PROJECT PROPOSAL FOR

CEMENT PRODUCTS MANUFACTURING

PLANT

PROJECT TO BE IMPLEMENTED IN JALDU DISTRICT,

WEST SHOA ZONE, OROMIA REGION STATE

PROMOTER: - BIYA TRADING & COMMERCIAL INDUSTRY

FEB, 2021
ADDIS ABABA, ETHIOPIA
 TABLE OF CONTENT
TABLE OF CONTENT.....................................................................................................................................2
EXECUTIVE SUMMARY.................................................................................................................................4
1. INTRODUCTION...............................................................................................................................5
1.1. Objective of the project.............................................................................................................6
1.2. The Economic Significance of the Project.............................................................................6
1.3. Location and Premises Required............................................................................................8
1.4. Location Map of the Area (Ada’a Barga)..............................................................................10
2. MARKET STUDY AND PLANT CAPACITY................................................................................11
2.1. Market Study............................................................................................................................11
2.1.1. Demand and Supply Analysis........................................................................................11
2.1.2. Market Prospects............................................................................................................12
2.1.3. Marketing Strategy and Promotion...............................................................................12
2.1.4. Target customers............................................................................................................12
2.2. Plant Capacity and Production Program..............................................................................13
2.3. Pricing.......................................................................................................................................13
3. PRODUCTION AND TECHNOLOGY..........................................................................................14
3.1. Product Nature and Description............................................................................................14
3.2. Raw materials and Input........................................................................................................14
3.3. Technology..............................................................................................................................14
3.4. Production Description...........................................................................................................14
3.4.1. Production Process.........................................................................................................15
3.5. Machinery and Equipments...................................................................................................18
3.6. Project Design and Engineering............................................................................................20
3.7. Building and Construction Works..........................................................................................21
3.8. Utilities......................................................................................................................................21
4. MANPOWER AND ORANIZATIONAL MANAGEMENT............................................................21
4.1. Manpower................................................................................................................................21
4.2. Organizational Structure and management.........................................................................22
4.3. Training Requirement.............................................................................................................24

2
5. FINANCIAL REQUIRMENT and ANALYSIS...............................................................................25
5.1. Total Initial Investment Cost..................................................................................................25
5.1.1. Fixed Investment.............................................................................................................26
5.2. Annual Production Cost at Full Capacity.............................................................................29
5.3. Financial Analysis and Statements.......................................................................................32
5.3.1. Underlying Assumption...................................................................................................32
5.3.2. Sources of Fund..............................................................................................................33
5.3.3. Loan repayment Schedule.............................................................................................34
5.3.4. Depreciation Schedule...................................................................................................34
5.3.5. Revenue Projection.........................................................................................................35
5.3.6. Profitability........................................................................................................................37
5.3.7. Break-Even Analysis.......................................................................................................37
5.3.8. Pay-Back Period..............................................................................................................38
6. FUTURE DEVELOPMENT............................................................................................................38
7. ENVIRONMENTAL IMPACT OF THE PROJECT......................................................................38
7.1. Socio-Economic Environment...............................................................................................38
7.2. Environmental Impact Assessment of the Project..............................................................39

3
 EXECUTIVE SUMMARY
1. Project name Cement Factory

2. Project Owners Biya Trading & Commercial Industry

3. Nationality Ethiopian

4. Project Location Jaldu Woreda, West Shoa Zone, Oromia Reginal State

5. Project Composition
1. Ordinary Portland Cement (OPC) Ordinary Portland cement is the
most widely used type of cement, which is suitable for all general
concrete construction
2. Portland Pozzolana Cement (PPC)
3. Quick setting cement
4. Low Heat Cement
5. Sulfates Resisting Cement
6. Blast Furnace Slag Cement
7. High Alumina Cement
8. Gypsum Products

1. Premises Required 200,000 M2 (20 hec)

2. Total Initial Br 1,808,526,073.00 of which 30% equivalent to 542,557,821.90

Investment Capital financed by the owners equity and the rest 70% equivalent to
1,265,968,251.10 financed through bank loan

3. Employment The total manpower required for the plant will be 5,600 employees
Opportunity Permanent Worker :- 2,000
Skilled and Unskilled
On Temporary Basic :- 3,600
Skilled and Unskilled

4. Benefits of the Produce and supply of quality cement Products, add value to the
factory For The economy, Source of Revenue, Employment opportunity, Save Foreign
Region/ Country currency, Benefit for the Local Community, Stimulate the Local
Economy and technology transfer

5. Experience The Owner experienced has a different business experience and has
grown to successful to different business activates

4
1. INTRODUCTION

Cement manufacturing is a complex process that begins with mining and then grinding
raw materials that include limestone and clay, to a fine powder, called raw meal, which
is then heated to a sintering temperature as high as 1450 °C in a cement kiln.
Cement is manufactured by heating a precise mixture of finely ground limestone, clay
and sand in a rotating kiln to temperatures reaching 1450ºC. ... The cement clinker
emerges from the kiln, is cooled, and then finely ground to produce the powder we know
as cement. Cement is manufactured through a closely controlled chemical combination
of calcium, silicon, aluminum, iron and other ingredients. Common materials used to
manufacture cement include limestone, shells, and chalk or marl combined with shale,
clay, slate, blast furnace slag, silica sand, and iron ore

Because it is a major component of both of these building materials, cement is an

extremely important construction material. It is used in the production of the many
structures that make up the modern world including buildings, bridges, harbors, runways

and roads

Manufacturing Small and Medium Enterprises (SMEs) make up the largest and the most
important segment of the industrial sector in Ethiopia. In 2000, for example, SMEs
contributed to 68 per cent of gross value of production and over 80 per cent of
employment in the manufacturing sector. As will be shown below, SMEs, especially the
latter, are among the most dynamic and innovative enterprises in the country. In
reviewing the investment and technology policies of Ethiopia, therefore, it is pertinent
that special attention is paid to the pattern of development and the strengths and
weaknesses of SMEs in Ethiopia.

Besides, development of small and medium industries accelerates the fast economic
growth of Ethiopia and will help the nation lay its economy foundation on strong
industrial base. However, there exist constraints on the transition of these industries to
the heavy one.

5
The government of Ethiopia has developed a conducive investment policy packages
and other sectoral reforms at federal and regional level to attract a huge private
investment including in MSEs for the wellbeing of the nation and its citizens as a whole.
Besides, it is also currently implementing the five years growth and transformation plan
gave a special focus for manufacturing, small, medium and large industries.

In this regard, the Oromia regional state government has been exerting its maximum
effort to expand investment opportunities in the region, so as to foster the economic
development of the region and subduing the region’s big enemy that is the trap of
poverty. Therefore, the regional government has been preparing a viable business
environment to attract many domestic and foreign investors so that the dream of making
poverty history turns to be true.

Therefore, the lucrative market potential and those viable investment policies attracted
the owners of this project to engaged Cement factory in Jaldu district, west shoa Zone
in Oromia region.

The owners of this envisaged plant have a good business experiences and need to
extend this asset to this plant. Therefore, the owner is very determined to establish the
plant and considers getting the required support from regional government by
considering the existing facts and the multi benefits of this project.

Cement is a finely ground, non-metallic, inorganic powder when mixed with water forms
a paste that sets and hardens. This hydraulic hardening is primarily due to the formation
of calcium silicate hydrates as a result of the reaction between mixing water and the
constituents of the cement. In the case of aluminous cements hydraulic hardening
involves the formation of calcium aluminate hydrates.

Cement is a basic material for building and civil engineering construction. In Europe the
use of cement and concrete (a mixture of cement, aggregates, sand and water) in large
civic works can be traced back to antiquity. Portland cement, the most widely used
cement in concrete construction, was patented in 1824. Output from the cement

6
industry is directly related to the state of the construction business in general and
therefore tracks the overall economic situation closely.
As Figure 1.1 shows, world cement production has grown steadily since the early
1950s, with increased production in developing countries, particularly in Asia,
accounting for the lion’s share of growth in world cement production in the 1990s.

7
1.1. Overview of ERP implementation in Ethiopian cement Industries
1.1.1 Messobo Cement factory

The construction of the Messebo Cement Factory started in February 1997 and was
completed at the end of 1999. The plant is located in the northern part of Ethiopia, 7 km
from Mekele city. The annual capacity of the plant is 900,000 tones and it is capable of
producing Portland cement with or without additives. The production process of
Messebo cement factory consists of the latest pre-claimer technology. Messebo
Cement Factory was established to become a leader in manufacturing of building
materials in Ethiopia and in the Tigray region and to substitute the importing of cement
to reduce cash out flows, to export qualitative and competitive cement, to supply cement
at low cost and to facilitate the expansion of construction activity in the region as well as
in the country; and to generate profit for its persistence and further expansion. [31]

Coming to the ERP implementation practice of the factory, besides the PLC software
which has both an expert and MIS systems and used for controlling and reporting the
production activities in cement technology, the factory has implemented some modules
of the ERP software used for its business activities. The company implements ERP
software that encompasses the Finance Management system, Material management
System (inventory Management system and the Human resource management system
modules which were developed by the Microsoft Company.

1.1.2. National Cement Share Company (NCSC)

National Cement Share Company (NCSC) was established in November 2005 through
a joint venture of East Africa Mining Corporation, the Federal Government of Ethiopia's
Privatization and Public Enterprises Supervising Agency and others. Over the next few
years, government shares were bought out by East African Mining Corporation. The
company is located 515 kilometers from Addis Ababa, in Dire Dawa Administrative
Region. The factory was the first cement plant in Ethiopia, which was established in
1936 by Italians. It was previously called "Dire Dawa Cement Factory". After renovating
the old factory, the company has boosted which he production from 150 Tons per Day
to 400 TPD and is currently producing 3000 TPD clinker with the new plant.

8
Besides the PLC software which has both an expert and MIS systems and used for
controlling and reporting the production activities in cement technologies, the factory
has implemented Dynamics based ERP system tailored specifically to meet the
requirements of National Cement Share Company. The software was developed and
deployed by Techno Brain Company. Techno Brain is involving in performing IT
Education and Training and started its operations as an IT Training center in Tanzania.
Techno Brain gradually started offering ICT Solutions and Training across the Africa
region. It then expanded operations to African countries.

The ERP solution enabled NCSC to automate critical business functions such as
Finance, Sales, Procurement, Production and Manufacturing among others. The
solution streamlined the individual processes and made them work in tandem to
contribute towards core business objectives. NCSC was also able to achieve greater
flexibility through remote networking. Though the system is hosted at the main
production plan in Dire Dawa, key stakeholders are able to manage real time operations
and financial reports from NCSC's Addis Ababa office via Virtual Private Network. The
newly implemented Dynamics ERP at National Cement Share Company has drastically
reduced strain on the company's human and financial resources through automation.
NCSC officials have a great collaborative platform, which is flexible and efficient to work
on.

1.1.3. Derba Cement Factory

Derba MIDROC Cement PLC is executing a number of cement production projects in

different parts of the country. The 5000 tpd clinkerization (7000 tpd cement) production
plant to be put up at Derba 70 km from Addis Ababa will be the largest and state-of-the-
art cement production plant in the country. The plant produces Ordinary Portland
Cement (OPC) and Portland Pozzolana Cement (PPC) that will meet the requirements
of Ethiopian National Standard EN 1177-1: 2005 or European Standard EN-197. The
OPC will be produced as per CEM-I-42.5 grade and will contain 95% clinker and 5%
gypsum. The PPC will be produced as per CEMII-32.5 grade and will contain 67%
clinker, 28% pumice and 5% gypsum. The design and manufacturing of all production
machineries of the plant are based on the latest state-of-the-art cement technology. The

9
fuel used is Coal and HFO alternatively. Just like the national cement factory Derba
cement factory has both an expert and MIS system that was related with controlling the
activities of cement production and providing vital information’s (reports) for decision
making activities. Derba Midroc Cement factory was tried to implement the SAP ERP
software and is passed through the process of an ERP system customizations.

1.1.4. Dangote Ethiopia cement Industry

Dangote Cement PLC has commenced project works of US$ 400 Million green field
cement plant of 2.5 million tons/ annum capacity at Muger in Ethiopia. Mobilization of
men and machinery is done and project execution is underway in full pace. The Plant is
scheduled to be commissioned by the Q1 of 2015.Dangote Cement's foray into Ethiopia
in the Oromia region close to Addis Ababa, comes at a time when the Horn of Africa
nation is grappling with a severe cement deficit amidst rising demand as a result of
substantial investments in infrastructure like roads, dams, bridges and railways.
Currently, Cement demand in Ethiopia is around 7 to 8 MTPA, while production stands
at 2.4 MTPA forcing the nation to import the deficit for several years. Over the next five
years, demand is expected to soar to 13.8 MTPA, while local supply will reach 8 MTPA
when existing manufacturers complete the upgrading of their factories. This provides
Dangote Cement an ideal investment opportunity to bridge the deficit and consolidate its
operations.

As it was described previously the factory will begin its operations in February 2015 just
like the other cement industries the factory and have both an expert and MIS system
that was related with controlling the activities of cement production and providing vital
information’s (reports) for decision making activities. Coming to the ERP software
practice of the Dangote Cement factory, though the factory begin its operation by April
2015, it was not implemented the ERP software.

All of the above cement industries have large complex operations for which manual
tracking becomes extremely difficult. In order to cope up with the changing environment
and to be competitive in cement industry, ERP software has played a great role by
giving to both managers and users an integrated view of business processes which has
become the backbone of business intelligence. As a result, cement industries that was

10
not implemented an ERP software will come in a line for transforming the way they
handle their manual operations using the ERP software.

1.1.5 Mugher Cement factory

Coming to ERP software for cement producing companies in Ethiopia, besides the PLC
software which has both an expert and MIS systems and used for controlling and
reporting the production activities in cement technology, most industries are in the
process of implementing the ERP software developed by the Microsoft GP company.
Mugher cement enterprise has been the one and the first cement producing factory that
was trying to implement the ERP software using in-house software developers.
Associated with a number of reasons and challenges as depicted in chapter two the
software was not successful and it was not fully functional.

Before the implementation of BPR that leads to major business process and structural
changes, MCE has exercised different in-house developed data base software’s like the
delivery system, the sales system, the purchase follow up system and the inventory
control system software. In addition, to enhance its competitiveness and increase its
profitability, MCE has also made a contractual agreement with the representative of the
Microsoft Company to implement the Microsoft dynamic GP ERP software.

Microsoft Dynamics GP (Great Plains) has applications for financial management,

human resources management, manufacturing planning, supply chain management,
field service, business intelligence, collaboration, compliance, and IT management. As a
result, after in-depth analysis of user requirements, and an approval of the agreement
made, the software installation and the customization job has been started with the
selected finance and store departments. Besides, direct system users of finance and
store department as well as IT professionals were involved in the customization and
testing part and test data’s have been entering in to the system. Even though MCE has
assigned all the necessary resources and spent a lot of money, the customization
process was interrupted without testing the full functionality of the dynamic GP ERP
software as a consequence; the company hasn’t got any benefits from it.

11
Following the rejection of the dynamic GP software and BPR implementation, the
enterprise was given a due emphasis to improve its information systems infrastructure
and for this purpose it has made an agreement with the local government agency
named INSA Company involved with networking, security and software Development
tasks. The total budget assigned by MCE for both the network and system software
development task was more than 18 million birr. A major accomplishment on the
network tasks was the implementation of a wide area network (WAN) connecting its
branches located at different areas to the head office using a virtual private network
(VPN), which was leased from an international telecommunications services provider.

Concerning the software tasks, the INSA Company has assigned software developers
and they were starting to collect requirement analysis and based on it they developed a
requirement analysis design (RAD) documents. The developed RAD document contains
nine sub modules, which have five main systems.

The Human resource management system. The Production management system,

maintenance management system, Quality management system and residence
management system [37].The material management System [38].The Sales and
marketing management system [39].The Integrated Budget and finance management
system [40] and the factory Portal system [41]. Besides, the RAD contains detailed
justification on each part of the module. Based on the RAD document, the software
designing part was done by taking the INSA software designers to their own office
located at INSA head office. It was after completing the designing part that the INSA
software developers come to MCE and started to deploy and implement the software.
The same to RAD, the deployed system also contains nine modules.

After the ERP software is implemented in MCE, users and IT professionals of MCE has
assigned to test the real functionality by entering data in to the system. During this
phase, a number of comments have been given from users of MCE and IT
professionals both on the functional and technical part of the project. All comments have
been given to the designers for correction but almost all the sub systems depicted in the
previous figure was not corrected according to the users need and these phase has
took a lot of time. As a result, MCE has been asked the ICT Company to evaluate the

12
deployed system software and to act as a negotiator in between MCE and INSA.
Following this, ICT Company was assigned its own experienced IT professionals for this
purpose. Even though a number of activities were done by both the INSA, MCE and ICT
companies, the developed system is not yet used by users and as well as it doesn’t fully
achieve its intended purpose. In the meantime, unless and otherwise a new amendment
on the previous agreement is made, the INSA company has decided not to continue
and correct any comment.

1.2. Objective of the project

The main objective of the plant is to manufacture Cement Factory products to sale with
reasonable price for domestic and international market (in the future).

1.1.1. The Economic Significance of the Project

The envisaged project deemed to contribute to the economic development of the nation
in general and the region in specific with following ways:

A. Supply of Quality cement products

The project under discussion will establish cement plant that will produce quality and
affordable cement products for the country market. This will benefits the users to get
better product with better price and durability.

B. Value Add

The establishment of this factory will add a value to the manufacturing sector in specific
and in the economy in general.

C. Source of Revenue

As public policy of any nation, the government collects different forms of taxes from
different business organizations and individuals. Among the different forms of taxes,
business income taxes, VAT and payroll taxes are collected from undertaking business

13
activities. Therefore, the factory will serve as sources of revenue for both the region and
nation in general.

D. Employment Opportunity

One of the problems that our country faced is unemployment. Therefore, the current
objective of the government is working on tackling the problem of unemployment and
fostering the development process either through creating self employment or
employment in other organization. Hence, this factory will hire around 1,500 persons.

E. Save the Country’s Foreign Exchange

By minimizing the market gab for Iron steel melting and related products demand and
supply, the factory will help to reduce the nation’s foreign exchange cost to import these
materials. This will save the foreign exchange resource of the nation.

F. Benefit for The Local Community

As a corporate responsibility the company will engage in different development activities

on the surrounding areas (West Shoa Zone). This will better worse the community and
contribute for the development of the region.

G. Stimulate the Local and National Economy

This factory has positive externality in the zone that will encourage the economic
movement of local economy. Hence, there will be economic relationship and
transactions among different actors.

H. Technology Transfer

By producing Cement Factory products, the project will train and develops the capacity
of the technical staffs. By doing this, the company will add value in technology transfer
for the nation.

14
1.2. Location and Premises Required

i. Location

The envisioned project is planned to be located in Oromia regional State, West Shoa
Zone, Jaldu Woreda (which is around 130Km from the capital), West Shoa Zone,
Oromia Regional State. The main justifications behind the selection of this location are:

 Strategically located to the central and largest protentional of the raw materials
center from Addis Ababa

 Relatively advanced development in infrastructure (Power, Water, Telephone

internet, road etc.

 All road to the nearest market outlets

 Accessibility of skilled labor force

 Conducive investment policy and governance

 Environmentally fit to manufacturing industry.

 Its nearest to addis abeba and Railway and logistic service in sebeta station.

ii. Premises Required

The total land of the project is 200,000 M2 /20 hek/, the premises required to Cement
Factory production manufacturing as follows in table 1

15
 Table 1. Premises Required and Land Use Plan

Land use and land cover pattern of the study area has been assessed through
secondary data 20 hek for cement Factory.

No Description Land
Requirement /M2/
1 Production Hall 100,000

2 Warehouse  

2.1 Raw Material & Input 40,000

2.2 Finished Products 10,000

  Total Warehouse 50,000 

3 Office Building 10,000

4 Shop, Showroom and related 20,000

5 Waste Accumulation area 10,000

6 Green area, Buffer zone and Parking 10,000

Total 50,000
 
Grand Total 300,000

16
1.3. Location Map of the production area and raw materials
Area (Jaldu)

The project is proposed to be located about 20 km from Holeta Wereda in Shoa Zone of
Oromiya Regional State, Federal Democratic Republic of Ethiopia (FDRE). The
proposed mining area is located within the Anda Weizero Peasant Association in Jaldu
Wereda, Shoa Zone of Oromiya Regional State and is about 5-20 km (crow fly distance)
from the Plant site.
This road will be upgraded to a black-topped road by DMC in stages. From this gravel
road, a road will be laid from Jaldu to the plant site.

17
2. MARKET STUDY AND PLANT CAPACITY

2.1. Market Study

2.1.1. Demand and Supply Analysis

The market potential is great because the construction industry is among the fastest
growing sectors of our economy. There is a lot of demand for construction etc. This
sector is still informal as there are very many small scale firms spread in major towns
and trading centers in the country.

Besides, the demand for cement factory is increasing with the growth in investment in
different sectors. Consumer demand in the country is growing for cement factory.
Increase in purchasing power and changes in designs tend to increase the demand still
further. In addition, demand for Ethiopian cement factory is exports market has gone up
considerably in recent years. This aspect is relevant for the cement factory industry.

At present most of the cement factories are involved in manufacturing general

construction project and, construction materials, etc. The main target market of these
plant is government and next the private individuals.

OPC shall be produced as per CEM-I - 42.5 grade and shall contain 95% clinker and
5% gypsum. PPC shall be produced as per CEM-II - 32.5 grade and shall contain 67%
clinker, 28% pumice and 5% gypsum. The annual cement capacity of the plant shall be
2.46 million tonnes per annum. Cement consumption in Ethiopia during the period 1997-
2007 has grown well, with a Cumulative Annual Growth Rate (CAGR) of around 10%
per annum (pa). In the last 5 years, the growth rate was around 16.1% pa.

18
19
2.1.2. Market Prospects

From the above market demand and supply analysis for Cement Factory products,
there exist huge market gab in Ethiopian market. Hence, the envisioned factory will be
successful by entering in to this market.

2.1.3. Marketing Strategy and Promotion

The company will follow the following promotional methods:

 Electronic Medias

 Advertising (Media, flayer and news paper)

 Public Relations

 Branding

The marketing strategy mainly focus on the satisfying the needs, orders and the
requirement of the customers.

2.1.4. Target customers

The In local market, the requirement for Construction areas and related others products
can be categorized into four namely:
 Construction sector
 Newly built house
 For dowry;
 For renovation;
 For Institutional buyer.
 For offices (public & private sector)
The majority of customers in the domestic market belong to first and second category.
These customers require Cement Factory and other for their newly construction and

usually buy range of products.

20
2.2. Plant Capacity and Production Program

Considering the gradual growth of demand and the time required to develop the
required skill the rate of capacity utilization during the first, second and third year of
production will be 50%, 75% and 100% respectively. Full capacity utilization will be
reached during the ten year of operation. The plant will operate 290 days per year.

2.3. Pricing

It would be important to examine the possible level of price based on the competitor’s
action. In this connection, the existing average prices of similar cement price in Addis
Ababa and others woreda/towns were assessed for the benefit of comparison. Based
on the existing price in the market the firm stetted the price as follows;

21
3. PROJECT DEVELOPMENT PLAN, PROCESS, COMPONENTS AND
TECHNOLOGY

3.1.1. Cement Manufacturing Plant

The construction of 2 x 6,000 tons per day clinker will employ dry process using
the latest technology to maximize fuel, energy and power efficiency. Expected
output of clinker, cement and cement-related products are listed below:

 Two (2) lines of limestone crushers, raw mill systems, hammer mill,
coal mill, and kilns to produce 2 x 6,000 tons per day of clinker
 Annual output of clinker will be 3,648,000 tons (2 x 1,824,000 tons if
320 days @ 95% operations)
 Up to Four (4) cement mills with cement silos and warehouse to facili-
tate loading of bagged and bulk cement in jumbo bags offshore
 Annual output of cement will be 4,864,000 tons (2 x 2,432,000 tons
based on clinker : gypsum : additives proportion of 75% : 5% : 20%
 Bagged cement: bulk cement = 85% :15%

The following are the key steps involved in cement manufacturing. This is further
illustrated in Figure 2.4.1-1.

 Quarrying and preliminary crushing of raw materials (limestone, shale, silica)

 Handling and storage of raw materials and fuel
 Raw milling/fine grinding and mixing of raw materials producing raw meal
 Heating of raw meal into a rotary kiln producing clinker
 Clinker cooling
 Clinker handling and storage
 Mixing of clinker and additives producing cement
 Final milling
 Cooling and storage of cement
 Cement packing
 Loading and unloading operations for bagged and bulk cement

22
PROJECT DESCRIPTION FOR SCOPING Proposed Cement Manufacturing
Plant, Power Plant and Building Materials Manufacturing Plant

23
24
3.2. Technology
Technologies used in this engineering plant use sophisticated and latest machineries for
a quality and branded products which are export standard. In different stage of
manufacturing- extreme care is required to ensure smooth polishing and proper platting.

3.3. Production Description

In general metal and iron steel work will have four production parts after the product
idea are generated. i.e, Design, Prototype, Develop and production.

3.3.1. Production Process

Activities performed to change a raw material into output product are called production
process. Production process, which is practiced by most of the workshops, is similar. In
broad, production process comprises pre-production, on-production and postproduction.

A. Pre- production
Preparation and arrangement of resources are under this stage. The question what to
do? Where to do it? When to do it? Who to do it? All are answered at this phase of
production process.

A well prepared and arranged resources results in production cost reduction and
meeting due time.

Some of the activities involved at this stage are:

 Making a design
 Material selection
 Purchasing of raw material
 Adopting flexibility of production places
 Hiring of skilled workers
 Inspection of raw-material

25
 B. On-production
The already prepared and arranged materials, machineries and human resources are
organized to start the real production process. The strength of this stage depends on
the pre-production stage. It needs a managerial skill to coordinate the resources to
achieve desire product.

Some of the activities involved in this stage are:

 Cutting of raw materials according to the specified dimension with tolerance

 Joining the raw materials according to the design
 Quality control of the welding joints
 Checking up functionality of product

C. Postproduction
Postproduction is the final stage where preparation of product for shipment under taken.
Now the product has got the required design but needs polishing to give good
appearance.

Some of the activities involved in this stage are:

 Grinding
 Sanding
 Painting
 Assembly etc.

Note: Quality inspection activity is practical in all stages to keep the quality of the
product and to decrease scraps and reworks.

26
Fig 1 Production Process Flow Chart:

Metal and Iron Works

The metal work and fabrication industry is primarily concerned essentially

heating/welding and shearing/forming operations. In view of the high cost of most new
equipment and the relatively long lead-time necessary to bring new equipment into
operation, changes in production methods and products are made only gradually; even
new process technologies that fundamentally change the industry are only adopted over
long periods of time.

Shearing operations cut materials into a desired shape and size and include punching,
piercing, blanking, cutoff, parting, shearing, and trimming activities. Basically, these
produce holes or openings, or produce blanks or parts, the most common hole-making
operation being punching. Cutoff, parting, and shearing are similar operations with
different applications.

27
Forming operations bend or conform materials into specific shapes by turning, twisting,
drawing, rolling, spinning, coining, and forging metal into a specific configuration.
Bending is the simplest forming operation; the part is simply bent to a specific angle or
shape. Other types of forming operations produce both two and three dimensional
shapes.

Machining refines the shape of a work piece when shearing and forming are complete,
by removing material from pieces of raw stock with machine tools. The main processes
involved are drilling, milling, and turning, shaping/planning, broaching, sawing, and
grinding.

Holding the different pieces together is achieved either by riveting, bolting or more
permanently by welding. Welding is the process primarily used to join metals, most
welds being achieved by fusion in which the materials being joined are melted at, and
around, the joint between them. Most of the welds are done with a rod of filler material
with the resultant weld being composed primarily of the filler. Increasingly though
autogenously welding is catching on, in which no added material is used. There are also
forms of pressure welding rather than fusion and combinations of the two. Welding is an
integral part of fabricating metal parts so as to form spheroids, boxes and cylinders. The
essential feature of a fusion welding process is a heat source either in the form of a
flame from a gas torch (most often oxyacetylene or propane) or an electric arc.

3.4. Machinery and Equipments

The following are the list of necessary machineries and equipments for the envisioned
metal and iron steel workshop plant;

 Sheet metal shear

 aluminum and steel roller (Rolling machine)

 Arc Welding machine

28
 MIG Welding machine

 Portable electric hand grinder

 Portable drill machine

 Circular cutting of machine

 Centre

 Universal milling machine

 Air compressor

 Hydraulic press

 Oxy-Acetylene welding equipment

 Pipe bender

 Bedding borderer

 Work bench

 Shaping machine

 Welding stand

 Active reactive

 Generator

 Drum machine

 Hydraulic puncher

 Ban saw machine

 Puncher hand operated

29
  Founder fun

 power hack saw

 Bed starching machine

 Electrical saw

 Electrical hydraulic press

 Steel cutter( round)

 Bench type grinder

 Electrical and manual press

 Mechanical wood presses

 450 cutter machine

 Band saw

 Portable rotary machine

 Worker Safety kit

3.5. Project Design and Engineering

The proposed project comprises stock of different components to be executed at

different phases of the project life. These activities include: Design and Construction of
various buildings (workshops), importing of machineries, additive chemicals and other
raw materials, import of product transporting medium vehicle.

30
3.6. Building and Construction Works

A very simple building may suffice for an initial startup, the main consideration being the
security of the equipment and secure connections to electrical supply. The building will
have to be designed along factory production lines allowing for smooth transitioning of
the raw materials into completed products and optimized for maximum efficiencies.

3.7. Utilities

A number of utilities would be put in place in order to ensure smooth functioning of the
factory. These utilities include:

 Water Supply,

 Supplementary Electricity supply,

 Telephone line

 Paved Road Transportation,

 Drainage Facility

31
4. MANPOWER AND ORANIZATIONAL MANAGEMENT

4.1. Manpower

At the top of the organizational structure, there will be a general manager with the
responsibility of supervising the overall activity of the factory. Depending up on the
nature of the center and the amount of work to be performs; there will be auxiliary units
under the general manager. Employees under each unit will be supervised by the unit
head that is accountable for the general manager.

The company will use efficient trained staffs in the area of marketing to be competitive
in the market. The opportunities of being serviced by well skilled professionals well
enable the company to evaluate the internal weakness and strength of the company as
well as to assess the global opportunity and risks in the world market so that the
company can cope up with the dynamics of the market situation. The company will hire
1,500 employees.

The detail human power requirement, monthly and yearly salary is indicated in part 5
financial part.

4.2. Organizational Structure and management

The organizational structure of the project is designed by including all the necessary
personnel under the right division. At the top of the organizational structure, there will be
a general manager with the responsibility of supervising the overall activity of the plant.
Employees under each unit will be supervised by the department head that is
accountable for the general manager. General Manager is accountable to the owner of
the factory as indicated in figure 3

32
Fig 3 Organizational Structure

Owner/s

General
Secretary
Manager

Production Admin. & Marketing &

Dept. Finance Dept. Sales Dept.

Hence the following section deals with the duties and responsibilities of some
departments.

1. Manager
Duties and responsibilities

 She/he will plan, organize, direct and control the overall activities of the plant
 She/he will devise policies and strategies that will enable the plant to be
profitable.
 She/he will incorporate modern technological innovation that will facilitate the
service delivery of the project center and increase customer’s satisfaction.
 He/he will plan, organize, direct and control the human and non-human
resources of the factory so as to achieve the short and long run objectives of the
organization.
2. The Production Department
Duties and responsibilities:-

It is the core department of the project center and it has the following responsibilities.

 Design and prepared prototype aluminum and steel based products based on the
plant standard and customer preferences

33
  Use modern manufacture, processing technologies that will enhance the quality
of those products.
 Produce quality aluminum and steel products that will enable the factory
competent both in the domestic and international market.
 Control on the quality of raw materials, inputs, quality of the product and also the
overall production process.
 Produce products in least cost so that the profitability of the center is guaranteed.
 Moreover control over the quality of the final aluminum and steel products
3. Administration and Finance Department
Duties and responsibilities:-

 Will plan, organize direct and control the financial transaction of the factory by
using the entire necessary document.
 Will develop sound financial control system by developing modern financial
control systems.
 Will prepare the annual financial statements and prepare condensed reports for
the general manager, owner and other concerned government body.
 Will control the human and non human resources of the plant, which include:
effective handling of the different inventories of the machineries, equipments, raw
materials, finished products, and devise strategies of controlling against fraud
and damage.
 Manage and execute the company national and international procurement
procedure
 Administer and control the company logistic resource
 Provide and manage general supportive service to the factory.
4. Marketing and Sales Department
Duties and responsibilities:-

 Will handle the overall marketing activities of the organization which include
planning, organizing, directing, and controlling.
 Gather information on new products, designs, fashions, profiles etc
 Approval of new products profile & brand plan analyzes market research.

34
  Plan and execute sales.
 Will develop effective customer handling strategies
 Will develop the marketing strategies for future project center’s development.
 Conduct both foreign and domestic market research for expanding the sales of
the company

4.3. Training Requirement

The production employees of the plant exacted to take basic metallic work production
skill training for 7 days. In addition training could be given to the mechanic and to the
supervisor will also take skill training from one of TVET Colleges or similar undertaking
factories in Eastern industry zone and Addis Ababa.

35
5. Financial Requirements and Analysis

5.1. Total Initial Investment Cost

The total amount of money that is required to establish iron steel and melting production
the envisaged plant is estimated to be birr 1,808,526,073.00

Table Total Initial Investment Capital

No Description Cost in birr in Br.

1.1 Land, Building & Construction 400,000,000

1.2 Machines & Equipments 300,000,000
1.3 Vehicles 70,500,000
1.4 Office Equipment 20,000,000
  Total Fixed Investment Cost 790,500,000
2.1 Raw Materials Purchase 744,221,212
2.2 Salary Expense 99,393,400
2.3 Other Operating Expense 8,500,000
2.4 Pre-operating Expense 1,500,000
  Initial Working capital 853,614,612
  Total 1,644,114,612
  Contingency (Lump sum) 164,411,461
  Total Initial Investment Capital 1,808,526,073

36
 5.1.1.Fixed Investment
A. Building & Construction

No Description Total cost in br.

1 Production Hall 200,000,000.00

2 Warehouse, raw material and input 107,120,000.00

3 Office Building, and finished product 40,000,000.00

4 Waste Accumulation area 41,680,000.00
5 Green area, buffer and parking 1,600,000.00
6 Shops & Showrooms 1,600,000.00
7 Site Development 1,600,000.00
8 Design and supervision 2,400,000.00
9 Land lease initial 4,000,000.00
  Total 400,000,000.00

B. Machineries and Equipments

The list of required machinery and equipment is indicated in Table below. The total cost of
machinery and equipment is estimated at Birr 300,000,000

Qty.
Type of Machineries and
Equipments Specification UOM
Sheet steel shear Up to 3mm thickness/ hand operated Unit 2
Sheet metal roller (Rolling up to 1.5 mm thickness / hand operated / Unit 1
machine) 1.5 - 2.2 m shaft length
Arc Welding machine Min 45 A. max 250A Unit 2
MIG Welding machine Max. 240A Unit 2
Portable electric hand grinder 180mm disc size Unit 2
Portable drill machine Max 13mm chuck size Unit 2
Circular cutting of machine 450mm disc size Unit 2
Centre Three sided jaw , diameter 200mm , center Unit  3
to center 2000mm
Universal milling machine Table size 1500X300mm, table swivel in Unit 1

37
 both directions 450 , distance from spindle
to over arm 155mm
Air compressor 300 liter Unit 1
Hydraulic press Min. 5 tons Unit 1 
Oxy-Acetylene welding   Unit 2
equipment
Pipe bender Max. 1 1/2 diameter Unit 2
Bedding borderer   Unit 2
Work bench 150cm length Unit 2
Shaping machine   Unit 1
Welding stand Pair Unit 3
Active reactive   Unit 1
Generator   Unit 1
Drum machine   Unit 2
  Unit 2
Hydraulic puncher
  Unit 2
Ban saw machine
  Unit 2
Puncher hand operated
Founder fun   Unit 3
power hack saw   Unit 1
Bed starching machine   Unit 2
Electrical saw   Unit 2
Electrical hydraulic press   Unit 1
Steel cutter( round)   Unit 1
Bench type grinder   Unit 2
Electrical and manual press   Unit 2
Mechanical wood presses   Unit 1
450 cutter machine   Unit 1
  Unit 2
Band saw
  Unit 2
Portable rotary machine
Worker Safety kit   Set 1

C. Vehicles

38
 No Description Qty Total Price in br. Remark

1 Sino truck , 6
Duty free
2 Service 5 Duty free

3 Pick up 4 Duty free

4 Forklift 4 70,500,000.00 Duty free

D. Office Equipments
No Description Qty Unit cost in br. Total cost in Br.

1 Managerial Tables 8 50,000 400,000

2 Secretarial chairs with table 40 30,000 1,200,000

3 Managerial Chairs 20 40,000 800,000

3 Computer and Printer 100 40,000 4,000,000

4 Shelf 200 10,000 2,000,000

5 Filing Cabinets 300 6,000 1,800,000

6 Assembly chair and table(set) 300,000

Total 20,000,000

E. Initial Working Capital

The initial working capital is estimated to be birr. 853,614,612

5.2. Annual Production Cost at Full Capacity

i. Raw Materials and Inputs 744,221,212

39
 S. N Description UOM Total Cost in Br.
1 Steel sheet Cubic ft 150,000,000.00
2 Mild steel plate Pcs 150,000,000.00
3 Tube Pipe Pcs 40,000,000.00
4 Angles lines Pcs 20,000,000.00
5 Welding Rods Pkt 80,000,000.00
6 Grilling Disc Pcs 50,000,000.00
7 Filler paste Pkt 20,000,000.00
8 Hinges pair 30,000,000.00
9 U channel Pcs 30,000,000.00
Other Inputs(locks, glue, nails, screw
10 Tapestry dressing, matters, LS 15,849,810.00

11 Other Machine supplies LS 158,371,402.00

  Grand Total   744,221,212.00

i. Salary Expense

No. Description No. Qualification Monthly Annual Salary

Salary in br in br

40
1 General manager 20,00
1 BA in Business Management 0 240,000
2 Production Head 15,00
1 BSC in Industrial Engineering 0 180,000
3 Production 10,00
supervisor 5 Degree in production technology 0 600,000
4 Draftsman Designer 3,0
5 Diploma in draft technology 00 180,000
5 Machine man 3,0
50 Diploma in general mechanics 00 1,800,000
6 Carpenter Diploma in wood work 3,0
50 technology 00 1,800,000
7 Sales Diploma in salesmanship and 3,0
20 marketing 00 720,000
8 Personnel 3,0
5 Diploma in HRM 00 180,000
9 Finance head 5,0
2 BA in Accounting 00 120,000
10 Polish man 2,5
20 10+1 in wood work technology 00 600,000
11 Carving 2,5
20 10+1 in wood work technology 00 600,000
12 Marketing Head 2,5
20 BA in marketing management 00 600,000
13 Metal Worker 2,0
200 10+2 in Metal work technology 00 4,800,000
14 Helper/laborer 1,2
940 10 completed 00 14,400,000
15 Mechanic 2,5
10 10+2 in General mechanics 00 300,000
16 Admin and Finance 4,5
Head 1 BA in Management/Accounting 00 54,000
17 Accountant 3,0
5 Diploma in accounting 00 180,000
18 Electrician 2,5
10 10+2 in general electricity 00 300,000
19 Secretary 1,5
5 Diploma in secretariat science 00 90,000
20 Clerk 1,5
5 10 completed 00 90,000
21 Store keeper 10+2 in store and logistics 1,5
5 management 00 90,000
22 Driver 1,5
15 10 completed 00 270,000
23 Cashier 5 10+2 in Bookkeeping 1,5 90,000

41
 00
24 Office boy/girl 1,5
5 10 completed 00 90,000
25 General service 1,5
3 Diploma in management 00 54,000
26 Security 1,0
5 Unskilled 00 60,000
27 Gardener 1,0
5 Unskilled 00 60,000
28 Cleaner 1,0
5 Unskilled 00 60,000
Other workers 30,785,40
  4,100   0
Contingency 40,000,000
  Grand Total 5,600     99,393,400

ii. Other Operating Expenses

S.N Description Annual Cost in Br Assumption Used

1 Property Insurance 6,500,000 1% of fixed Investment Cost
2 Audit & Legal Fee 100,000 350 per month
3 Uniforms 200,000 70*200br
4 Telephone, fax and postal 50,000 450 per month
5 Cleaning goods supplies 100,000 500 per month
6 Repair and maintenance 845,000 2 % of the Fixed Investment Cost
7 Advertisement 155,000 % of sales
Stationery and other office
6 supplies 30,000 400 per month
8 Electricity 300,000 0.335*225,000KW per year
9 Water 50,000 1.5*3,000m3 per year
10 Fuel 60,000 3000 lit*20 per year
11 Oil and lubricant 60,000 10% of fuel cost
12 Miscellaneous Expense 50,000 3000 per month
Total 8,500,000  

A. Pre-Service Expense
No Description Cost in br.

42
 1 Project proposal 20,000

2 EIA 50,000

3 Licensing fee and others 100,000

4 500,000
Staff Capacity Building
5 830,000
For Adverting
Total 1,500,000

5.3. Financial Analysis and Statements

5.3.1. Underlying Assumption

The financial analysis of the envisioned factory is based on the data provided in the preceding
sections and the following assumptions.

A. Construction and Finance

Construction period 16 months

Source of finance 30% equity and 70% loan

Tax holidays 2 years

Bank interest rate 10 %

Operating Costs increase by 5% after year 3

Raw materials and wages increase by 5% after year 3

Salary and wages increase by 3 % after year 3

B. Depreciation

43
Building 5%

Machinery and equipment 15%

Office furniture 20%

Vehicles 15%

C. Working Capital

Accounts receivable 30 days

Raw material local 30days

Work in progress 5 days

Finished products 30 days

Cash in hand 5 days

Accounts payable 30 days

5.3.2. Sources of Fund

No Description % Share Amount(in birr)

1 Owners Share 30 542,557,822

2 Bank Loan 70 1,265,968,251

Total 100 1,808,526,073

5.3.3. Loan repayment Schedule

Principal Total Annual
Year Interest (10%) Remaining Balance
Payment Payment
0       1,265,968,251
126,596,825.10
1 126,596,825.10 253,193,650.20 1,139,371,425.90

44
 126,596,825.10
2 113,937,142.59 240,533,967.69 1,012,774,600.80
126,596,825.10
3 101,277,460.08 227,874,285.18 886,177,775.70
126,596,825.10
4 88,617,777.57 215,214,602.67 759,580,950.60
126,596,825.10
5 75,958,095.06 202,554,920.16 632,984,125.50
126,596,825.10
6 63,298,412.55 189,895,237.65 506,387,300.40
126,596,825.10
7 50,638,730.04 177,235,555.14 379,790,475.30
126,596,825.10
8 37,979,047.53 164,575,872.63 253,193,650.20
126,596,825.10
9 25,319,365.02 151,916,190.12 126,596,825.10
126,596,825.10
10 12,659,682.51 139,256,507.61 -

5.3.4. Depreciation Schedule

Original Depreciation rate in Depreciation Per
SN Description Value In Birr % year

Construction and Civil 400,000,000

5 20,000,000
1 Work

2 Machines & Equipments 300,000,000 15 60,000,000

3 Vehicles 70,500,000 15 10,575,000

4 Office Equipment 20,000,000 20 1,000,000

  Total 790,500,000   91,575,000

5.3.5. Revenue Projection

45
Based on the price and the capacity program of the factory indicated in previous chapter (chapter
2), the revenue of the factory projected as indicated in the table below;

Income Loss Statement

Revenue Year 1 Year 2 Year 3-10

Sales 270,900,000 297,990,000 541,800,000

Sales expenses (5%)* 1,469,670 1,469,670 1,469,670

Purchase of Raw Material 265,075,095 265,075,095 265,075,095

Gross profit 4,355,235 31,445,235 275,255,235

Expenses

Salary Expense 1,687,200 1,687,200 1,712,200

Operating Expenses 2,500,000 2,500,000 2,500,000

Pre-operating Expense 1,500,000 0 0

Deprecation Building 988,600 250,000 250,000

Deprecation Vehicles 1,545,000 195,000 195,000

Deprecation office Equip 500,000 330,000 330,000

Deprecation machine 5,250,000 220,000 660,000

Lease Expense 150,000 150,000 150,000

Interest Expense 35,000,000 945,000 105,000

Total Expense  50,580,572 6,277,200 5,902,200

Profit Before Tax -46,225,337 25,168,035 269,353,035

Tax(30% ) (46,225,337) 7,550,411 80,805,911

Net Profit 0 17,617,625 188,547,125

46
Cash Flow Statement

 Year Year 0 Year 1 Year 2 Year 3

Equity Capital 150,000,000      
Loan principal 1,265,968,251      

Net sale 0 270,900,000 297,990,000 541,800,000

Total cash in flow 1,808,526,073 270,900,000 297,990,000 541,800,000
Cash payment        
Purchase of raw 0 265,075,095 265,075,095 265,075,095
materials
Salary expense 0 1,687,200 1,687,200 1,712,200
Pre operating expense 0 0
1,500,000 0
Investment  
Other Operating cost 0 2,500,000 2,500,000 2,500,000
loan repayment 0 36,459,772 945,000 105,000
Lease payment 195,000 45,000 45,000 45,000
Tax payment 0 0 0 262,723.29
Total payment 195,000 39,004,772 3,490,000 2,912,723
Cash surplus / Deficit 195,000.00 39,004,772.00 3,490,000.00 2,912,723.29

5.3.6. Profitability
According to the projected income statement, the project will start generating profit in the 1st
year of operation. Important ratios such as profit to total sales, net profit to equity (Return on
equity) and net profit plus interest on total investment (return on total investment) show an
increasing trend during the lifetime of the project.

The income statement and the other indicators of profitability show that the project is viable.

5.3.7. Break-Even Analysis

The break-even point of the project including cost of finance when it starts to operates at full
capacity (year 3) is estimated by using income statement projection.

BE = Fixed Cost / Sales – Variable cost = 57%

47
5.3.8. Pay-Back Period
The investment cost and income statement projection are used to project the pay-back period.
The project's initial investment will be fully recovered with in 9 year of operation.

6. FUTURE DEVELOPMENT

Every business undertakings be it large or small should have future development plan. It is a
plain fact that business activities are undertook in a dynamic business nature and different
environment. Therefore, the factory will have an expansion phase depending on the condition of
the industry character particularly in producing the Profile itself by installing the plant. In this
regard, the Factory will expand its capacity and production varieties.

7. ENVIRONMENTAL IMPACT OF THE PROJECT

7.1. Socio-Economic Environment

The owner will provide the land on lease bases, and all required compensation will be paid for
the project. The Livelihood of the local peoples around the project area is rural dwellers of
various occupation and economic background.

48
7.2. Environmental Impact Assessment of the Project

Environmental aspects are fundamental for the sustainability assessment of the current and novel
designs of any new project. In this regard the plant will undertake a separate and detail
Environmental impact Assessment.

To assess the impacts and design mitigation measure if any adverse impacts are there so as to
make the project benefited more society and nation.

49