Professional Documents
Culture Documents
Feasibility Carton and Plastic Container DUKEM - PAZALO
Feasibility Carton and Plastic Container DUKEM - PAZALO
Project Proposal
for
the Establishment of
Addis Ababa
August, 2021
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Table of Contents
Executive Summary...................................................................................................................................1
1 Introduction and Background...........................................................................................................6
1.1 Introduction.....................................................................................................................................................6
1.2 Objectives and Strategies................................................................................................................................7
1.2.1 Objective of the study...............................................................................................................................7
1.2.2 Objective of the Envisaged Plant..............................................................................................................8
2 Background Information...................................................................................................................8
2.1 The Client (Contact Person)............................................................................................................................8
2.2 The Project......................................................................................................................................................8
2.3 Legal Documents of the Project......................................................................................................................9
2.4 Brief History of the Company Promoter.........................................................................................................9
2.5 Purpose and Amount of Loan.......................................................................................................................10
2.6 Credit relation with banks and financial institutions....................................................................................10
3 Product Description and Application..............................................................................................11
3.1 Carton Packaging.............................................................................................................................11
3.2 Blow Molding Container..................................................................................................................11
4 Market Study....................................................................................................................................13
4.1 Methodology.................................................................................................................................................13
4.1.1 Local Market...........................................................................................................................................13
4.1.2 Import Market.........................................................................................................................................13
4.2 Plastic Industry and Market Overview.........................................................................................................13
4.3 BM Plastic Container Market in Ethiopia.....................................................................................................14
4.3.1 Supply Analysis......................................................................................................................................14
4.4 Present Effective Demand.............................................................................................................................17
1) Single Exponential smoothing......................................................................................................................17
2) Double Exponential Smoothing (One Parameter)........................................................................................18
3) Holt’s Two – Parameter Exponential Smoothing.........................................................................................19
4.5 Demand Projection and Trend......................................................................................................................20
4.5.1 Factors that Affect the Demand of the Products under Consideration...................................................20
4.5.2 Demand Projection..................................................................................................................................21
4.6 Supply Projection, Demand Supply Gap and Market Share.........................................................................23
4.6.1 Supply Projection....................................................................................................................................23
4.6.2 Demand - Supply Gap Analysis..............................................................................................................23
4.6.3 Market Share Analysis............................................................................................................................24
4.7 Market and Marketing Arrangement............................................................................................................25
4.7.1 Product Quality.......................................................................................................................................25
4.7.2 Product Pricing........................................................................................................................................25
4.7.3 Product Distribution................................................................................................................................26
4.7.4 Product Promotion..................................................................................................................................26
4.8 Product Mix and Target Market....................................................................................................................26
4.9 Market Concluding Remark..........................................................................................................................27
5 Key Success and Risk factors and SWOT analysis........................................................................28
5.1 Key Success Factors.....................................................................................................................................28
5.1.1 Macro Level Success factors..................................................................................................................28
5.1.2 Sector Level Success Factors..................................................................................................................28
5.1.3 Firm Level Success Factors....................................................................................................................28
5.2 Risk Areas.....................................................................................................................................................28
5.3 SWOT Analysis............................................................................................................................................29
5.4 Risk Mitigating Measures.............................................................................................................................29
5.5 Practical Tips for Success.............................................................................................................................29
i) Related Experience............................................................................................................................................29
ii) Marketing Skill.................................................................................................................................................30
iii) Toll Manufacturing I Contract Manufacturing................................................................................................30
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6 Plant capacity, Location and Production program........................................................................31
6.1 Plant capacity and Basic Assumption...........................................................................................................31
6.1.1 Basis/Rationale assumption....................................................................................................................31
6.1.2 Plant capacity..........................................................................................................................................31
6.2 Production Program......................................................................................................................................31
6.3 Location........................................................................................................................................................32
I. General: The selection of the location of the plant as mentioned above takes the following factors into
account..................................................................................................................................................................32
II. Location..................................................................................................................................................32
7 Materials and inputs.........................................................................................................................33
7.1 General..........................................................................................................................................................33
7.2 Raw Material and inputs...............................................................................................................................33
7.2.1 Plastic Resin............................................................................................................................................33
I. Polyethylene (PE) resin /granule............................................................................................................33
II. Polypropylene (PP) resin /granules.........................................................................................................34
III. Additives.................................................................................................................................................34
7.2.2 Sources of Raw Material.........................................................................................................................34
7.3 Annual raw material requirement and cost...................................................................................................35
7.3.1 Annual Major Raw material Requirement..............................................................................................35
7.3.2 Utilities....................................................................................................................................................35
8 Engineering and technology.............................................................................................................36
8.1 Technology...................................................................................................................................................36
8.1.1 Production Process..................................................................................................................................36
8.1.2 Color Pigmentation.................................................................................................................................37
8.1.3 Blow Molding Manufacturing Process flow diagram.............................................................................37
8.1.4 Quality Control.......................................................................................................................................38
8.1.5 Environmental Effect..............................................................................................................................38
8.2 Engineering of Plastic BM plastic containers production.............................................................................40
8.2.1 Extrusion Blow Molding Machine..........................................................................................................40
8.2.2 Blow Molding Molds..............................................................................................................................40
8.2.3 Tips for Purchasing a Mold.....................................................................................................................41
8.3 Cost of machineries and equipment..............................................................................................................42
I. Main Machineries and Equipment................................................................................................................42
II. Vehicles and Office furniture..................................................................................................................43
9 Land, Building and Civil Works......................................................................................................44
9.1 General..........................................................................................................................................................44
9.2 Plant Property and Cost................................................................................................................................44
I. Reserved area................................................................................................................................................44
II. Land lease...............................................................................................................................................44
9.3 Building and Infrastructure...........................................................................................................................45
10 Human resource and training requirements..................................................................................46
10.1 Organizational structure................................................................................................................................46
10.2 Human resource requirement and Salary with qualification.........................................................................47
10.3 Training requirement....................................................................................................................................48
11 Project Implementation plan...........................................................................................................49
11.1 Project implementation.................................................................................................................................49
11.2 Project Organization.....................................................................................................................................49
11.3 Project Implementation Schedule.................................................................................................................49
12 Financial analysis..............................................................................................................................52
12.1 Introduction and background information....................................................................................................52
12.2 Basic assumptions for financial analysis......................................................................................................52
12.2.1 Project life..........................................................................................................................................52
12.2.2 Depreciation and Amortization..........................................................................................................52
12.2.3 Terminal (salvage value)....................................................................................................................53
12.2.4 Working Capital.................................................................................................................................53
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12.2.5 Discounting.........................................................................................................................................53
12.2.6 Taxes...................................................................................................................................................53
12.2.7 Incentives............................................................................................................................................54
12.2.8 Budgetary cost estimates....................................................................................................................54
12.2.9 Source of finance................................................................................................................................55
12.3 Result of financial analysis...........................................................................................................................55
12.3.1 Total initial investment cost...............................................................................................................55
12.3.2 Financial flow.....................................................................................................................................55
12.3.3 Loan repayment schedule...................................................................................................................56
12.3.4 Cost of Production..............................................................................................................................56
12.4 Revenue.........................................................................................................................................................57
12.5 Financial Evaluation.....................................................................................................................................57
12.5.1 Profitability.........................................................................................................................................57
12.5.2 Ratios..................................................................................................................................................57
12.5.3 Pay-back Period..................................................................................................................................58
12.5.4 Break -even Analysis..........................................................................................................................58
12.5.5 Return on Equity (ROE).....................................................................................................................59
12.5.6 Balance sheet......................................................................................................................................59
12.5.7 Internal Rate of Return.......................................................................................................................59
12.5.8 Net Present Value...............................................................................................................................59
12.5.9 Sensitivity analysis.............................................................................................................................60
12.6 Economic and Social benefits.......................................................................................................................60
13 Annexes.............................................................................................................................................61
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Executive Summary
Product Description, Application and Plant Capacity
This Project Proposal is meant for the establishment of Carton and Plastic Containers that
comprised Manufacturing of Packaging Paper and Plastics and Blow Molding (BM) Containers.
The production plantforms include Packing Papers, Corrugated Boxes, HDPE, LDPE and PE
granule making, which are mainly to substitute import products by local production.
Generally the capacity of the envisaged plant is 307 tons of BM plastic containers per year with
different sizes starting from 30ml to 5L in its first phase and Packing Papers and Corrugated
Boxes in the second phases. The envisaged plant intended to expand the BM plastic containers
production plant as well as establish a paper packaging production plant in second phase in near
future.
These products shall be of high quality standard so as to meet international standard of the
products in the current market and for the potential future export opportunity and thereby ensure
customer satisfaction.
Pazalo Grand Trading PLC was established on November 5, 2009E.C with the registered initial
capital of Birr 2,500,000 with the objective of producing tiles from marble, granite and plastic
materials for the Ethiopian market and export.
Moreover the company planned to establish new packaging products production business and
undertaken this project study to check the market, technical and financial feasibility of this
project. Besides to this, the company has developed a strong business exposure and relationship
with local and foreign businesses and suppliers.
The project is located in Dukem, Oromiya region with the total land area of 5,800 m² for lease
period 40 years with annual lease payment of Birr 1,196.47 per meter square per year. The
project is accessible to basic infrastructures such as road to transport raw material and outputs to
the customers, electric power supply, telecommunication, water and etc.
Abdulaziz Alo is the General Manager and major promoter / owner of the company. He
alongside his colleague have been engaged on the project and has been engaged in various
sectors of business in the country and the region. Hence forth the promoter has more than 14
years’ experience on business and other sectors (of which he spend most of carrier period in at
managerial role). In addition to this, the promoter has vast experience on distributing of different
types products in the Ethiopian market.
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Market Study
As of the current year, 2020, the effective annual demand of the country is estimated at 8,659.23
tons of BM containers and paper packs like carton. The demand for BM plastic containers will
grow from 9,525.16 tons in 2021 to 15,340.36 tons and 22,459.82 tons by the years 2025 and
2030, respectively. The supply for plastic BM plastic containers will increase from 6,519.07tons
in the year 2021 to 8,869.12 tons and 13,031.65 tons by the year 2025 and 2030, respectively.
The unsatisfied demand for BM plastic containers will increase from 3,006.09 tons in the year
2021 to 5,076.66 tons and 9,428.17 tones by the year 2025 and 2030, respectively.
The main and direct raw materials are corrugated paper for carton production and for BM
containers are PET, HDPE, LDPE, PP granules, additives and coloring Pigments. In addition
factory inputs and supplies for packaging such as cardboard (Cartoon) and polyethylene sheet,
oil, grease and consumables are also required both the virgin and recycled one.
Even though significant part of the materials required for the envisaged plant will be imported
from mainly from countries such as China, India, Saudi Arabia, Germany and United Arab
Emirates, there are feasibility studies and attempts to import substitute the input materials from
within the country. Inputs such as electricity and water will be supplied from the national grid
while fuel oil and grease can also be purchased from locally operating fuel companies. It is also
possible to use recycling as a substitute and mixture based on the accepted standards and terms.
The total annual cost of material and input is estimated at Birr 17,327,009.16.
Financial Analysis
The total investment cost of the project including working capital is estimated at Birr 20.92
million. From the total investment cost, the highest share (Birr 14.19 million or 67.8%) is
accounted by fixed investment cost followed by initial working capital (Birr 4.73 million or
22.6%) and pre operation cost (Birr 2 million or 9.6%).
The projected cash flow of the envisaged project shows that the project would generate positive
net cash flows throughout the operation years. Based on a 16% discount rate, the Internal Rate of
Return (IRR) and Net Present Value (NPV) are computed to be 38% and Birr 58 million
respectively, indicating the viability of the project.
The project will generate a profit throughout its operation life. Annual net profit after tax ranges
from Birr 7.57 million to Birr 8 million. Net profit as % of sales revenue lies between 21% and
36%, which is satisfactory.
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The initial investment cost of the project will be fully recovered within two and half years, which
is a reasonably short period of time. Other measures of profitability net profit as a % of sales
revenue, net profit to equity and net profit to total investment are also attractive.
The break-even point calculated is 19% that is the project could remain profitable under the
condition that operation is kept above 19% of the nominal capacity. Hence the ROE of the
project is 59% which is acceptable. Moreover, the sensitivity analysis carried out indicates that
the project can sustain a cost escalation by 20% in investment cost and operating cost and still be
viable. Moreover, case of 20% decrease in sales revenue the project will still be viable.
The investment requirement of the project would be financed by equity capital and long-term
bank loan. Accordingly the amount of loan expected from financers is estimated Birr
7,341,800.00 (35% of the total estimate) based on long term bank loan. The promoter’s equity
contribution estimated to be Birr 13,579,568.66 (65% of the total estimate), Birr 3,000,000
million in kind (executed work) and Birr 10,579,568.66in cash for the remaining works.
The company has offered manufacturing site property with total area of 5,8000m 2 asset as
collateral for this loan which located in Dukem Town of Oromia Regional State. The site has a
building structure constructed by Pre Building Concrete for production with a built up area of
1500 m2. The value of the collateral asset estimated an amount of Birr 25,000,000 (twenty five
million birr).
The results of the financial and Economic study are summarized below:
The envisaged project possesses wide range of benefits that promotes the socio-economic goals
and objectives stated in the strategic plan of the country as well as the regional state. It also plays
a role in diversifying the economic activity of the country.
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Profit Generation: The project is found to be financially viable and earns total Net profit of Birr
74.99 Million within the project life. Such result induces the project promoters to reinvest the
profit which, therefore, increases the investment magnitude in the country. This would be one of
the commendable accomplishments of the project.
Tax Revenue: In the project life under consideration, the city will collect about Birr 25.46
Million from corporate tax payment alone (i.e. excluding income tax). Such result create
additional fund for the regional state and the country that will be used in expanding social and
other basic services in the region.
Economic: The establishment of such factory will have a foreign exchange saving effect to the
country by substituting the current imports as well as a foreign currency earning effect to the
currency.
The project will also create backward linkage with chemical industry and forward linkage with
chemical, pharmaceutical, food and beverage industry sectors and also generates other income
for the Government.
Project Implementation
The project implementation schedule has different stages of activities starting with the evaluation
& approval of the project up to commissioning of the plant. All in all, it is assumed that it will
take 12 months.
For all packages, the schedules include the following applicable activities, along with the
minimum time period required for each activity:
The time schedule for the implementation of the project has been worked out in a manner that
the various activities specified under the different phases is carried out in accordance to their
logical sequence.
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Conclusion and Recommendation
The assessment result revealed that the production of packaging products shows an increasing
trend. As far as the status BM container is concerned, the numbers of producers in Ethiopia are
many in numbers with limited processing capacity. And the production capacity the existed
firms are not more than 60% of their installed capacity due to the nature of raw material that
requires huge working capital to purchase in bulk amount and the order base market situation.
Although there is all the year round increasing market demand for plastic container in the
domestic market, the industry is in at its infant stage. The fastest growing population and the
highest rate of urbanization in Ethiopia together with a growing middle class drive a surge in
BM container demand.
Hence, it can be concluded that: the study shows a deficit in the BM containers market and
witness the presence of ample market potential. Obviously, this shortage of BM containers
supply calls for and is capable of accommodating new investment ventures as well as companies
expansion plans in the future.
Given the rapidly growing demand for variety of packaging, establishing a BM containers
production plant in Ethiopia is promising business. Taking into consideration the prospects and
economic growth of the country in general and Industry sector specifically, the promoter has
taken the courage to produce BM containers that will meet the every growing local demand of
the products.
Therefore, the following conclusion and recommendations are drawn from the study.
The findings of the market study indicate that there is a large and progressively growing
local and export demand for Paper Packaging Materials (Carton) and BM containers. It is
one of a major required packaging product for the majority of the chemical industries,
pharmaceuticals, and food items.
The project is also financially viable. The projected cash flow shows that the project would
start to generate positive cash flow from the first year of operation. The discounted cash
flow also shows that the project is viable with a net present value (NPV) of Birr 58 Million,
discounted at 16 per cent, and an internal rate of return of 38 per cent.
Based on the projected profit and loss statement, the project will also generate a profit
throughout its operation life. The project will pay back the total investment in 2 and ½
years period, which is a reasonably short period of time.
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1 Introduction and Background
1.1 Introduction
The manufacturing industrial sector is the most dynamic component of the goods producing
sectors of all economy. Expansion and development of the manufacturing sector increases
agricultural productivity through providing agricultural inputs and creating demand for
agricultural outputs.
As everyone understands from the existing situation, our country Ethiopia is scoring a greater
improvement in its growth and Manufacturing is the one and most important segment that is
playing crucial role in contributing for the overall development of the country. Carton and
Plastic Containers products are important inputs required for the fast increasing situation of
the industrial sector in Ethiopia.
Packing Industry is one such industry where lot of SMEs is concentrated. In Ethiopia the
consumer Carton and Plastic Containers is undergoing dramatic change in recent past. In
many Industries the plastic containers are replacing conventional metal containers and glass
containers because of their comparatively better properties and ease of handling and
transportation.
Small size plastic containers are used for packing of drugs, pharmaceuticals, insecticides,
food items etc. The plastic blow molded containers are made from HDPE (High-density
polyethylene), LDPE (Low-density polyethylene), PP (Polypropylene) etc. Blow molded
containers are finding great demand in modern era in replacing the traditional Metal and/or
Non Metal and Glass containers throughout the world. With latest trends in Blow Molding
technology and advanced machinery and National and International standards moulds and
dies, many types of packaging containers are manufactured with accurate tolerance and fine
quality. These products includes Pet bottles, Dropper bottles, Upper Handle bottles, Open top
drums, wide mouth drums, Narrow mouth drums, Barrels, Jerry Cans & Carboys, Square
Jars, Round Jars, Rib Jars, thin walled food packaging containers, Paper Packs, Corrugated
Papers etc.
The blow molding plastic bottles products producing company will be established by Pazalo
in Dukem administrative town, to manufacture the highly demanded blow molding plastic
containers/bottles in its first phase manufacturing and Paper Packs, Corrugated Papers etc in
its second phase manufacturing period for food items, detergent, pharmaceuticals, food and
others industries and will have reasonable market share for the vast demand of the country.
The manufacturing of plastic products through blow molding business is a viable business
provided that it is operated with a good business acumen that involves having a thorough
knowledge and experience of the product range, technical requirements, operational
procedures and also managing the jobs with the tight type of technical manpower. When
these factors combine with good and effective business development skills, the business is
expected to give considerable profits which are expected to grow over the years.
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Currently there are thirty (30) blow molding plastic bottles products producing plants in the
country including under implementation with limited processing capacity. And the
production capacity the existed firms are not more than 60% of their installed capacity.
Although there is all the year round increasing market demand for BM plastic bottles in the
domestic market, the processing industry is in at its infant stage. The fastest growing
population and the highest rate of urbanization in Ethiopia together with a growing middle
class drive a surge in plastic bottles demand.
According to the market analysis there is a wide gap in demand and supply of BM plastic
bottles. Taking into consideration the prospects and economic growth of the country, Pazalo
Grand Trading has taken the courage to produce different types of Packaging Materials that
will substitute the imported ones and meet the every growing local demand of the products.
The general objective of this Project proposal is primarily to facilitate the promoters in
project identification for investment. The project proposal may form the basis of an important
investment decision and in order to serve this objective, the document/study covers various
aspects of project concept development, marketing, engineering and technology, production
capacity, raw material, finance and future plan.
The main objective of this study is to meet the expectation of the operational units & decision
makers through provision of comprehensive and pertinent information about plastic products
production business in Addis Ababa. There by to enable them to make appropriate decision.
The specific objectives of this study comprised, but not limited to:
To analyze the availability of raw materials for Carton and Plastic Containers Material
Manufacturing including the BM products production and Paper packing materials in
the country;
To assess the environmental and socio economic impacts of Carton and Plastic
Containers Material Manufacturing including the BM products production and Paper
packing materials production industry;
To assess the utilization of the Carton and Plastic Containers Material products in
terms different parameters;
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To assess organizational structure and management of Carton and Plastic Containers
Material Manufacturing industry.
To indicate marketing situation of BM products production in Ethiopia
To identify key success factors, risk factors, problems and constraint of the business,
including opportunities and threat.
To furnish some clue about production process and technology options in Carton and
Plastic Containers Material Manufacturing and Paper packing materials industry.
Providing of parameters, coefficients and assumptions that are important for
determination of revenue and cost
To analyze the plant financially in terms of Total Investment Cots, Revenue, NPV,
IRR, payback period , break even and sensitivity
The overall objective of this project proposal is to establish a BM containers production plant
in Dukem, Ethiopia.
2 Background Information
2.1 The Client (Contact Person)
Name: - Pazalo Grand Trading PLC
Region: Oromia
Zone: East Shoa
Woreda: Dukem
House No: New
Tel. (Fixed):
Mobile: +251-911-71-1857
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Status of the project: New
Project objectives: Producing and distributing high quality Carton and Plastic
Containers
Size of land holding
Total area: 3,000M2
Lease period: 27 years
Lease amount: 1,196.47per M2/year
Pazalo Grand Trading PLC was established on November 5, 2009E.C with the registered
initial capital of Birr 2,500,000 with the objective of producing tiles from marble, granite and
plastic materials for the Ethiopian market and export.
Moreover the company planned to establish new Carton and Plastic Containers products
production business and undertaken this project study to check the market, technical and
financial feasibility of this project. Besides to this, the company has developed a strong
business exposure and relationship with local and foreign businesses and suppliers.
Abdulaziz Alo is the General Manager of the company and the project and has been engaged
in various sectors of business in the country and the region. Hence forth the promoter has
more than 14 years’ experience on business and other sectors (of which he spend most of
carrier period in at managerial role). In addition to this, the promoter has vast experience on
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importing and distributing of different types products in the Ethiopian market for the last
years.
The company has no credit relation with the banks and financial institutions so far. It has
been operating on its own source. But the company seeks additional finances for procuring of
machines for the envisaged plant. The presence of additional finance may up lift the company
to a higher level as it is seen from its historical trends in other business sectors.
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3 Product Description and Application
With so many different types of Carton and Plastic Containers products has become
increasingly important in our everyday lives due to their wide availability and their meeting
a broad range of consumer needs. The first phase of the project envisaged the production of
blow molding plastic containers from, PE, PP and PVC.
Corrugated paper boxes are made from corrugated paper boards which have a row of air
columns. The air acts as a cushion while the paper column makes the material strong. Each
box is made to hold something just right, protect it from banging around and keep it from
spilling. Moreover, corrugated paper boxes are made with important information about the
consignment printed on them. They are eco-friendly, recyclable, light weight products
available in variety of shapes and sizes.
Corrugated board is produced by gluing fluted or corrugated paper (middle layer) with two
facing (inner and outer) layers to form a continuous board which is finished into boxes of
various dimensions by slotting and creasing operations. Based on the number of layers used,
three types of corrugated board can be produced: single faced (or two ply), double faced (or
three ply) and double walled boards. The double-faced corrugated board is most commonly
used for different packing applications.
The manufacture of corrugated packaging can be roughly classified into two major processes:
the containerboard combining process, which glues one or more sheets of fluted corrugating
medium to one or more flat facings of linerboard; and the box manufacturing process, which
is used to assemble the corrugated sheets into boxes.
Bottles are made by extrusion blow molding. A thick tube of plastic is extruded into a bottle
mould which closes around the tube, resulting in the characteristic jointed seal at the base of
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the container. Air pressure is then used to force the plastic into the shape of the mould. After
cooling, the mould is opened and the item removed. It is possible to apply co extrusion to
extrusion blow molding so that multilayered plastic containers can be made with a sandwich
of various plastics. An example would be where high oxygen barrier, but moisture sensitive
and this construction will provide for a 12–18 month shelf life for oxygen-sensitive products
such as tomato ketchup, mayonnaise and sauces.
A variation of injection and extrusion blow molding is to stretch the pre-form after softening
it at the second stage and then stretching it in the direction of the long axis using a rod and
the stretched pre-form is then blow molded which results in biaxial orientation of the
polymer molecules, thereby increasing strength, clarity, gloss and gas barrier. Injection
stretch blow molding is used to make PET bottles for carbonated beverages. Screw cap and
pressure fit closures with accurate profiles are made by injection molding Wide mouth tubs
and boxes are also made by injection molding.
There are many food applications for rigid and semi-rigid thermoformed containers.
Examples include a wide range of dairy products, yoghurts etc. in single portion pots, fresh
sandwich packs, compartmented trays to segregate assortments of chocolate confectionery
and trays for biscuits. Thermoforming can be combined with packing on in-line thermoform,
fill and seal machines.
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4 Market Study
4.1 Methodology
In order to attain the objectives of the study, the consultant has developed the appropriate
methodology which utilizes both quantitative and qualitative data/ information from both
primary and secondary sources. Accordingly the methodology and approach used to conduct
the Project proposal is discussed hereafter.
Secondary data/ information namely general market data and specific data for BM plastic
container such as data on the past and current performance of local BM plastic products
industry, time series BM plastic products import data in terms of volume and value including
major origins and information with regards to the local business environment that might
affect the production, local consumption and export of BM plastic container products was
collected from relevant institutions like CSA and NBE. Moreover, primary data was also
collected through a rapid survey in BM plastic container production industries located in
Addis Ababa and surroundings.
Owing to cost implications, the Import market assessment of BM plastic containerGum was
exclusively made based on secondary data obtained through review of published statistics,
annual reports and information available in the internet. The main sources are Ethiopian
Custom and Revenue Authority (ERCA) and UNCOM trade.
In its early years, the plastics industry greatly benefited from the substitution of plastic for
other materials including various metals, wood, paper, glass, cardboard and natural fibers,
etc. However, as a mature industry, the possibilities for substitution are limited, leading to
greater dependence on economic growth and the expansion of demand in plastic's existing
Markets. The industry is also vulnerable to volatility in the global price of oil and gas feed
stocks, used by the chemical industry to produce its raw and semi-finished materials.
The leading markets for plastics are in packaging, building and construction and the
automotive/transport industries, all of which have generally been buoyant. However, a
number of other industries which use some form of plastic, e.g. the textile, clothing,
electrical, electronic, mechanical engineering and agricultural industries, have experienced a
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profound downturn in demand, as they struggle to adjust to changes in the market for their
products and against a rising tide of imports.
The market for BM plastic container is segmented based on the destination of the products.
Even though there is demand for the products in domestic as well as export s market,
Ethiopian BM plastic container market is exclusively domestic. As, all major raw materials of
the commodities are sourced from abroad it is difficult to be competitive in the international
market and also expensive in terms of logistic and transport cost.
The domestic demand for BM plastic container is mainly arising from the performance of its
end-user or different sectors.
Accordingly, past trends of supply in the country which is local production, import and total
supply or apparent consumption is analyzed hereunder.
Domestic Production: Local production of BM plastic containers is one of a source of the products supply in the
country. The data from ministry of Industry and commodity study by DBE reveals that there are more than thirty
factories engaging in production of BM plastic containers. The production capacities of the some factories for
BM plastic containers are presented in the table below. In general, packaging products are mainly geared to
domestic markets.
Table 4.1: BM plastic containersProduction Capacity (ton/annum)
S/ Company Type of product Production capital
N /Product range Designed Current %
capacity production
ton/annu capacity ton/
m annum
1 Manahan Industries Jerry Can and Cap 300 150 50%
PLC ( 100ml to 5L)
2 Aqua pure General Jerry Can ( 1L to 5L) 160 96 60%
Trading
3 Avon Industries PLC Jerry Can ( 100ml to 200 100 50%
20L)
4 Niyo Polymer Jerry Can ( 100ml to 1,000 550 55%
5L)
5 Ahmedine Plastic Jerry Can and Cap ( 5L 500 225 45%
Industries to 20L)
6 METEC-plastic Jerry Can and Cap 1,000 520 52%
production factory ( 100ml to 5L)
7 Sky Industries PLC Jerry Can ( 1L to 20L) 120 60 50%
8 Roha pack PLC Jerry Can ( 5L to 20L) 160 64 40%
9 Ok plastics PLC Jerry Can ( 100ml to 200 90 45%
5L)
10 National plastic Jerry Can and Cap ( 1L 120 72 60%
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Industry PLC to 5L)
11 National Plastic Jerry Can and Cap 160 88 55%
Goods manufacturing ( 100ml to 5L)
PLC
12 Aqua plastic Jerry Can ( 1L to 5L) 200 120 60%
manufacturing &
business
13 Niyo polymers Jerry Can ( 100ml to 120 48 40%
manufacturing PLC 20L)
14 Ethio polymers PLC Jerry Can ( 100ml to 1,000 350 35%
5L)
15 Ethio plastics sh.CO Jerry Can and Cap ( 5L 500 300 60%
to 20L)
(Source: commodity study by DBE (2nd update, January, 2020 and ministry of Industry
(2020))
The numbers of BM plastic container producers in Ethiopia are many in numbers with limited
processing capacity. And the production capacity the existed firms are not more than 60% of
their installed capacity due to the nature of raw material that requires huge working capital to
purchase in bulk amount and the order base market situation. Although there is all the year
round increasing market demand for plastic container producers in the domestic market the
processing industry in at its infant stage. The fastest growing population and the highest rate
of urbanization in Ethiopia together with a growing middle class drive a surge in BM plastic
container demand.
According to the information from ministry of Industry (2020) and CSA (2020) the
production of BM plastic container has been grown by 11% per annum.
Table 4.2: local production of BM plastic container in Tons
Year local production
2010 1,827.98
2011 2,029.06
2012 2,252.25
2013 2,500.00
2014 2,850.00
2015 3,249.00
2016 3,703.86
2017 4,222.40
2018 4,813.54
2019 5,487.43
According to table 4.2, domestic production of BM plastic containers in the past ten years has
shown a noticeable growth. The local production of BM plastic containers, which was about
1,827.98tons during the year 2010, has increased to about 3,249.00tons and 5,487.43tons in
the Year of 2015 and 2019 respectively. On the other hand, the average growth rate of the
both imported & domestic production quantity of BM plastic containers during the last five
years (2015-2019) was about 12%.
15
Import: Import of plastic BM plastic containers is a major source of the products supply. The country imports
the products from different countries. According to the data obtained from the Ethiopian Revenues & customs
Authority, The quantity of the products annually imported to during the period 2010– 2019 is shown in Table
4.3.
Table 4.3: import of BM plastic containers in Tons
Year Import
2010 837.95
2011 930.12
2012 1,032.43
2013 1,146.00
2014 1,294.98
2015 1,437.43
2016 1,653.04
2017 1,884.47
2018 2,129.45
2019 2,427.57
Source: Ethiopian Revenues & Customs Authority (ERCA)
Import of BM plastic containers in the past ten years has shown a noticeable growth. The
total imported quantity of BM plastic containers, which was about 837.95tons during the year
2010, has increased to about 1,437.43tons and 2,427.57tons in the Year of 2015 and 2019
respectively. On the other hand, the average growth rate of the imported & quantity of BM
plastic containers during the last five years (2010-2019) was about 11%.
Total Supply: In Ethiopia the apparent supply of BM plastic containers is covered by local production and
imported. Hence using the aforementioned consumer’s data, Table 3.5 summarizes the past 10 years of local
production and imported of the products.
Table 4.4:local and import of plastic BM plastic containers in tons
Year Import Domestic Total Supply
Production
2010 837.95 1,827.98 2,665.92
2011 930.12 2,029.06 2,959.18
2012 1,032.43 2,252.25 3,284.68
2013 1,146.00 2,500.00 3,646.00
2014 1,294.98 2,850.00 4,144.98
2015 1,437.43 3,249.00 4,686.43
2016 1,653.04 3,703.86 5,356.90
2017 1,884.47 4,222.40 6,106.87
2018 2,129.45 4,813.54 6,942.99
2019 2,427.57 5,487.43 7,915.00
According to the table 4.4the apparent supply of the products in the past ten years has shown
a noticeable growth. The yearly apparent supply which was about 2,665.92tonduring the year
2010 has increased to about 4,686.43ton in 2015. Thus, the total supply of products during
the year 2019 is estimated at 7,915.00ton. On the other hand, the average growth rate of the
apparent supply during the ten years (2010-2019) was about 11%.
16
4.4 Present Effective Demand
There are two commonly used approaches for estimating the demand for a product. Either the
estimate of future value is based on an analysis of factors which are believed to influence
future values, the explanatory or end - use method, or else the prediction is based on the
behavior of historical supply data and trend over time - the extrapolation method.
The end use method is computed based on calculated consumption coefficient. On the other
hand the extrapolation method does not take into consideration the underlining factors that
affect the demand for a product. Instead, in order to infer about its future behavior and trends,
past behaviors and trends on time series supply data are scrutinized employing various
approaches. The particular method used to produce a forecast may involve the use of
deterministic models such as smoothing and linear extrapolation.
Accordingly, in order to estimate the current effective demand for PVC/PPRBM plastic
containers in Ethiopia, the following methods are applied:
Single exponential smoothing
Double exponential smoothing (one parameter);
Holt’s two - parameter double exponential smoothing; and
End use method
Each method of estimating the current effective demand is discussed briefly as follows.
If the smoothing value is small, fluctuations will be heavily damped and the smoothed value
will tend towards the mean, if it is large, fluctuations will be significant and the smoothed
value will tend towards the current value.
This smoothing scheme begins by setting S2 to y1, where Si stands for smoothed observation,
and y stands for the original observation. The subscripts refer to the time periods, 1, 2, ..., n.
For the third period, S3 = y2 + (1- ) S2; and so on. There is no S1; the smoothed series
starts with the smoothed version of the second observation.
For any time period t, the smoothed value St is found by computing
17
This is the basic equation of exponential smoothing and the constant or parameter is called
the smoothing constant and is chosen to be 0.9 for both products which has the lower error.
Based on the above equation the results arrived are given below in Table.
Table 4.5: Estimated present demand based on single exponential smoothing method
year Supply Forecast
2010 2,665.92 2,665.92
2011 2,959.18 2,665.92
2012 3,284.68 2,929.85
2013 3,646.00 3,249.20
2014 4,144.98 3,606.32
2015 4,686.43 4,091.11
2016 5,356.90 4,626.90
2017 6,106.87 5,283.90
2018 6,942.99 6,024.57
2019 7,915.00 6,851.14
Where:
St’ is the single exponential smoothed value,
St’’ is the double exponential smoothed value,
Ft+m = at + btm is the forecasted value one time ahead,
at = St’ + (St’- St’’) and bt = (α/1- α) (St’- St’’)
m is the number of periods ahead to be forecast
Xt actual sales volume at time t and
α is the smoothing constant having a value of 0.7 which is
chosen as it is the optimal smoothing constant having lower
error.
Accordingly, based on the above equation the results arrived
are given in Table 4.6.
18
Table 4.6: Estimated present demand based on double exponential smoothing method
year Supply Forecast
2010 2,665.92 2,665.92
2011 2,959.18 4,532.07
2012 3,284.68 3,225.77
2013 3,646.00 2,977.57
2014 4,144.98 3,105.72
2015 4,686.43 3,381.99
2016 5,356.90 3,780.72
2017 6,106.87 4,260.40
2018 6,942.99 4,840.86
2019 7,915.00 5,513.44
4.5.1 Factors that Affect the Demand of the Products under Consideration
The demand for plastic packing materials depends on the performance of the end users.
Plastic packing materials are extensively used by food and beverage manufacturers.
Moreover, the products are also used by other sub sectors of the manufacturing sector such as
chemical. Hence, past performance and future prospect of the manufacturing sector
determines the magnitude of the demand for plastic packing materials. Accordingly, a
thorough assessment of the manufacturing sector indicates that there is a progressively
growing local demand for plastic packing materials.
20
In general, the first step is the preparation of a detailed estimate of the actual market volume
and the market potential, or maximum possible demand of the total market. The second step
is to project the development of the future market volume, dealt with below in the section on
the projection of marketing data. This is the basis for the question of the actual or envisaged
market share of the enterprise.
The market segments are assumed to be the local market and export market for east Africa.
The demand estimation also focuses on these two markets.
The key factors driving growth of the global BM plastic containers industry include
ameliorating economic conditions such as rising GDP and GNI, rising urban population, apart
from others. Some of the noteworthy trends and developments of this industry include launch
of quality products, penetration of retail brands, and increasing adoption of environmental
friendly products. However, the growth of the industry is hindered by social economic
constrains, pricing dynamics and environmental challenges.
The future demand for BM plastic containers, like many other packing materials is a function
of a number of interrelated variables. These variables that are essential in determining the
magnitude and trend of demand for plastic containers are:-
The overall economic development level and growth trend of the country,
The pattern and growth trend of the chemical industry,
Government policies and regulations that have impact on the future level and trend of
chemical activities, and
Size of population and its growth rate.
Size of population and its growth rate are also important variables to be considered in
analyzing the future demand for a product. Ethiopia has a population of about 110 million,
which is ranked as second in Africa. Moreover, Central Statistical Authority of Ethiopia
projected the country's population to be over 130 million by the year 2030. Consequently,
large population implies high level of demand for various goods which increases
manufacturing activities and ultimately BM plastic containers for our case.
From what was discussed in the preceding section, it is not difficult to conclude that the
demand for BM plastic containers will grow in the future. The issue, therefore, is how best to
estimate the future demand. The following forecasting methods are thus considered.
Time trend extrapolation,
Cross sectional regression using consumption data of developing countries,
End use (consumption coefficient) of the manufacturing and service sector, and
Simple growth rate.
21
The first approach, simple regression of past supply data with time (time trend extrapolation),
assumes that the trend in the supply of the product observed in the past will continue in the
future. This, however, was not found valid in the case of BM plastic containers because the
supply data is characterized by year-to-year fluctuation rather than a growth pattern.
The second option, cross-country regression of consumption data of developing countries, is
a valid approach to be considered for demand projection if data were available for a recent
period, but such data is not available.
End-use approach or consumption coefficient (the third alternative) is a sound approach for
estimating future demand if the future values of the end-users. Such values are however, very
difficult to forecast.
Having evaluated all the above approaches, the fourth alternative approach, i.e., simple
growth rate is found to be the most appropriate approach for projecting the future demand for
BM plastic containers.
The present effective demand that was estimated earlier is used as the base year figure. With
respect to the future growth rates, considering the changing of life style and increasing of
population growth in Ethiopia by 2.5% and the average growth rate of the quantity of BM
plastic containers in the past years the market of BM plastic containers is expected to increase
dynamically by 10% and the demand and the unsatisfied demand is projected and presented
in table 4.9.
Table 4.9: projected demand for BM plastic containers(tones)
According to table 4.9, the demand for BM plastic containerswill grow from 9,525.16tons in
2021 to 15,340.36tons and 22,459.82tons by the years 2025 and 2030, respectively.
Assumptions
22
Production of BM plastic containers by the old factories is constant in the first year.
Expansion and production capacity of the existed factories assumed to be increased by
3% every year
Total domestic production will be assumed to increase by 5% by new factories every
year.
Due to import substitution strategy of government, import of plastic BM plastic
containers is not considered in the supply projection years.
Table 4.10: supply projection of BM plastic container in Ethiopia
Years Existing Production Expansion New Entrant Total Supply
(ton) Production (ton) Production (ton) Projection (Ton)
2021 6,036 181.09 301.81 6,519.07
2022 6,519 195.57 325.95 7,040.59
2023 7,041 211.22 352.03 7,603.84
2024 7,604 228.12 380.19 8,212.15
2025 8,212 246.36 410.61 8,869.12
2026 8,869 266.07 443.46 9,578.65
2027 9,579 287.36 478.93 10,344.94
2028 10,345 310.35 517.25 11,172.54
2029 11,173 335.18 558.63 12,066.34
2030 12,066 361.99 603.32 13,031.65
According to Table 4.10, the supply for plastic BM plastic containers will increase from
6,519.07tons in the year 2021 to 8,869.12tons and 13,031.65tons by the year 2025 and 2030,
respectively.
The thorough discussion clarifies the ground facts for the increasing demand for Plastic
construction materials in the country. Thus, the amount of demand defiantly is more than
what is attempted to discuss quantitatively.
The demand supply gap analysis is presented on table below shows the existence of moderate
and continuous unsatisfied demand for BM plastic container the in the country. The
calculated amount of unsatisfied demand in the country implies; if the supply situation of BM
plastic container continues with the same trend, the gap of unsatisfied demand will remain
high in the coming years. Therefore, the quantitative market demand supply gap analysis
indicates that the production of BM plastic container should be encouraged in order to serve
the foreseen unsatisfied demand.
The unsatisfied demand for BM plastic containers will increase from 3,006.09 tons in the
year 2021 to 5,076.66tons and 9,428.17 tones by the year 2025 and 2030, respectively.
From the above table, it can be concluded that: the table shows a deficit in the BM plastic
containers market and witness the presence of ample market potential. Obviously, this
shortage of BM plastic containers supply calls for and is capable of accommodating new
investment ventures as well as companies expansion plans in the future.
23
Table 4.11: Demand Supply Gap for BM plastic containers(ton)
Projected Supply Unsatisfied
Year demand Projection demand
2021 9,525.16 6,519.07 3,006.09
2022 10,477.67 7,040.59 3,437.08
2023 11,525.44 7,603.84 3,921.60
2024 12,677.98 8,212.15 4,465.83
2025 13,945.78 8,869.12 5,076.66
2026 15,340.36 9,578.65 5,761.71
2027 16,874.39 10,344.94 6,529.45
2028 18,561.83 11,172.54 7,389.29
2029 20,418.02 12,066.34 8,351.67
2030 22,459.82 13,031.65 9,428.17
Assuming the project will take 1 year for processing of loan, hence, the project will be
operational on 2021.The supply projected and demand projected on basis of the above
assumptions reaches in 6,519.07tons and 9,525.16tons in 2021 respectively and the demand
supply gap will be 3,006.09in 2021. A modest or minimum capacity determination will be a
plant with a market share of 10% of the assumed gap, i.e. a plant capacity of about 307ton per
year BM plastic containers can be safely recommended. However the owners prefer to take it
in phases and start with less capacity until attain the required knowledge for the envisaged
project.
24
4.7.1 Product Quality
Satisfied customer is an asset to any business. Therefore, the market strategy of the envisaged
project should be focus on quality aspects of its products. Hence, a process to manufacture
internationally recognized standard products should be incorporated in to the plant design.
Accordingly, the envisaged factory should acquire modern machineries and production
process with a system of optimally combined machine operations and control by qualified
and trained operators and technologist. Beside, quality control should be given top priority
especially in the selection of raw material, grade and process control so that the envisaged
factory could achieve its aims through producing leading quality products.
Hence after the establishment of the project, Pazalo Grand Trading PLC is recommended
to aggressively advertise its product using mainly TV advertisements. Along with this the
company should prepare and distribute calendars, pamphlets as well as participate in
exhibitions and bazaars. Moreover, in a competitive market, trade promotion should be made
to persuade or to make a product attractive for intermediaries. Such trade promotional tools
include; credit and discount with the volume of products sold etc. Pazalo Grand Trading
PLC is recommended to offer discounts with the volume of product bought and provide
credit facilities.
26
4.9 Market Concluding Remark
According to the market analysis there is a wide gap in demand and supply of BM plastic
containers in the country. Taking into consideration the prospects and economic growth of the
country the promoter has taken the courage to produce BM plastic containers that will
substitute the imported ones and meet the ever growing local demand of the products.
Moreover, the project is assumed based on import substitution.
27
5 Key Success and Risk factors and SWOT analysis
In the past consecutive years, the country has shown a continuous growth which may
boost the demand for goods and services.
Improvement in overall infrastructure especially upgrading road transport service and
the railway under construction facilitates transportation of goods to and from market
and production site. The Ethiopian Airlines is also one of the well-known service
giving airlines not only in Africa but also in the world so that transportation of goods
and services as well as people is facilitated.
There is relatively lower labor cost in the country and thus production cost for labor
intensive industries is low.
Government gives different incentives for investors such as low interest rate, long
grace period and attractive policies.
In terms of the availability of factors of production, the country has huge potential for
investment in land, raw materials and human resources for many agricultural,
industrial and service projects.
Increasing consumption of plastic products and in line with the growth of the economy.
The project has approached the bank with a new loan request so it is expected that 25%
of the total investment cost of the project will be covered by the company.
The company has its own building which will be considered as collateral planned for
the new project.
The general manager, Ato Abdulaziz Alo has a well experienced in Managing and
distributing similar Projects/products.
The BM Plastic containerproduction plant can face the following major risk factors
Increasing raw materials cost and the dynamic change of global market situation.
Competition from foreign and local firms.
The sector is quality sensitive, the consumers have many alternatives.
There are similar imported and locally produced products and hence the factory may face
fierce competition
Frequent power interruption.
Conflict and instability of the country.
28
Shortage of foreign currency
Existence of substitute products
The promoter should plan ahead and establish especial long standing relationships with
international raw material suppliers to avoid price fluctuations.
The company should implement aggressive marketing strategy to compete with the
existing similar industries and penetrate the market.
The company have to strengthen its quality control system and give due attention to the
demand of the customers.
In order to reduce damage on machineries during power interruption, the company has to
install diesel generators.
The Company should always work to produce quality products, make extensive
marketing work and produce products as per the customer preferences.
The Company should adopt cost minimizing strategy and increase its efficiency to
compete with cost.
The three main critical success factors that affect the decision to invest in the proposed
business setup are:
29
i) Related Experience
The entrepreneur must have considerable experience of the plastic industry wherein heshould
be able to identify the changing environment both at the demand and thesupply side and react
accordingly. Molds are very expensive; therefore the entrepreneur needs to choose molds
only for those products for which demand is expected to rise in the future.
Related industry experience is also required where purchase of raw material isbeing
considered. Prices of HDPEI PP plastic resins are directly related to petroleum prices which
are very dynamic.
Another critical factor is that the entrepreneur must have effective PR & marketingskills.
These marketing skills will enable the entrepreneur to carryout businessdevelopment
activities to target his potential customers and also to maintain hisexisting client base.
Contacts with relevant distributors and major wholesale andretail outlets and markets play a
crucial role in business development.
Considering the price competition and the possibility of decreasing margins at retaillevel,
many plastic good manufacturers have adhered to toll manufacturing where they are
subcontracted by large companies to manufacture products. Although the margins received
initially might not be significant but the volume of business is considerably large which
makes up for the low margins. The margins tend to be very significant if the manufacturer
possesses an expensive mold which is not available quite easily in the market. Astrong
referral base needs to be established in order to get such contracts.
30
6 Plant capacity, Location and Production program
6.1 Plant capacity and Basic Assumption
1.First phase: According to the demand and supply projection, the supply and demand
projected of BM plastic containersin 2021 will be 6,519.07tons and 9,525.16tons 55tons
respectively and the demand supply gap will be 3,006.09 in 2021. Hence the envisaged plant
planned to have a market share of 10% from unsatisfied demand and the production capacity
will be 307 tons of BM plastic containers per year with different sizes starting from 30ml to
5L in its first phase.
2. Second phase: After ensuring breakthrough of the product in to the market, the plant has
intended introducing paper packaging production plant in near future.
3. Third phase: The envisaged plant intended to expand the production of all products in its
next phase which is after achieving full capacity production of BM plastic containers. The
production capacity will be estimated 1.000 ton per annum of BM plastic containers.
31
3 BM Container 5 L 124.64 151.35 178.06 58%
Total 214.90 260.95 307.00 100%
6.3 Location
I. General: The selection of the location of the plant as mentioned above takes the
following factors into account.
Raw material availability
Market; Proximity
Energy supply
Water supply
Infrastructural requirements
Investment incentives
Socio economic condition
The selection of the location of the plant as mentioned above takes the following factors into
account.
Raw material: The main raw materials required for plastic containers are PET, HDPE,
LDPE, PP granules, additives and coloring Pigments, all of which have to be imported.
Core location: -the preferred location for the envisaged plant is in Dukem, Oromiya
Regional State.
Electric supply: The site should situate with the availability of electricity supply.
Infrastructure: Access roads should construct to the main road and shall not have problems
to transporting of goods and raw materials.
Proximity to market: Dukem is positioned in a good location for distributing the products.
Hence is very suitable to distribute its products to all destinations.
Investment policy: The social and political environment that has created a situation of
unparalleled growth. The government gives investment incentives to lure investors in all
sectors of the economy. Hence, it is believed that there will be an upsurge of demand in the
food, beverage and chemical products and a player in the regional market. Development in
the sector will enhance trade to neighboring countries, reduce import gain foreign currency
and supply markets located outside of the country.
II. Location
For the envisaged project, its products are intermediate product used for packaging of various
products manufactured by other industries and their geographical distributions is limited and
are mostly located in or around major cities and towns of the country.
32
In addition to this, all the major raw materials shall be imported. Thus, the preferred location
for the envisaged plant is in Dukem, Oromiya Regional State, Ethiopia
33
7 Materials and inputs
7.1 General
The capacity of the envisaged plant is to produce307 tons of BM plastic products with
different sizes in its first phase.Since there is a rapid growth and the pace of urbanization
undergoing in this country, the demand of all types of the plastic packaging products and
containers has greatly increased. Therefore there may be a wide chance to expand the
capacity of the factory accordingly.
The raw materials and inputs required for plastic packaging material and containers
manufacturing process can be preliminarily categorized as direct and indirect raw materials,
The main and direct raw materials for BM plastic containers are PET, HDPE, LDPE, PP
granules, additives and coloring Pigments. In addition factory inputs and supplies for
packaging such as cardboard (Cartoon) and polyethylene sheet, oil, grease and consumables
are required.
This section of the study, therefore, discusses about the characteristics, availabilities and
sources of the raw materials listed below. Plastic resins are made by heating hydrocarbons in
what is known as the "cracking process." The goal here is to break down the larger molecules
into ethylene, propylene, vinyl and other types of hydrocarbons.
The type of plastic resin used for production of BM Plastic containers are:
Polyethylene(PE) resin /HDPE/LDPE
Polypropylene (PP) resin
34
The production of such raw material is usually associated with the availability of crude
petroleum, and natural gas. It can also be produced from sugar cane product like bio ethanol
and crops syrup. Hence, plastic resins are mainly produced in the countries where crude oil
and its refineries exist but it does not mean that the production of plastic resin necessitates the
availability of crude oil. There are countries that do not produce crude oil but have oil
refinery facility which have also the chance to produce plastic resin.
Polypropylene resin is a synthetic polymer that can be used to produce a wide range of
products. This polymer is made from a combination of propylene and other decades waste.
Polypropylene resin, also known as poly-propene resin, is a thermoplastic polymer used in a
wide variety of applications such as packaging, and pipe.
III. Additives
In plastic product production processes a numbers of additive are used.
At present, the sources of supply to the local market for HDPE/LDPE resins are import. The
product is imported by the local plastic products manufacturers and processed in to various
goods. The main sources of raw material countries are China, India, Saudi Arabia, Germany
and United Arab Emirates.
The data source for import statistics i.e. Ethiopian Revenue and Customs Authority classifies
import of PE resins under the following headings.
According to the data obtained from Indian’s supplier of raw material, the average selling
price of the raw materials in the international market is presented as follows:
35
Average Selling
S/n Description price in USD
1 HDPE Granule (Tons) 1,100.00
Table 7.4: Annual raw material & auxiliary materials and costs at full capacity
7.3.2 Utilities
The major utilities required by the envisaged project are electric power, water & fuel oil.
The annual requirement of utilities and the corresponding cost is indicated in Table 6.3. The
total cost of utilities is estimated at Birr 915,060.00.
36
8 Engineering and technology
8.1 Technology
37
8.1.2 Plastic Containers Production Process
Blow molding is a manufacturing process that is used to create hollow plastic parts by
inflating a heated plastic tube until it fills a mold and forms the desired shape. The raw
material in this process is a thermoplastic in the form of small pellets or granules, which is
first melted and formed into a hollow tube, called the parison. There are various ways of
forming the parison, as explained below. The parison is then clamped between two mold
halves and inflated by pressurized air until it conforms to the inner shape of the mold cavity.
Typical pressures are 25 to 150 psi, far less than for injection molding. Lastly, after the part
has cooled, the mold halves are separated and the part is ejected. Parts made from blow
molding are plastic, hollow, and thin-walled, such as bottles and containers that are available
in a variety of shapes and sizes. Small products may include bottles for water, liquid soap,
shampoo, motor oil, and milk, while larger containers include plastic drums, tubs, and
storage tanks. Blow molded parts can be formed from a variety of thermoplastic materials,
including the following:
Generally, the theory of blow molding can be reduced to six simple individual steps:
A thermoplastic resin is heated to a molten state
It is then extruded through a die head to form a hollow tube called a parison.
The parison is dropped between two mold halves, which close around it.
The parison is inflated.
The plastic solidifies as it is cooled inside the mold.
The mold opens and the finished component is removed.
There are basically four types of blow molding used in the production of plastic bottles, jugs
and jars. These four types are:
i. Extrusion blow molding
ii. Injection blow molding
iii. Stretch blow molding
iv. Reheat and blow molding.
i. Extrusion blow molding: An extruder uses a rotating screw to force the molten
plastic through a die head that forms the parison around a blow pin. The parison is
extruded vertically between the two open mold halves, so they can close on the
parison and blow pin. Pressurized air flows through the blow pin to inflate the
parison. This is the most common type of blow molding and is used to manufacture
large quantities of relatively simple parts.
38
ii. Injection blow molding: The molten plastic is injection molded around a core inside
a parison mold to form the hollow parison. When the parison mold opens, both the
parison and core are transferred to the blow mold and securely clamped. The core
then opens and allows pressurized air to inflate the parison. This is the least
commonly used method because of the lower production rate, but is capable of
forming more complicated parts with higher accuracy. Injection blow molding is often
preferred for small, complex bottles, such as those in medical applications.
iii. Stretch blow molding: The parison is formed in the same way as injection blow
molding. However, once transferred to the blow mold, it is heated and stretched
downward by the core before being inflated. This stretching provides greater strength
to the plastic. Stretch blow molding is typically used to create parts that must
withstand some internal pressure or be very durable, such as soda bottles.
Attractive plastic products are key elements that appeal to the customer, since similar
products vary nominally amongst various manufacturers. Usually the production manager
decides on the color in consultation with the owner and then develops the pigment mix in
terms of quantity and quality to meet the desired color schemes. The color pigments are then
bought from the market and added to the plastic resins which are then churned in the
coloring machine. Once the resins are colored according to the desired intensity, they are
dried and cooled before being subsequently poured into the injection molding machine.
BM container manufacturing process includes those shown in the process flow diagram
below:
Diagram 7.1: BW Manufacturing Process Flow Diagram
Resin Hopper
Resin is heated to a
molten state
Parison is dropped
between
Parison is inflated
Finished component
is removed
39
8.1.5 Quality Control
In order to manufacture good quality products, it is utmost urgent to purchase good quality of
raw material from only the established and renowned suppliers. Before putting the raw
material into operation all those has got to be tested for their chemical properties at the gate
testing facilities and after the finished product. Quality means the producer has to satisfy the
desire and urge of uses.
A proper quality control system considerably minimizes waste or the rejection of end
products and thereby avoids complaint by customers. It also reduces the envisaged factory’s
operating costs as it facilitates timely corrective measures. Accordingly, the quality control
service of the envisaged plant requires a laboratory appropriate for conducting tests of raw
materials and final products
Keeping in view the demand of people from quality point of view it is necessary to adopt
better technique of manufacturing and good quality of raw material.
Air Emissions: The expected air emission from the production process the envisaged flexible
filmand injected rigid container producing plant is mainly the following:
The emission rate is very insignificant and the major sources are plastic granule
swarming/melting, additives (coloring pigments) paints and solvents, oil vapors, odors, gases
from different operations and could be easily mitigated through installation of efficient
ventilation system; workers wear suitable masks when needed, sustainable maintenance for
all machinery and continuous surveillance. More over from the printing operation and
cleaning different parts of the printing facility solvents such as ethanol has been the most
common additive used in fountain solutions and one of the main contributors to VOC
emissions. Between 90 and 100% of used IPA is emitted to the air as fugitive emissions.
Solid waste: The solid wastes generated from the flexible and plastic packaging production
unit are from cleaning of industry premises, gardens and packing materials as well as some
process scraps from the extrusion and injection operation These kinds of wastes are classified
in to general waste category and they can be collected in a central collection or storage tank
inside the premises of the company and can be sold to external or be recycled for different
application and grades of plastic products .
40
Wastewater: In contrary to many other industries plastic industry do not consume much
water except the major wastewater in this flexible packaging will be waste water from the
cooling of the machines, personnel daily household uses and cleaning. More over used
fountain solution and waste water are often discharged to the sewage system when cleaning
the dampening system. The waste water from cleaning can contain alkali, fungicides, and
solvents. The nitrification inhibiting of damping solutions causes problems for water
treatment plants that have this type of cleaning step for reducing the nitrification. All
wastewater will be collected and for the water for the cooling will be recycled continuously
for longer time and that from the cleaning and sanitation will be collected in sewage tanks
once filled and disposed according to the acting municipality regulations and handling
wastewater will prevent any seepage of bad water to the ground aquifer.
Noise pollution and mitigation plan: Noise pollution is one of the expected pollution type
in metal packaging industry especially in the pressing unit. Noise pollution is expected to
generate from machineries like injection, converting and workshop machinery. The noise
protection for the manufacturing unit shall implement an effective hearing conservation
program. If employee noise exposures are at or above an eight-hour, time-weighted average
of 85 db every employee is expected to wear a hearing protection device.
The glue unit and double backer: Here, the single face web is prepared for gluing to
the outer liner. It is roughly the same process as the single facer unit with some variations of
the pre-heating and gluing processes. This glues the outer liner to the fluting to make single,
double or triple wallboard. The single face web is pre-heated, starch is applied to the tips of
the flutes, and the outer liner is then bonded to the single face web to form corrugated board.
This is a complex operation that requires great expertise in the pre-heating, moisture control
and gluing processes in order to produce perfectly flat, stable sheets of board.
The bridge: This enables the double backer to run at different speeds from the single facer
especially when reel or order changes take place. This is achieved by the single face web
forming festoons that are controlled at the single facer station.
41
The hot plate section: It is at this stage that the combination of the single face web and the
outer liner is completed. The heating section ensures that the bond is strong by gelling the
glue and removing moisture.
The rotary shear: After the board emerges from the double backer, it passes under a rotary
shear that cuts across the whole width of the web when necessary. This is used to chop out
damaged lengths of board or to effect a change over from one grade of board to another. The
small amount of sheared board is ejected from the machine and collected for recycling.
The slitter/ scorer: This operation slits and scores the continuous web of acceptable board
in the machine direction. It is this operation which determines the style of the finished box.
The cut-off knives: These cut the board to the exact required lengths of corrugated sheet to
be used in the making of corrugated packaging.
The stacker: Finally, corrugated sheets are automatically stacked, ready to be moved directly
to the conversion machine or sent to another converting plant.
An extrusion blow-molding machine consists of an extruder that melts the plastic and forms it
into a molten tube (called a parison or preform) through a conventional-type die and a split-
body mold. The die closes around the parison, sealing both ends, and a blow pin is inserted
into the parison to inflate it, causing it to expand and confirm the shape of the mold cavity.
Again, the mold is cooled and once the part has solidified, the mold opens and the part is
removed.
42
The blow molding machine below is used for producing toys, bottles, jerry cans, kettles, milk
tanks, etc, is double station with single die head, which is specially designed for 5l as
maximum volume, suitable for HDPE, PE, PP, PVC, PETG and other materials for blow
molding. The productivity of 5L is higher than 290 pcs per hour.
There are raised regions on the die face to pinch off and seal the parison before blowing.
Recessed regions are provided for flash to flow into, and so minimize the potential for mold
separation due to flashing. Mold inserts are separate components fitted to the mold to produce
specific features, e.g., a thread insert used to produce threads on the neck of a container.
Vents are small channels, perhaps with a porous plug at the mold wall end, to allow air to
escape from between the part wall and mold surface.
Since blow molding pressures are relatively low compared to other molding operations, mold
material strength is not as important and a large proportion of molds are made from high
strength aluminum alloys. However, mold wear may become a problem. Plated steel and
beryllium-copper are alternative materials for molds or these more wear-resistant materials
can be used for various components of aluminum molds, e.g., inserts and pinch offs.
43
8.3.3 Tips for Purchasing a Mold
The mold is the most expensive component requiring considerable investment which is
sometimes higher than the cost of the machinery itself. Therefore as discussed earlier, the
molds need to be carefully chosen based on product acceptance production ease. Some of the
following points should be considered when selecting the mold:
Cavity Size of the injection molding machine is the major factor when deciding on the mold.
The larger the cavity capacity, the greater the adjustability of large size molds for large
products. For example an injection mold machine with 75 ounce cavity capacity cannot
accommodate a 100 ounce mold. It is preferred that the mold should be at least 10 ounce less
than the cavity size.
Mold Area & Structure is another important factor to consider since it is not necessary that
the mold size fits in the cavity as the dimensions of the mold also need to be in congruence
with the cavity dimensions. The length width and depth of the mold needs to be in line with
the cavity dimensions.
Tie Bars are the strongholds that firmly grip the mold such that it remains unmoved during
the impact. The distance between the tie bars which holds the mold and theirrelative
properties need to be considered in order to avoid mismatch and errors during the injection
molding process.
Mold Opening Space is the space required by the ejector mechanism to eject the product, in case the
mold opening space is smaller than the mold, the ejector will not be able to eject the cooled product
within the available space.
44
6 1L bottle mold: With auto-deflashing device set 1 117,600
Steel material, single cavity
7 2L bottle mold: With auto-deflashing device set 1 147,000
Steel material, single cavity
8 3Liter bottle mold Steel material, single cavity set 1 168,000
Auto-deflashing device
9 5L bottle mold:With auto-deflashing device set 1 205,800
Steel material, single cavity
10 Inner cap mold(for 1L,2L and 5L):Four cavities, P20 material set 1 109,200
11 Outer cap mold(for 1L,2L and 5L):Four cavities, P20 material set 1 218,400
12 Mixer: 200kg/hr set 2 210,000
13 Crusher: 30Hp set 1 327,600
14 Water Chiller:30Hp set 1 449,400
15 Water cooling tower: 69Tons, set 1 180,600
16 Screw air compressor:1.0Mpa,3.2m3/min set 1 336,000
+cooling dryer&filters+airtank,1m3
Sub Total 6,316,800.00
B Auxiliary Equipment
1 Laboratory Equipment set 1 175,000.00
2 Hand Tools set 1 100,000.00
3 standby generator Pcs 1 750,000.00
Sub Total 1,025,000.00
Grand Total 7,341,800.00
Vehicles
Vehicles are acquired for providing transportation service for raw material and finish goods
and for commercial and administrative activities. Accordingly, vehicles required by the
envisaged plant and corresponding cost is summarized in table 8.4.
The envisaged plant requires office furniture and equipment for normal operation of the plant
such as chair, shelf, computers etc. for employees. The total cost of office furniture and
equipment is estimated at birr 840,000.
45
9 Land, Building and Civil Works
9.1 General
As stated on the above the promoter has a plan to expand the BM plastic containers
production plant and to establish a new paper packing production plant and intended to
expand the production plant. Hence the plant requires enough spaces for factory building and
offices. And the factory will have basic structures to institute the plant, ware house to store
raw materials and finished goods, workshops, laboratory shop, cafeteria, open space for
product loading and unloading and green area.
I. Reserved area
The project will be realized in the reserved land owned by the promoter which is provisioned
for the intended factory located in Dukem, Oromiya regional state. The total estimated area of
land requirement for the plant is 5800m2 and the area provided is enough to constitute for
basic structures to institute the plant.
The built up area is 1800m2 is needed for production process. However, additional 1200m²
areas shall be constructed buildings for offices, raw material, and finished product storage.
Moreover, the remaining 1000m2 will be reserved for loading, unloading and parking
services. The detail of land allocation to the proposed building components is presented in
table 9.1.
For the purpose of the envisaged plant, the location proposed is in Dukem Ormoyia region 1st
grade lease towns and third plot grade, and the average i.e. five years grace period, 27 years
payment completion period and 10% down payment is used. Accordingly, the land lease cost
is Birr 1,196.47 per year.
46
9.3 Building and Infrastructure
The general requirements for the infrastructure in regard to the workshop plant must enable
the following conditions.
iii. Road
To Transport raw materials and finished equipment and as well as allow traffic of plant
personnel generally to facilitate the work condition, the road shall construct inside the plant.
v. Water Supply:
For some of the processes and washing of employee, the plant shall have water resource
whether from municipal water supply. Hence the plant will need adequate water supply to
carry out the process.
vii. Communication
The plant shall have a fax and telephone line for communication.
47
10 Human resource and training requirements
10.1 Organizational structure
The factory will have four functional departments subdivided into sections. The departments
are production and Technical, Finance & Administrative, Marketing and Procurement. This
arrangement is made because the nature of the process involves a number of operations and
staffs. Each service, department and section will be headed by qualified and experienced
professionals.
Organization chart/structure
Board of Directors
General Manager
Executive Secretary
48
10.2 Human resource requirement and Salary with qualification
Total number of manpower required for the production plant is 38 persons. Detailed of the
manpower requirement and the corresponding annual labor cost are shown in Table 10.1.
The total annual cost of man power is estimated at Birr 1,620,240.00.
Table 10.2: Manpower requirement and annual labor cost
Req. Monthly salary Annual salary
S/n Description UOM No. (In Birr) (In Birr)
1 General manager office
1.1 General manager Pr 1 15,000.00 180,000.00
1.2 Secretary Pr 1 3,500.00 42,000.00
Sub total 2 222,000.00
2 Finance and HR Department
2.1 Finance and HR Head Pr 1 8,000.00 96,000.00
2.2 Accountant Pr 2 4,000.00 96,000.00
2.3 Casher Pr 1 3,000.00 36,000.00
2.4 Personnel Pr 1 3,000.00 36,000.00
2.6 Drivers Pr 3 2,000.00 72,000.00
2.7 Guards Pr 4 1,200.00 57,600.00
Sub total 12 393,600.00
3 Marketing Department
3.1 Marketing & procurement Head Pr 1 8,000.00 96,000.00
3.2 Salesman Pr 2 4,000.00 96,000.00
Sub total 3 192,000.00
4 Procurement Department
4.1 Procurement Head Pr 1 8,000.00 96,000.00
4.2 Purchaser Pr 2 4,000.00 96,000.00
4.3 store keeper Pr 2 2,000.00 48,000.00
Sub total 5 240,000.00
Technical & production
5 Department
5.1 Technical & production manager Pr 1 8,000.00 96,000.00
5.2 production supervisor Pr 1 4,000.00 48,000.00
5.3 Technical supervisor Pr 1 4,000.00 48,000.00
5.5 Mechanic Pr 2 3,000.00 72,000.00
5.6 Electrician Pr 2 3,000.00 72,000.00
5.7 Operator Pr 8 2,000.00 192,000.00
5.8 quality control Pr 1 3,500.00 42,000.00
Sub total 16 570,000.00
Grand Total 38 1,617,600.00
Employment benefits and allowances 5% 242,640.00
Total Annual Labor cost 1,620,240.00
Total monthly Labor cost 135,020.00
49
10.3 Training requirement
Since the selected manufacturing technology practice and experience is limited, appropriate
trainings for selected production operators, electrical and mechanical maintenance personnel
from the technology supplier before and during machinery erection, commissioning and
running should be delivered.
The training delivered by the technology supplier delivers skill and knowledge of the
operation and product quality which will cover mainly:
Line operation.
Troubleshooting and maintenance
Accordingly the number of trainee and their related training cost is presented below:
Table 10.1: Number of trainee and trainers and their related training cost
Duratio Number
Rate Training cost in
No. Employees n of
(birr/month) Birr
( Month) Trainee
1 Trainees
1.1 Production operator 2 5 4,000.00 40,000
Electrical and mechanical
1.2 2 4 4,000.00 32,000
maintenance technician
2 Trainers
2.1 Production 2 2 30,000.00 120,000
2.2 Maintenance 2 2 40,000.00 160,000
Total Training cost in Birr 352,000.00
50
11 Project Implementation plan
The first step to be taken in the execution of the project is the constitution of an appropriate
project organization which would be responsible for the execution of the project without any
cost or time overruns. For a project the following are identified as the important phases.
These phases are not mutually exclusive and some degree of over lapping is envisaged.
Appraisal of the feasibility report by Financial Institution/ Funding Agency.
Financial closure
Detailed planning
Procurement packages including inspection and expediting.
Inter-package Engineering
Project management and Cost control
Construction phase
Commissioning and performance testing
The first step to be taken in the execution of the project is the constitution of an appropriate
project organization. To that end the existing plant is has adequate manpower with has rich
experience in hot rolling technology so that technical and engineering team could be
organized from the existing staffs.
More over procurement and project finance services required could be supported from
existing service and functional department of the company in parallel with the existing work
process. However it is recommended to hire overall project coordinator and hot rolling
technologist from external to avoid any gaps regarding the project management concept and
also the technology itself for the better project performance.
The project implementation schedule has different stages of activities starting with the
evaluation & approval of the project up to commissioning of the plant. All in all, it is
assumed that it will take 12 months.
For all packages, the schedules include the following applicable activities, along with the
minimum time period required for each activity:
Detailed Specification / Tender document
Receipt of offers, evaluation, discussions an purchase order placement
Design manufacture and delivery
Installation and other inter connection works at site
commissioning , trial run and testing
51
The time schedule for the implementation of the project has been worked out in a manner
that the various activities specified under the different phases is carried out in accordance to
their logical sequence.
The realization of the project is based on the following phases which are depicted in detail as
follows.
52
Table: 11.1: Pre - implementation & implementation time schedule
Month
S/n Activities To be performed 1 1
1 2 3 4 5 6 7 8 9 12
0 1
1 Project proposal Draft & Final Report Consultant
2 Appraisal & Approval Promoter
3 Project office establishment Project office
4 Legalization of office Project office
5 Financial Arrangement Project office
Communicating with Suppliers & bring Pro forma
6 Project office
invoice
7 Bank loan Approval Bank(DBE or other commercial bank)
8 Site preparation, Infrastructure Project office
9 Utility connection Project office &EED
10 Procure of Machines Project office
11 Procure of Raw material Project office
12 Erection Supplier
13 Start up and commissioning Supplier
14 Manpower Recruitment Project office
15 Training Supplier
16 Technical Assistance Supplier
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Feasibility Study for Establishment of Carton and Plastic
Containers Materials Manufacturing Plant Pazalo Grand Trading PLC
12 Financial analysis
For BM Plastic container production Project both financial and Economic analysis are
elaborated by using spreadsheet (Excel) program. Using the spreadsheet all relevant data and
results of the analysis are presented under the following schedules attached with main
document.
The report also has relevant supplementary workouts and detail source tables appended (see
Appendix)
According to the implementation plan of the project, the construction period allotted for the
entire project from the start of approving loan to the final commissioning is 1 year. With
regard to operational life of the project, a standard assumption of 10 years is considered.
Hence, the costs and benefits of the project are computed over 11 years.
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Feasibility Study for Establishment of Carton and Plastic
Containers Materials Manufacturing Plant Pazalo Grand Trading PLC
The working capital requirement of the project during operation is calculated on the basis of
the minimum days of coverage needed for the different elements of the working capital.
Hence, the minimum days are specified as follows.
12.2.5 Discounting
The total investment and equity capital of the project are discounted at 16 per cent over the
life of the project.
12.2.6 Taxes
The applicable taxes considered for the study are:
Custom duties on capital goods for (machinery, equipment, auxiliary materials and
installation) plus spare parts the value which is not greater than 15% of the total value
of the capital goods within 5 years from the date of commissioning of the project
thereon enter duty free.
Custom duties on vehicles of pickup and Isuzu enter duty free
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Feasibility Study for Establishment of Carton and Plastic
Containers Materials Manufacturing Plant Pazalo Grand Trading PLC
12.2.7 Incentives
The regional government provided a 2 years grace period on land lease payment to
manufacturing industry.
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Feasibility Study for Establishment of Carton and Plastic
Containers Materials Manufacturing Plant Pazalo Grand Trading PLC
The investment requirement of the project is assumed to be financed both from bank loan and
equity capital. Accordingly, for the envisaged plant it is assumed that the source of finance
will be through lease financing, which is capital goods covered by long-term bank loan and
the working capital and other pre-production costs will be covered from equity and will be
based on the procedures of the financial institution.
The type of loan is further assumed to be a constant principal bank loan, with a loan
repayment period of 5 years and with 1 year of grace period. The annual interest rate
including the various fees is taken to be 16%.
The total investment cost of the project including working capital is estimated at Birr 20.92
million. From the total investment cost, the highest share (Birr 14.19 million or 67.8%) is
accounted by fixed investment cost followed by initial working capital (Birr 4.73 million or
22.6%) and pre operation cost (Birr 2 million or 9.6%). (For details see Table 12.3 below)
Table 12.3 initial investment cost (Birr)
S/n Cost Items Total investment (Birr)
1 Fixed investment
1.1 Land lease 8,408.28
1.2 Executed Building & civil work 5,000,000.00
1.3 Remaining Building & civil work 1,500,000.00
1.4 Machinery and equipment 7,341,800.00
1.5 Vehicles 1,500,000.00
1.6 Office furniture and equipment 840,000.00
Sub total 14,190,208.28
2 Pre operating cost 2,000,000.00
3 Working capital 4,731,160.38
Grand Total 20,921,368.66
The company has offered manufacturing site property with total area of 3,000m 2 asset as
collateral for this loan which located in Dukem. The site has a building structure constructed
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Feasibility Study for Establishment of Carton and Plastic
Containers Materials Manufacturing Plant Pazalo Grand Trading PLC
by Pre Building Concrete structure (PEB) for production with a built up area of 1200m 2.
The value of the collateral asset estimated an amount of Birr 15,000,000.
The title deed/proof of ownership has presented in separate documents.
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Feasibility Study for Establishment of Carton and Plastic
Containers Materials Manufacturing Plant Pazalo Grand Trading PLC
12.4 Revenue
The annual revenue generated by the factory at full capacity operation is estimated at Birr
31.47 million (see Table 12.2)
12.5.1 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 7.57 million to Birr 8 million
during the life of the project. Moreover, at the end of the project life the accumulated net cash
flow amounts to Birr 74.2 million.
12.5.2 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
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Feasibility Study for Establishment of Carton and Plastic
Containers Materials Manufacturing Plant Pazalo Grand Trading PLC
by total investment) has been carried out over the period of the project life and all the results
are found to be satisfactory.
Net profit as % of sales revenue lies between 21% and 36% where net profit is positive. Net
profit to equity and net profit to total investment or return on investment (ROI) are also
attractive.
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.
Theinvestmentcostandincomestatementprojectionareusedtoprojectthepay-back period
Accordingly, based on the projected cash flow it is estimated that the project’s initial
investment will be fully recovered within three years.
The break-even point indicates the risk associates with a possible reduction in production and
sales through the impact on the project's profitability. It is calculated as the ratio between
fixed costs plus financial cost and the difference between sales and variable costs.
Break-even point = Fixed cost + Financial cost
Sales- Variable cost
In this project, the figures, for the reference year of starting full operation, year 3, are as
follows:
31,468,917
Sales : Birr
.80
19,796,765
Variable cost : Birr
.96
Fixed cost : Birr 213,575.67
1,960,077.
Financial costs : Birr
06
The break- even point (including financial costs) is therefore equal to:
213,575.67 + 1,960,077.06= 0.19 or 19%
31,468,917.80- 19,796,765.96
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Feasibility Study for Establishment of Carton and Plastic
Containers Materials Manufacturing Plant Pazalo Grand Trading PLC
This means that the project could remain profitable under the condition that production is
kept above 19% of nominal capacity.
The positive financial performances are manifested in the balance sheet. As can be seen from
the projected Balance sheet, the present net worth of the factory, which was about Birr 20.92
million at the first year, will rise to Birr 76.82 million at the end of the project life.
Important financial efficiency ratios like current assets to current liabilities, and net cash flow
to sales all show that the project is highly liquid and has sound financial performance.
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 38% indicating the viability of the
project.
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.
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Feasibility Study for Establishment of Carton and Plastic
Containers Materials Manufacturing Plant Pazalo Grand Trading PLC
Accordingly, the net present value of the project at 16% discount rate is found to be Birr 58
million which is acceptable.
A sensitivity analysis on selected cost components has been further conducted to test the
strength and viability of the project. In view of this, extreme conditions like cost escalation
on investment and operation cost and a decrease of revenue due to various factors have been
therefore examined. Accordingly, the project is found to be relatively sensitive to a decrease
in sales revenue and increase in investment cost. The project can sustain a cost escalation by
20% in investment cost and operating cost and still be viable. Moreover, case of 20%
decrease in sales revenue the project will still be viable.
Table 12.7: Sensitivity Analysis
The envisaged project possesses wide range of benefits that promotes the socio-economic
goals and objectives stated in the strategic plan of the country as well as the regional state. It
also plays a role in diversifying the economic activity of the country.
A. Profit Generation
The project is found to be financially viable and earns total Net profit of Birr 74.99 Million
within the project life. Such result induces the project promoters to reinvest the profit which,
therefore, increases the investment magnitude in the country. This would be one of the
commendable accomplishments of the project.
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Feasibility Study for Establishment of Carton and Plastic
Containers Materials Manufacturing Plant Pazalo Grand Trading PLC
B. Tax Revenue
In the project life under consideration, the city will collect about Birr 25.46 Million from
corporate tax payment alone (i.e. excluding income tax). Such result create additional fund
for the regional state and the country that will be used in expanding social and other basic
services in the region.
C. Employment
The proposed project is expected to create employment opportunity to several citizens of the
country and region. That is, it will provide permanent employment to 38 professionals as well
as support staffs permanently and 12 persons temporarily.
D. Economic
The establishment of such factory will have a foreign exchange saving effect to the country
by substituting the current imports as well as a foreign currency earning effect to the
currency. The project will also create backward linkage with chemical industry and forward
linkage with chemical, pharmaceutical, food and beverage industry sectors and also generates
other income for the Government.
D. Pro-Environment Project
The proposed operation process is environment friendly.
13 Annexes
Financial analysis supporting tables
Annex I: Working Capital
Annex II: Production Cost
Annex III: Sales Revenue
Annex IV: Income statement
Annex V: Cash Flow
Annex VI: Discounted cash flow
63
Establishment of Carton and Plastic Containers Materials Manufacturing Plant Pazalo Grand Trading PLC
Item Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11
Raw Material and
12,128,906 14,727,958 17,327,009 17,327,009 17,327,009 17,327,009 17,327,009 17,327,009 17,327,009 17,327,009
Inputs
Utilities 640,542 777,801 915,060 915,060 915,060 915,060 915,060 915,060 915,060 915,060
Maintenance and
repair
146,836 146,836 146,836 146,836 146,836 146,836 146,836 146,836 146,836 146,836
Labour direct 1,620,240 1,620,240 1,620,240 1,620,240 1,620,240 1,620,240 1,620,240 1,620,240 1,620,240 1,620,240
Land lease cost 1,196 1,196 1,196 1,196 1,196 1,196 1,196 1,196 1,196 1,196
Total Operating
Costs
14,537,721 17,274,031 20,010,342 20,010,342 20,010,342 20,010,342 20,010,342 20,010,342 20,010,342 20,010,342
Depreciation 975,340 975,340 975,340 975,340
Cost of Finance 2,165,831 1,960,077 1,773,870 1,605,352 1,468,360
Total Production 15,513,061 20,415,202 22,945,759 22,759,551 21,615,694 21,478,702 20,010,342 20,010,342 20,010,342 20,010,342
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Establishment of Carton and Plastic Containers Materials Manufacturing Plant Pazalo Grand Trading PLC
Cost
Annex III: Sales Revenue (in Birr)
Local currency Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11
Capacity 22,028,242 26,748,580 31,468,918 31,468,918 31,468,918 31,468,918 31,468,918 31,468,918 31,468,918 31,468,918
Gross sales revenue 22,028,242 26,748,580 31,468,918 31,468,918 31,468,918 31,468,918 31,468,918 31,468,918 31,468,918 31,468,918
Less sales tax 22,028,242 26,748,580 31,468,918 31,468,918 31,468,918 31,468,918 31,468,918 31,468,918 26,748,580 26,748,580
Subsidy 22,028,242 26,748,580 31,468,918 31,468,918 31,468,918 31,468,918 31,468,918 31,468,918 26,748,580 26,748,580
SALES REVENUE - - - - - - - - -
Foreign share (%) 15,513,061 20,415,202 22,945,759 22,945,759 22,945,759 22,945,759 22,945,759 22,945,759 22,945,759 22,945,759
PRODUCTION
COST 6,515,182 6,333,378 8,523,159 8,523,159 8,523,159 8,523,159 8,523,159 8,523,159 3,802,821 3,802,821
PROFIT BEFOR
TAX 2,556,948 2,556,948 2,556,948 2,556,948 2,556,948 1,140,846 1,140,846
TAX(corporate) 6,515,182 6,333,378 8,523,159 5,966,211 5,966,211 5,966,211 5,966,211 5,966,211 2,661,975 2,661,975
Net Profit 22,028,242 26,748,580 31,468,918 31,468,918 31,468,918 31,468,918 31,468,918 31,468,918 31,468,918 31,468,918
65
Establishment of Carton and Plastic Containers Materials Manufacturing Plant Pazalo Grand Trading PLC
Item Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11
22,028,242 26,748,580 31,468,918 31,468,918 31,468,918 31,468,918 31,468,918 31,468,918 31,468,918 31,468,918
Sales revenue
13,857,736 16,827,251 19,796,766 19,796,766 19,796,766 19,796,766 19,796,766 19,796,766 19,796,766 19,796,766
Less variable costs
VARIABLE 8,170,506 9,921,329 11,672,152 11,672,152 11,672,152 11,672,152 11,672,152 11,672,152 11,672,152 11,672,152
MARGIN
in % of sales 0.371 0.371 0.371 0.371 0.371 0.371 0.371 0.371 0.371 0.371
revenue
149,503 181,539 213,576 213,576 213,576 213,576 213,576 213,576 213,576 213,576
Less fixed costs
OPERATIONAL 8,021,003 9,739,790 11,458,576 11,458,576 11,458,576 11,458,576 11,458,576 11,458,576 11,458,576 11,458,576
MARGIN
in % of sales 0.364 0.364 0.364 0.364 0.364 0.364 36.412 0.364 0.364 0.364
revenue
0 2,165,831.0 1,960,077.0 1,773,869.7 1,605,352.11 1,468,360.0 - - - -
Financial costs
0 6 3 0
8,021,003 7,573,959 9,498,499 9,684,706 9,853,224 9,990,216 11,458,576 11,458,576 11,458,576 11,458,576
GROSS PROFIT
in % of sales 36% 28% 30% 31% 31% 32% 36% 36% 36% 36%
revenue
Income 0 2,849,550 2,905,412 2,955,967 2,997,065 3,437,573 3,437,573 3,437,573 3,437,573
(corporate) tax
8,021,003 7,573,959 6,648,949 6,779,295 6,897,257 6,993,151 8,021,003 8,021,003 8,021,003 8,021,003
NET PROFIT
in % of sales 36% 28% 21% 22% 22% 22% 25% 25% 25% 25%
revenue
66
Establishment of Carton and Plastic Containers Manufacturing Plant Pazalo Grand Trading PLC
Item Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Scrap
TOTAL CASH 20,921,3 22,028,2 26,748,5 31,468,9 31,468,9 31,468,91 31,468,91 31,468,91 31,468,9 31,468,91 31,468,91
INFLOW 69 42 80 18 18 8 8 8 18 8 8 2,622,410
Inflow funds 20,921,3
69 0 0 0 0 0 0 0 0 0 0 0
Inflow operation 22,028,2 26,748,5 31,468,9 31,468,9 31,468,91 31,468,91 31,468,91 31,468,9 31,468,91 31,468,91
42 80 18 18 8 8 8 18 8 8 0
Other income 2,622,409.
0 0 0 0 0 0 0 0 0 0 82
TOTAL CASH
OUTFLOW 20,921,3 14,537,7 19,439,8 24,819,9 24,689,6 24,571,66 24,475,76 23,447,91 23,447,9 23,447,91 23,447,91
69 21 62 68 23 1 6 4 14 4 4 0
Increase in fixed 20,921,3
assets 69 0 0 0 0 0 0 0 0 0 0 0
Increase in
current assets 0 0
Operating costs 14,537,7 17,274,0 20,010,3 20,010,3 20,010,34 20,010,34 20,010,34 20,010,3 20,010,34 20,010,34
0 21 31 42 42 2 2 2 42 2 2 0
Income tax 2,849,55 2,905,41 3,437,57
0 0 0 0 2 2,955,967 2,997,065 3,437,573 3 3,437,573 3,437,573
Financial costs 2,165,83 1,960,07 1,773,87
0 0 1 7 0 1,605,352 1,468,360 0 0 0 0
SURPLUS 7,490,52 7,308,71 6,648,94 6,779,29 8,021,00
(DEFICIT) 0 2 8 9 5 6,897,257 6,993,151 8,021,003 3 8,021,003 8,021,003 2,622,410
CUMULATIV
E CASH 7,490,52 14,799,2 21,448,1 28,227,4 35,124,74 42,117,89 50,138,89 58,159,8 66,180,90 74,201,90 76,824,31
BALANCE 2 39 89 83 0 2 5 98 1 5 5
67
Establishment of Carton and Plastic Containers Manufacturing Plant Pazalo Grand Trading PLC
68