121.

PROFILE ON CANDLE

121-2
TABLE OF CONTENTS
PAGE
I.

SUMMARY

121-3

II.

PRODUCT DESCRIPTION & APPLICATION

121-3

III.

MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY
B. PLANT CAPACITY & PRODUCTION PROGRAM

121-4
121-4
121-7

IV.

MATERIALS AND INPUTS

A. RAW & AUXILIARY MATERIALS
B. UTILITIES

121-7
121-7
121-8

V.

TECHNOLOGY & ENGINEERING

121-9

A. TECHNOLOGY
B. ENGINEERING

121-9
121-10

VI.

MANPOWER & TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT
B. TRAINING REQUIREMENT

121-13
121-13
121-14

VII.

FINANCIAL ANLYSIS
A. TOTAL INITIAL INVESTMENT COST
B. PRODUCTION COST
C. FINANCIAL EVALUATION
D. ECONOMIC BENEFITS

121-14
121-14
121-15
121-16
121-18

121-3
I.

SUMMARY

This profile envisages the establishment of a plant for the production of candles with a
capacity of 100 tons per annum. A candle is a long slender cylindrical mass typically of
tallow or wax containing a wick of loosely twisted linen or cotton threads and which is
burned to give light.
The major raw materials used in candle making are paraffin wax, stearin acid, beeswax,
wicks and dyes. Except beeswax and wicks all the other raw materials have to be
imported.
Candles are used for lighting in areas where there is no electricity and during power
interruptions. In addition, candles are used in traditional and religious ceremonies, hotels,
restaurants and the like during special occasions. Hence, its demand will exist even if
other types of lightings are available. The past supply trend also reveals that consumption
has been increasing in the past few years. The present demand for the product is
estimated at 1,857 tons per annum. The demand is expected to reach at 2,749 tons by the
year 2017.
The total investment requirement is estimated at Birr 3.16 million, out of which Birr 500
thousand is required for plant and machinery. The plant will create employment
opportunities for 8 persons.
The project is financially viable with an internal rate of return (IRR) of 25.56 % and a net
present value (NPV) of Birr 2.16 million, discounted at 8.5%.

II.

PRODUCT DESCRIPTION AND APPLICATION

Candle is an illuminating material made of a fiber wick enclosed in a cylinder of wax or

fatty material. Beeswax candles were used by the Romans, and tallow (animal fat)
candles have been made in Europe since the middle Ages. In the 18th century,
spermaceti, a wax obtained from the heads of whales, was introduced for candles. Since

121-4
the mid-19th century, ordinary candles have been made from mixtures of paraffin wax,
stearic acid (a solid fatty acid), and beeswax. Hydrogenated vegetable oils and other
waxes are also used.
It is highly desirable in rural areas where there is no electric light. Candles are also used
in traditional and religious ceremonies and also in hotels and restaurants.
III.

MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Past Supply and Present Demand

The source of supply of candles is both domestic production and import. Candles that are
supplied to the Ethiopian market from domestic production and import in the past seven
years is given in Table 3.1.
Table 3.1
IMPORTED AND DOMESTIC PRODUCTION OF CANDLES (TONS)
Year
Import1
1999/00
326.0
2000/01
1.230.8
2001/02
919.1
2002/03
1,986.3
2003/04
669.8
2004/05
1,967.8
2005/06
1,073.2
Source:- 1. Ethiopian Customs Authority

Domestic2
769
559
677
614
437
310
373 *

Total
1,095.0
1,789.8
1,569.1
2,600.3
1,106.8
2,277.5
1,446.2

2. Central Statistical Authority

* Since domestic production data is not available for the year 2005/06 the
average of 2003/04 and 2004/05 is taken.
As could be observed from Table 3.1, import of candles in the past seven years has been
very erratic. Import of candles during the period 1999/00 has been 326.0 tons. This has
increased by about 3.8 times and reached 1,231 tons by the year 2000/01 and again

121-5
declined to 919 tons by the year 2001/02. During the year 2002/03, the imported quantity
was about 1,986 tons. Compared to the previous year, the quantity of imported candles is
more than double. In the following year i.e. 2003/04 the imported quantity has again
declined to about 670 tons. During the recent two years 2004/05 and 2005/06, imported
quantity ranged from 1,073 tons to 1,968 tons respectively.

Despite the higher

fluctuations, the annual average level of import during the past four years is calculated to
be 1,424 tons.
With regard to domestic production the general trend has been declining. Domestic
production during the year 1999/00 was 769 tons. During the period 2000/01-220/03, the
annual average production has declined to about 617 tons. The declining trend has
continued in the following two years and production was registered 437 tons and 310 tons
by the year 2003/04 and 2004/05, respectively.
In general, the supply of candle to Ethiopian market in the past four years from import
and domestic production was 77% and 23%, respectively.
To determine the current effective demand (2008), the recent four years average apparent
consumption has been considered. Accordingly, current demand for candles in Ethiopia
is estimated at 1,857 tons.
2.

Projected Demand

One of the uses of candles is for lighting in areas where there is no electricity. In
addition, candles are used in traditional and religious ceremonies, hotels, restaurants and
the like for illuminating occasions. Hence, its demand will exist even if other types of
lightings are available whether in rural or urban areas. The past supply trend also reveals
that despite the expansion of electricity the consumption of candle has been increasing in
the past few years. By associating with population and the service sector, an annual
average growth rate of 4% is taken to project the future demand (see Table 3.2).

121-6
Table 3.2
PROJECTED DEMAND FOR CANDLES (TONS)
Year

Total Projected

Domestic

Unsatisfied

2008
2009
2010
2011
2012
2013
2014
2015
2016
2017

Demand
1,931
2,008
2,089
2,172
2,259
2,350
2,444
2,541
2,643
2,749

Production
373
373
373
373
373
373
373
373
373
373

Demand
1,558
1,635
1,716
1,799
1,886
1,977
2,071
2,168
2,270
2,376

Due to the existence of wide unsatisfied demand, a number of small to medium scale
plants can be established in the City.
3.

Pricing and Distribution

The average producers price per tonne of candle as per CSA, Survey of Medium and
Large Scale Manufacturing and Electricity Industry, Oct.2007 is Birr 100,008. This price
is taken for financial analysis.
The product will find its market outlet through the existing general merchandize
wholesalers.
B.

PLANT CAPACITY AND PRODUCTION PROGRAM

1.

Plant Capacity

The proposed annual processing capacity of the envisaged plant, only taking a share of
6.0 % to the forecasted demand of the year 2009, is 100 tons based on 300 working days

121-7
a year and a single shift of 8 hours per day. The capacity can be increased by increasing
the number of working hours per day.
2.

Production Program

The production program is indicated in Table 3.3. Therefore, in the first and second year
of production, the capacity utilization rate will be 75% and 85%, respectively. In third
year and thereafter, full capacity (100%) production shall be attained.
Table 3.3
PRODUCTION PROGRAM
Sr.
No.
1.
2.

Product
1
Candles (tons)
Capacity utilization (%)

IV.

MATERIALS AND INPUTS

A.

RAW & AUXILIARY MATERIALS

Production Year
2
3-10

75
75

85
85

100
100

The major raw materials used in candle making are paraffin wax, stearin acid, beeswax,
wicks and dyes. Except beeswax and wicks, all the other raw materials have to be
imported. It is believed that paraffin wax can be easily obtained from refineries in the
neighboring Sudan.
Table 4.1
RAW & AUXILIARY MATERIALS REQUIREMENT AND COST
(AT FULL CAPACITY)

121-8
Sr.

Description

Qty.

Cost (000 Birr)

No.
1
2
3
4
5

B.

Paraffin wax (tons)

Beeswax (tons)
Wick (tons)
Stearin acid (tons)
Dyes (kg)
Grand Total

89.25
5.25
2
10.5
50

FC
471.99
34.4
701.25
1207.64

LC
83.29
228.72
85.93
6.1
123.75
527.79

TC
555.28
228.72
85.93
40.5
825
1735.43

UTILITIES

The major utilities of the envisaged project are electricity and water.

The annual

consumption and cost of utilities is indicated in Table 4.2.The total annual cost of utilities
is estimated at Birr 14,616.
Table 4.2
ANNUAL UTILITIES REQUIREMENT AND COST
Sr.

Utility

Unit of Measure

Qty.

Unit cost

Total cost

Electricity

kWh

24,000

0.4736

11,366

Water

m3

1,000

3.25

3,250

No.

Total

14,616

121-9
V.

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Production Process

Candle making involves simple operations, i.e., mixing of the ingredients, melting,
molding, and insertion of wicks, cooling, ejection and packing. The manufacturing
process can be described briefly as follows:
Paraffin wax is melted over slow fire in a melting pan. In the meanwhile, the wick is
tied in the mould and the parts of the mould closed tightly with clamps. When the wax
has melted, it is powered with small tumbler having the upper rim bent like a lap, into the
moulds cavities up to the rim. Then these moulds are transferred to cooling trays where
the wax hardens in about 15 minutes.
The moulds are then opened, wicks cut with sharp knives and unnecessary wax is
stripped off from the upper portion of the mould.
In the above, however, if colored candles are desired, wax soluble dyes may be added to
the molten wax. When the candles are ready, they are packed in cardboards boxes before
sending to the market for sale. The process employed in the production of candles is
environmental friendly.
2.

Source of Technology

The equipments and moulds required by the envisaged project can be obtained from
locally available workshops capable of manufacturing a product as per products
specification.

121-10

B.

ENGINEERING

1.

Machinery and Equipment

The list of equipments of the project is indicated in Table 5.1.

The total cost of

machinery and equipment is estimated at Birr 0.5 million, all are in local currency.
Table 5.1
MACHINERY AND EQUIPMENT REQUIREMENT FOR CANDLE MAKING
WITH ESTIMATED COST
Sr.

Description

No.
1 Melting pot of aluminum with electric

Qty.
(No.)
1

heater
2 Moulds

10

3 Weighing scale

Cost (000 Birr)

FC
LC
TC
150

150

250

250

30

30

30
40
500

30
40
500

4 Tools
5 Bucket
Grand Total
2.

set
10

Land, Building and Civil Works

The total land requirement of the project is about 500m 2, out of which built-up area is
200m2. Out of the total built-up area, 100m2 will be covered by production building, 50m2
by store and 50m2 by office building. The total construction cost of building, assuming a
construction rate of Birr 2,300 per m2 is estimated at Birr 460,000.

121-11
According to the Federal Legislation on the Lease Holding of Urban Land (Proclamation
No 272/2002) in principle, urban land permit by lease is on auction or negotiation basis,
however, the time and condition of applying the proclamation shall be determined by the
concerned regional or city government depending on the level of development.
The legislation has also set the maximum on lease period and the payment of lease
prices. The lease period ranges from 99 years for education, cultural research health,
sport, NGO , religious and residential area to 80 years for industry and 70 years for trade
while the lease payment period ranges from 10 years to 60 years based on the towns
grade and type of investment.
Moreover, advance payment of lease based on the type of investment ranges from 5% to
10%.The lease price is payable after the grace period annually. For those that pay the
entire amount of the lease will receive 0.5% discount from the total lease value and those
that pay in installments will be charged interest based on the prevailing interest rate of
banks. Moreover, based on the type of investment, two to seven years grace period shall
also be provided.
However, the Federal Legislation on the Lease Holding of Urban Land apart from setting
the maximum has conferred on regional and city governments the power to issue
regulations on the exact terms based on the development level of each region.
In Addis Ababa the Citys Land Administration and Development Authority is directly
responsible in dealing with matters concerning land.

However, regarding

the

manufacturing sector, industrial zone preparation is one of the strategic intervention

measures adopted by the City Administration for the promotion of the sector and all
manufacturing projects are assumed to be located in the developed industrial zones.
Regarding land allocation of industrial zones if the land requirement of the project is
blow 5000 m2 the land lease request is evaluated and decided upon by the Industrial Zone
Development and Coordination Committee of the Citys Investment Authority. However,

121-12
if the land request is above 5,000 m 2 the request is evaluated by the Citys Investment
Authority and passed

with recommendation to the Land Development and

Administration Authority for decision, while the lease price is the same for both cases.
The land lease price in the industrial zones varies from one place to the other. For
example, a land was allocated with a lease price of Birr 284 /m2 in Akakai-Kalti and Birr
341/ m2 in Lebu and recently the citys Investment Agency has proposed a lease price of
Birr 346 per m2 for all industrial zones.
Accordingly, in order to estimate the land lease cost of the project profiles it is assumed
that all manufacturing projects will be located in the industrial zones. Therefore, for this
profile, which is a manufacturing project a land lease rate of Birr 346 per m2 is adopted.
On the other hand, some of the investment incentives arranged by the Addis Ababa City
Administration on lease payment for industrial projects are granting longer grace period
and extending the lease payment period. The criterions are creation of job opportunity,
foreign exchange saving, investment capital and land utilization tendency, etc.
Accordingly, Table 5.2 shows incentives for lease payment.
Table 5.2
INCENTIVES FOR LEASE PAYMENT OF INDUSTRIAL PROJECTS

Scored Point
Above 75%
From 50 - 75%
From 25 - 49%

Grace
Period
5 Years
5 Years
4 Years

Payment
Completion
Period
30 Years
28 Years
25 Years

Down
Payment
10%
10%
10%

For the purpose of this project profile the average, i.e., five years grace period, 28 years
payment completion period and 10% down payment is used. The period of lease for
industry is 60 years.

121-13
Accordingly, the total lease cost, for a period of 60 years with cost of Birr 346 per m 2, is
estimated at Birr 10.38 million of which 10% or Birr 1,038,000 will be paid in advance.
The remaining Birr 9.34 million will be paid in equal installments with in 28 years, i.e.,
Birr 333,643 annually.
VI.

MANPOWER AND TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

The envisaged project requires 8 work forces. The list of manpower for the envisaged
project is indicated in Table 6.1. The annual cost of labor including fringe benefits is
estimated at Birr 150,480.
Table 6.1
MANPOWER REQUIREMENT AND ANNUAL LABOR COST
Sr.

Description

Req. No.

No.
1
2
3
4
5
6
7
8

B.

General Manager
Secretary
Accountant
Sales man/purchaser
chemist
Operators
Laborers
Guards
Sub-Total
Benefits (25% BS)
Grand Total
TRAINING REQUIREMENT

1
1
1
1
1
2
4
2
12

Monthly

Annual Salary

Salary (Birr)

(Birr)

2,500
750
1,200
1,200
900
1,400
1,800
700

30,000
9,000
14,400
14,400
10,800
16,800
21,600
8,400
125,400
31,350
156,750

121-14
The training of chemist and operators will take place for about two weeks during
equipment supply and erection.

Laborers shall be trained by in-house staff during

commissioning. The cost of training is estimated at Birr 20,000.

VII.

FINANCIAL ANALYSIS

The financial analysis of the candle project is based on the data presented in the previous
chapters and the following assumptions:Construction period

1 year

Source of finance

30 % equity
70 % loan

Tax holidays

3 years

Bank interest

8.5%

Discount cash flow

8.5%

Accounts receivable

30 days

Raw material local

30 days

Raw material import

90 days

Work in progress

1 days

Finished products

30 days

Cash in hand

5 days

Accounts payable

30 days

Repair and maintenance

5% of machinery cost

A.

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at

Birr

3.16 million. The major breakdown of the total initial investment cost is shown in Table
7.1.
Table 7.1
INITIAL INVESTMENT COST ( 000 Birr)

121-15

Sr.
No.

Cost Items

Local
Cost

Foreign
Cost

Total
Cost

1,038.00

1,038.00

Land lease value

Building and Civil Work

460.00

460.00

Plant Machinery and Equipment

500.0

500.00

Office Furniture and Equipment

100.00

100.00

Vehicle

450.00

450.00

Pre-production Expenditure*

313.74

313.74

Working Capital

303.52

303.52

3,165.26

3,165.26

Total Investment cost

* N.B Pre-production expenditure includes interest during construction ( Birr 193.74

thousand, training (Birr 20 thousand ) and Birr 130 thousand costs of registration,
licensing and formation of the company including legal fees, commissioning expenses,
etc.

B.

PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 2.498
million (see Table 7.2).

The raw material cost accounts for 76.02 percent of the

production cost. The other major components of the production cost are depreciation,
financial cost and direct labor which account for 9.65%, 5.72% and 3.30% respectively.
The remaining 5.31% is the share of utility, repair and maintenance and other
administration cost.

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

121-16

Items
Raw Material and Inputs
Utilities
Maintenance and repair
Labor direct
Labor overheads
Administration Costs
Land lease cost
Total Operating Costs
Depreciation
Cost of Finance

Cost

1,735.43
14.62

76.02
0.64

25.00
75.24

1.10
3.30

31.35
50.16

1.37
2.20

1,931.80
220.30

84.63

130.63

5.72

2,282.73

100

9.65

Total Production Cost

C.

FINANCIAL EVALUATION

1.

Profitability

Based on the projected profit and loss statement, the project will generate a profit through
out its operation life. Annual net profit after tax will grow from Birr 407.28 thousand to
Birr 696.30 thousand during the life of the project. Moreover, at the end of the project life
the accumulated cash flow amounts to Birr 5.52 million.
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

121-17
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.
3.

Break-even Analysis

The break-even analysis establishes a relationship between operation costs and revenues.
It indicates the level at which costs and revenue are in equilibrium. To this end, the
break-even point of the project including cost of finance when it starts to operate at full
capacity (year 3) is estimated by using income statement projection.
BE =

Fixed Cost

21 %

Sales Variable Cost

4.

Payback Period

The pay back period, also called pay off period is defined as the period required to
recover 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
projects initial investment will be fully recovered within 4 years.
5.

Internal Rate of Return

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 25.26 %
indicating the viability of the project.

121-18
6. 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
principal a project is accepted if the NPV is non-negative.
Accordingly, the net present value of the project at 8.5% discount rate is found to be
Birr 2.16 million which is acceptable.
D.

ECONOMIC BENEFITS

The project can create employment for 8 persons. In addition to supply of the domestic
needs, the project will generate Birr 1.32 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.