247,54

5

Operating costs 0 2,914,47

3

3,205,9

20

3,526,5

12

3,879,1

64

4,073,122 4,276,77

8

4,490,6

17

4,715,1

48

4,950,90

5

5,185,9

39

Net Cash Flow (5,407,472) 2,940,95

5

3,176,2

22

3,493,8

45

3,843,2

29

4,211,716 4,422,30

2

4,643,4

17

4,875,5

88

5,119,36

7

5,375,3

36

2,

cumulative net

cash flow

(5,407,472) (2,466,5

17)

709,70

5

4,203,5

50

8,046,7

79

12,258,49

5

16,680,7

97

21,324,

214

26,199,

802

31,319,1

69

36,694,

505

38

Net Present

Value At 10%

18,129,0

23

Internal Rate

Of return

62%

Pay Back

Period


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addis and zewditu project final (repaired)

Documents