PROJECT PROPOSAL FOR STEEL

AND WIRE PRODUCTS

MANUFACTURING PLANT

PROMOTER:MOKENEN REGESA

Appril,2023
Shager city ,Ethiopia
 BRIEF SUMMARY
1.Project Name Steel and Wire Products Manufacturing

2.Project Owners Mokenen Regesa

3.Nationality Ethiopian

4.Project location Gelan Town, Oromia Special Zone.

Project capacity $ incorporate rectangular hollow sections, circular hollow sections and
LTZ with product mix ratio of 50%, 30% and 20%, respectively.
Production Capacity

6.PrimesesRequired 10,000m2

7. Startup Capital The total project capital for implementing this planned operation is

estimated to be 84,010,000birr is required. From this 30% or

25,203,000 birr will be covered by the promoter of the project while the

rest 70% or 58,807,000birr will be covered by financial institutions.

MARKET SHARE 50 % of the product supplied to Domestic and 50 %export market

8.Employment Opportunity This project deemed to employ253 individuals

9. For The region/ country Source of income in the form of tax and the most remarkable social

benefit is creating job opportunity.

Table of Content
Title Pages

2
I. EXECUTIVE SUMMARY...................................................................................................................................4

II. INTRODUCTION.................................................................................................................................... 7

III. BACKGROUND.................................................................................................................................. 8

2.1 PROJECT RATIONALE..................................................................................................................... 8

2.2 OWNER'S PROFILE......................................................................................................................... 10

IV. MARKET STUDY............................................................................................................................. 10

4.1 PRODUCT DESCRIPTION AND APPLICATION...............................................................................................10

4.2 EVALUATION OF ETHIOPIA STRUCTURAL HOLLOW SECTIONS (HSS) MARKET........................................12
4.2.1 DEMAND AND SUPPLY OF HSS................................................................................................................14
4.2.1.1 DEMAND CONSIDERATION..................................................................................................................14
4.2.1.1.1 FACTORS AFFECTING DEMAND FOR HSS.......................................................................................14
4.2.1.1.2 DOMESTIC DEMAND FOR HSS.......................................................................................................15
4.2.1.1.3 EXPORT..........................................................................................................................................18
4.2.1.1.4 DEMAND PROJECTION....................................................................................................................18
4.2.1.2 SUPPLY CONSIDERATIONS...................................................................................................................19
4.2.1.2.1 DOMESTIC PRODUCTION................................................................................................................19
4.2.1.2.2 IMPORT...........................................................................................................................................19
4.2.1.2.3 SUPPLY PROJECTION......................................................................................................................21
4.2.1.3 DEMAND - SUPPLY GAP ANALYSIS.....................................................................................................21
4.3 MARKETING STRATEGY...........................................................................................................................22
4.4 PRICING STRATEGY.................................................................................................................................23

V. TECHNICAL STUDY............................................................................................................................ 23

5.1 LOCATION AND SITE................................................................................................................................23

5.1.1 LOCATION................................................................................................................................................23
5.1.2 SITE.........................................................................................................................................................24
5.2 TECHNOLOGY AND ENGINEERING............................................................................................................24
5.2.1 TECHNOLOGY..........................................................................................................................................24
5.2.1.1 PRODUCTION PROCESS........................................................................................................................24
5.2.1.2 SOURCE OF TECHNOLOGY...................................................................................................................25
5.2.2 ENGINEERING..........................................................................................................................................25
5.2.2.1 MACHINERY AND EQUIPMENTS...........................................................................................................25

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 5.2.2.2 BUILDING AND CONSTRUCTION............................................................................................................26
5.2.2.3 VEHICLES REQUIREMENT....................................................................................................................27
5.2.2.4 OFFICE FURNITURE & EQUIPMENTS....................................................................................................27
5.2.2.5 RAW MATERIAL AND INPUTS..............................................................................................................28
5.2.2.6 UTILITIES............................................................................................................................................29
5.2.2.7 PRODUCTION CAPACITY AND PRODUCTION PROGRAM.......................................................................30
5.2.2.7.1 PRODUCTION CAPACITY.................................................................................................................30
5.2.2.7.2 PRODUCTION PROGRAM.................................................................................................................31
5.2.3 ENVIRONMENTAL IMPACT.......................................................................................................................31

VI. LAND USE PLAN.............................................................................................................................. 32

VII. ORGANIZATION AND MANAGEMENT........................................................................................ 33

6.1 ORGANIZATION........................................................................................................................................33
6.2 MANPOWER REQUIREMENT.....................................................................................................................33

VIII. PROJECT IMPLEMENTATION...................................................................................................... 35

IX. FINANCIAL ANALYSIS................................................................................................................... 37

8.1 INITIAL INVESTMENT...............................................................................................................................37

8.2 SOURCE OF FINANCE...............................................................................................................................38
8.3 FINANCIAL DEVELOPMENTS....................................................................................................................39

X. Annexes...............................................................................................................................................................41

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 I. EXECUTIVE SUMMARY
This investment project envisages the establishment of Steel and wire products
manufacturing plant which has the capacity to process 120tons of steel and wire per day with
different diameters, thickness and lengths.

The owner/promoter of the project is Mokenen Regesa who has apple business experience on
import and service business. The project is envisaged to be an autonomous entity in its
operations managed by owner who is a managing director and he has been inspired by
entrepreneur goal to achieve in the sector. Mr. Mokenen Regesa is has apple project
incubation, management and company running experience. He also has master degree in
business administration and training certificates relevant to his position. The acquired
practical work experience in these managerial positions and at different work places will
enables him to smoothly run the day to day operation of the company.

As it is well know the Ethiopian economy is growing rapidly and enormously by two digit
figure. Even though it is not the major contributor, the industrial sector plays a significant
role for the recorded economic growth. The industrial sector contributes less than 13% of the
total GDP. And the metal industry is one part of the industrial sector amounting to around
5% of the industrial sector. There is high level of demand for Steel and wire products in the
country. The Countries demand for different sizes of steel tubes and pipes are met largely
from imports and to some extent from local production mainly by Kality Steel Industry
(KASI), which is estimated to produce about 2000 tons of steel pipes and tubes of assorted
sizes and dimensions. Despite the government effort to upgrade the local manufacturing
industry, the country is still incurring substantial amount of foreign currency for the products
from abroad.

Even import is still unable to satisfy the existing large demand. The project under
consideration is established with the aim of substituting import of Steel and wire products by
producing domestically. Though majority of the raw material are imported from abroad there
is significant value addition involved during manufacturing of the proposed products. Hence,

5
setting up the factory domestically will definitely help the country to save substantial amount
of foreign currency. Furthermore, the company will bring new technology in the country and
also creates employment opportunity for a number of skilled and unskilled domestic workers.

The market assessment made justifies the establishment of the factory in the country. The
factory will use relatively less complicated machinery which can be easily handled by
domestic workers with minimum training requirement. A detail assessment has been made to
reach at the total project establishment cost through detailing each investment items needed
for its realization. The new investment items comprises of building & construction,
machinery & equipments, vehicles, office equipments, computer & accessories and working
capital.

Based on the financial analysis made an estimated amount of Birr 72.57million is required
finance the project. This amount of fund is planned to be sourced from bank and equity.
Accordingly, bank loan will cover about 70% (Birr 50.1 million) and equity will cover 30%
(Birr 21.47 million) of the total project cost. The financial projection made shows that the
project is profitable, liquid and viable. Accordingly, it is projected that the venture will
register a net profit of Birr 9.52 million during the first year which will increase to Birr 19.69
million at the end of the 10th year. The projected cash flow statement also shows that the
project will register net cash inflow of Birr 48.62 million at the end of the first year, which is
projected to increase at cumulative cash balance of 41.06 million at the end of the 10 th year.
The FIRR after tax has also turned to be 37%, justifying the financial viability of the project.
The sensitivity test conducted considering different adverse scenarios shows that the
project can sustain any negative changes in its income or increase in operating costs and
investment.

Apart from providing financial benefits to the promoter, implementation of the project will
increase government income through taxes and provide job opportunities to a sizeable
number of unemployed people.

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 II. INTRODUCTION
Following the putting-into-place of the market oriented economic reforms as growth
recipes of the Ethiopian economy, the country has witnessed remarkable double-digit
performance records at annual average GDP growth rate of 11.0 percent for about eight
years specially for the period between 2010/11 - 2017/18. This has been underpinned by
the growth dynamism of the three major sectors – agriculture, industry and services.
Importantly, the outcome is attributable, among others, to the endorsement and
implementation of a range of compatible reforms aimed at fostering private sector
investment and business activities across the board.

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 In response, a flourishing private investment in all areas of engagement has been witnessed,
with the share of gross domestic investment in GDP reaching about 26.0 percent growth
rate in 2017/18, and the contribution private investment showing an increasing trend all
along over the years. All the same, the achievement has also been well within the budding
of new engagements in the metal manufacturing business at all levels of the medium and
small scale industries. One such activity is the overwhelming expansion in the production
of steel and wire products by the booming metal industry of the country.

III. BACKGROUND
2.1 Project Rationale

The a remarkable growth performances in the economy in general, and the speedy
expansion of the activities that are readily linked in terms of using piping systems of
metal/steel products, including the agriculture sector for irrigation, water supply and
distribution as well as its applicability in building construction and manufacturing
industries, for making furniture and similar light structures elements have resulted in a
demand for HSS to have steadily been gathering momentum in recent times.

The main demand for steel pipe, tubes and profiles comes from construction of apartment
buildings, villas etc, industrial installation and main secondary water system, rural/water
developments schemes, infrastructural facilities and from the furniture industry. In these
respect, the growth in population, urbanization and growth in distribution of clean water
and the ever increasing construction of commercial apartment buildings and villas,

8
 education and health services, etc require huge supply of steel pipes, tubes and profiles at
regional and country level.

In this respect the demand for steel pipes and tubes is mainly influenced by the rate of
growth of both the construction sector and GDP of the country. The present rate of growth
of the construction sector and the GDP is about 14.5% and 11%respectively. The Countries
demand for different sizes of steel tubes and pipes are met largely from imports and to
some extent from local production mainly by Kality Steel Industry (KASI), which is
estimated to produce about 2000 tons of steel pipes and tubes of assorted sizes and
dimensions.

Despite the growing local demand the production of various types of steel and wire
products are very limited in the country. This has in turn been reflected in an increased
import demand for the product and booming of the metal industry with newly propagating
manufacturing plants since the recent past. In effect, the resultant outcome of the combined
factors so mentioned coupled with favorable investment policy environment in the
manufacturing sector has resulted in huge demand, thereby by attracting new investments
in various related activities as well.

It can thus be safely assumed that, the combined effect of both these factors readily
vindicate the need for venturing in the area of establishing an Steel and wire products
manufacturing plant production domestically as a viable move.

2.2 Owner's Profile

The owner/promoter of the project is Mokenen Regesa who has apple business experience
on import and service business. The project is envisaged to be an autonomous entity in its
operations managed by owner who is a managing director and he has been inspired by
entrepreneur goal to achieve in the sector. Mr. Mokenen Regesa has apple project incubation,
management and company running experience. He also has master degree in business
administration and training certificates relevant to his position. The acquired practical work

9
 experience in these managerial positions and at different work places will enables him to
smoothly run the day to day operation of the company.

IV. MARKET STUDY

4.1 Product Description and Application

A hollow structural section (HSS) is a type of metal profile with a hollow tubular cross
section. In some countries they are referred to instead as a structural hollow section (SHS).
Most HSS are of circular or rectangular section, although other shapes are available, such
as elliptical. HSS is only composed of structural steel per code.

During the manufacturing process flat steel plate is gradually changed in shape to become
round where the edges are presented ready to weld. The edges are then welded together to
form the mother tube. During the manufacturing process the mother tube goes through a
series of shaping stands which form the round HSS (mother tube) into the final square or
rectangular shape.

Steel hollow sections are the most versatile and efficient form for construction and
mechanical applications. Many of the strongest and most impressive structures in the world
today would not have been possible without hollow sections.

The tubular form is inherently strong and efficient. It gives buildings a better strength to-
weight ratio than those using comparable steel, concrete or timber products. In
construction, this strength-to-weight ratio reduces material usage and allows for greater
spans. This results in lightweight, airy
structures that are aesthetically pleasing within our communities and environments.

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 Hollow sections have a wide and diverse application. For example, hollow sections have
been used in iconic structures such as the London Eye, Emirates Stadium and space frame
structure of the world record-breaking JCB Dieselmax. Also, they are ideal for everyday
applications such as vehicle trailers, fences and handrails.

HSS, especially rectangular sections, are commonly used in welded steel frames where
members experience loading in multiple directions. Square and circular HSS have very
efficient shapes for this multiple-axis loading as they have uniform geometry along two or
more cross-sectional axes, and thus uniform strength characteristics. This makes them good
choices for columns. They also have excellent resistance to torsion.

HSS can also be used as beams, although wide flange or I-beam shapes are in many cases a
more efficient structural shape for this application. However, the HSS has superior
resistance to lateral torsional buckling. The flat square surfaces of rectangular HSS can ease
construction, and they are sometimes preferred for architectural aesthetics in exposed
structures, although elliptical HSS are becoming more popular in exposed structures for the
same aesthetic reasons.

The following are the major reason for use of Steel and wire products (HSS) in modern
times.

 Long spans
 High strength to weight ratio
 Looks good
 Welded joins
 Different roof design
 Choices of members
Circle, square, rectangle, oval

4.2 Evaluation of Ethiopia Structural Hollow Sections (HSS) market

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The share of the manufacturing sector in the Ethiopian economy is barely small, accounting
for less than 15%. As per the report of Ministry of Finance and Economic Development
over the last five years, the sector has been growing on average by 10%, compared with the
agricultural and service sectors that have been growing by 8% and 14%, respectively. The
recently endorsed five years Growth and Transformation Plan (GTP) of the country vowed
to lay ground for industrial sector to take the lead at end of the plan period, from where
agriculture is shaping the economic growth path.

The growth and transformational plan (GTP) of the government aimed to transform the
country from agrarian to industrial economy which can be achieved by huge investment at
the initial stage as the developmental economics theories. The huge investment in the
manufacturing sector is very critical in industrial transformation. In the country, like
Ethiopia, where the establishment of manufacturing industries is very low and the resource
is limited, the transformation challenge is gallant.

However, the recent economic growth seen in infrastructure development, the construction
and building booming, enhancing of electrification & communication service, irrigation
and water supply is believed to substantiate the practicability of the plan. Perhaps
construction and building, water supply, town and rural electrification and the like have
been increasing.

One of the major sectors that will undoubtedly contribute toward the fulfillment of the GTP
is the Metal Engineering sub-sector, of which steel and wire products shall be the main
part. The HSS industry plays a pivotal role in the development of the industrial sector in
the country.
The demand for HSS is growing due to mainly establishment of various types of industries,
expansion of agriculture, infrastructure and residential house. To fill this gap and substitute
import, which consumes significant proportion of the country’s foreign exchange,
therefore, establishment of HSS manufacturing plants is imperative. To this end, the
government has also taken certain concrete measures that will attract investment.

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 4.2.1 Demand and Supply of HSS

4.2.1.1 Demand Consideration

4.2.1.1.1 Factors Affecting Demand for HSS

The demand for HSS is derived from the demands in construction & building, Gas station,
water supply, irrigation dam gate, electrification (power) and telecommunication line
distribution. The growth and development of any industry depends on its infrastructure.
Infrastructure development has lead to requirement of setting up industrial structures that
are not only strong and durable, but can be set up within a short time span.

With growth in the various industrial sectors, the demand for well constructed buildings has
increased tremendously.

The traditional method of setting up an industrial sector is a thing of the past. The latest in
line for setting up an industrial unit is a pre-engineered building made of HSS. These
building are most suitable alternatives to the age old conventional building structures. Now,
the modern industrialists are extremely in favor of this type of building structure as these
can be easily constructed to solve their immediate construction needs. Factors like the
flexibility of design, setting up cost and less time consumption have made pre-engineered
steel buildings made of HSS the most sought after option by almost all the industries. The
industrial sector that includes manufacturing /factories, Warehouses, workshops, show
rooms is the major consumer of pr-engineered steel structure among others. The increment
in the number of industrial establishment and the increasing need for effectiveness in terms
of quality, time and price now days induces the demand for HSS pre-engineered buildings.

4.2.1.1.2 Domestic Demand for HSS

In the last four years those sectors: construction & building, Gas station, water supply,
irrigation dam gate, electrification (power) and telecommunication, has consumed 89

13
thousand tons of HSS on average per annum. The apparent consumption which is amount
that consumed by the sectors is the sum of production and import as discussed in the table
4.1 blow

Table 4.1: Apparent Consumption of HSS (ton)

Year Production Import Apparent

Consumption
A b a+b
2008 11,514 51,251 62,765
2009 16,384 90,253 106,637
2010 23,702 81,824 105,526
2011 51,600 29,882 81,482
Average 89,102

End user approach is used to estimate the future demand by identifying the exact amount of
HSS that required in fulfilling the demand of industries or infrastructures in the coming five
years. The required amount of all industrial establishment and infra-structure development
is not found, and hence, only sugar industry, cement industry, railway and power sector is
discussed.

a. Sugar industry
Sugar industries are expected to expand from 0.3 million tons to 1.9 million ton of sugar,
which is equivalent with establishing 10 new sugar plants with capacity of 10,000TCD up
to 15,000 TCD within the coming 5 years. (MIE Study report) Accordingly average HSS
item including heat exchanger is estimated to be 10,000 ton which means 2000 tons per
annum

b. Cement industry
Cement industries are expected to expand from 2.7 million ton to 27 million ton in the
coming five years. This production growth will be covered by the expansion projects and

14
by new once. The amount of HSS required for the rehabilitation work in the existing
factories and for the new construction is estimated to be 1200 ton steel structures.

c. Rail way
The demand for train transport networking is planned to increase from zero (0) to 2395 kilo
meter and the government has a plan to involve local contractors in supply, manufacturing
and erection of steel structure.

Construction of a total of 2,395 km of national way network, out of which about 1,807.9
km will be completed ( Addis Ababa- Diredawa 656 km; Awash- Wolidiya Mekelle 556.2
km; Woliys-Semera-Galafi 256.4 km and Addis Ababa- Ejaji-Jimma- Bedele 339.3 km),
while efforts will be exerted to construct the remaining 587.1 km of network ( Modjo,
Konso-Weyto). The construction of 34 km of light railway network along town corridors
(from east to west and north to south) providing the capital city Addis Ababa a mass transit
system. According to the JICA this initiative will involve 40-50 companies working on
design and construction of network and more than 20 manufacturing companies producing
spare parts and providing metal engineering and electro-mechanical services.

According to the case study of French rail way, on average 76.67 ton of HSS is required to
build 1 km of rail way. Hence, 183,625 ton of HSS is required to accomplish all 2395 km
railway, which means 36,725 ton of steel per annum.

d. Power
Per capita energy consumption is approximately 41kWh/year, which is too low as
compared to 500kWh/year – average minimum level of consumption per-capita for
reasonable quality of life. Demand for electric power rapidly increases and shortage of
electric power becomes growing obstacles for people’s daily life as well as industrial sector
growth (Embassy of Japan- Addis Ababa, 2010).

As per the information obtained from EEPCo, Ethiopia has a potential to generate 45,000
MW of hydroelectric power. However, currently only 2000 Mw is generated from the

15
potential. According to EEPCO, 10, 710 MW hydropower is planned in total (2, 430 MW
is under construction and 8,280MW is on-going), While 540 MW wind power and 350
MW geothermal are planned. In total 11,600MW new capacity is planned, while currently
operating capacity is 1,357.5 MW. This means aggregated capacity including both
operating and planed capacity is 12957.5 MW.

Meanwhile, Ministry of Mines and Energy shows a bright future for Ethiopia and estimated
its potential electrical energy as follows:

This means, when the potential energy is fully developed, the total power capacity will
attain to 5 times of the current EEPCO plan.
According to the study of Japan Embassy, Addis Ababa (JICA), the demand for HSS
material in the coming five year period is estimated in the table 4.2 as follow.

Table 4.2: Demand for HSS (ton)

No Area Demand
1 Mechanical work shop of EEPCO) 944
2 FAN Project’s upper structure 287
FAN Project’s Penstock 2500
3 Typical hydropower dam (8280MW) 469,526
4 Rural electrification and distribution 2,119
5 Wind power 39,730
6 High voltage tower for transmission line 137,584
Total 652,690
Source: JICA

As it is shown in the table the total required amount of HSS is 652, 690 ton which means
130,538 ton per annum.

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 4.2.1.1.3 Export

The country has not exported the HSS so far. However, during data collected we have
learned that some manufacturing companies are planning to export their products to the
neighboring countries: South Sudan, Djibouti, Uganda and Kenya. As the information
from marketing department of Mesfin Industrial Engineering, they have got some order
from Uganda, Djibouti and South Sudan however; they couldn’t supply it due to capacity
shortage.

4.2.1.1.4 Demand projection

Thus the total required amount of HSS in rail way, power, sugar and cement industry in the
coming five years is 169,663 as discussed in table 4.3 below
Table 4.3: HSS demand (ton)
demand (ton)
Year
2012 169,663
2013 169,663
2014 169,663
2015 169,663
2016 169,663

4.2.1.2 Supply Considerations

The domestic supply of HSS comes from domestic production and import.

4.2.1.2.1 Domestic Production

17
Currently there are a number of HSS manufacturing companies in Ethiopia. The recent data
from Metal Industry Development Institute, the HSS production has shown increasing trend
in the last four years it has grown from 11,514 ton in the year 2008 to 51, 600 ton in the
year 2011.

Table 4.4: Production amount of HSS (ton)

Year Production
2008 11,514
2009 16,384
2010 23,702
2011 51,600

Source: Ethiopian Metal Industry development Institute

4.2.1.2.2 Import

As to the other less developed countries Ethiopia is one of the importers of manufacturing
products beside chemicals, machinery and equipments from developed nations. Since HSS
production in Ethiopia is not adequate, the country has imported large amount of this
product from foreign country. Hence, in general the import amount of HSS has shown an
increasing rate in the past years. The growth in the sectors of construction and building,
water supply, electrification and expansion telephone lines has contributed a lot in an
increment of imports throughout the last five years. The import amount for building
material, bridge, and tower and others are discussed separately to show the pattern of each.
Hence, in the last five years the HSS building material, bridge and tower and others has
increased at an aggregate average growth rate of 15 %.

Table 4.5: Import HSS (ton)

Buildings Bridge Tower others Total

Year material
2007 22,104 1,018 9,218 727 33,067
2008 19,619 666 30,607 359 51,251

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 2009 25,956 327 62,997 972 90,253
2010 67,371 2,037 10,252 2,164 81,824
2011 20,461 854 7,608 959 29,882
AGR 28 % 9% 57 % 7% 15 %
Source: UNcometrade.com

The total supply of HSS in the country that is production and import has sown increasing
tend it has grown from 62,765 ton in the year 2008 to 81,482 ton in the year 2011 with
annual average growth rate of 9 %.

Table 4.6: The Supply Amount of HSS (ton)

Year Production Import Supply

a b a+b
2008 11,514 51,251 62,765
2009 16,384 90,253 106,637
2010 23,702 81,824 105,526
2011 51,600 29,882 81,482
AGR 9%

4.2.1.2.3 Supply Projection

The supply of HSS is projected based up on the past four years growth trend, by using to
grow the production amount of last year (2011), 81,842 by the average annual growth rate
which is absorbed in the last four years 9 %.

Table 4.7: Supply Projection (ton)

Supply Projection
Year
( ton)
2012 89,208
2013 97,236
2014 105,988

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 2015 115,527
2016 125,924

As shown in the supply amount of HSS is expected to reach 125, 924 at the end of the year
2016.

4.2.1.3 Demand - Supply Gap Analysis

As one can conclude from the discussion in demand section above the HSS demand is just
emerging; as the effectiveness in terms of quality, time and price is required at most in all
economic sector in general and industrial sector at particular.
The extensive and intensive requirement of HSS for the expansion of infrastructure and
industries in the country lets the total supply in the country to remain short to fulfill the
demand at the accomplishment. To the best of case team knowledge, currently coming
companies’ capacity is found to be low to serve the emerging demand.

Table 4.8: Demand supply gap (ton)

Year Demand Supply Demand-
Supply Gap
2012 169,663 89,208 80,455
2013 169,663 97,236 72,427
2014 169,663 105,988 63,675
2015 169,663 115,527 54,136
2016 169,663 125,924 43,739

The demand supply gap which is made with the suppressed demand amount shows the
presence of huge unsatisfied demand in the coming five years. Thus, the demand supply
gap is expected to be greater than what is shown here as the demand of some industries and
the export is not included the gap analysis.

4.3 Marketing Strategy

Ethiopian Steel and wire products have been produced to satisfy the domestic needs of
construction & building, municipal sewerage, irrigation & portable water supply, and

20
 electrical & telecommunication sector demand. Domestically, the Steel and wire products
market can be segmented by their end user:

 Construction & building,

 Municipal sewerage
 Irrigation
 Portable water supply
 Electrical and,
 Telecommunication sector.

The marketing of product held at the different places according to the agreement of the producer
and buyer and the agent/whole sale those buy from the producer and resale the products. There
are also the sub-contract agreement among the producer when one of the factory win the bid of
supplying and get in short of capacity to supply that in the given frame of time. Then the
factories get sub-contract with other to supply parts of the required amount.

According to the observation in the survey, the lion share of the sale held at the get of the factory
and when the factory get contract or sub contract from some companies they may transport the
products to the get of the buyer by their own transportation. When the producers deliver the
product to the wholesaler/agent in different locations they will add up the transportation cost on
the selling price of the product.

4.4 Pricing Strategy

Dimensionally pipes are wide ranging. Thus weight standards must be maintained as a
corollary of maintaining competitiveness. Secondly, although wholesale prices at different
consuming points vary depending upon the relative distances form the factory; in order for
the products of the project to be fairly competitive at these points, the charge of KASI
product at Addis Ababa must be at least lower than the product produced at Bahir Dar by the
amount of the cost of transport form Addis Ababa to Bahir Dar. The weighted average price
of this plant is assumed to be Birr 35,628.62 per ton of pipes and tubes considering 19%

21
 mark up on unit cost of production. As far as the pricing strategy is concerned the company
will primarily attach it to the cost of productions and the price set by the competitors. The
company will apply penetrative pricing at entry which is to introduce the new products at
such a low price in order to quickly gain a large share of the market.

V. Technical Study

5.1 Location and Site

5.1.1 Location

The location of a project is one of the important factors which substantially affect its
viability. In this regard, the promoter is requesting 10,000m2 of land for the realization of
this feasible project implementation. Hence, we request, the land in town, Oromia Special
Zone.

The location is chosen due to the following reasons.

 Availability of adequate transport facilities and easy access to other infrastructure

facilities such as power, communication and water.
 Easy access to major raw material sources.
 Proximity to major market outlets.

5.1.2 Site

With regard to infrastructural facilities, due to its location advantage the factory enjoys
relatively better infrastructure as compared to other locality in the region. Electric power
passes by the project site; water supply will be secured by the owner of the project. Hence,
the site is generally suitable for the intended purposes.

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5.2 Technology and Engineering

5.2.1 Technology

5.2.1.1 Production Process

The manufacture of steel tubes involves the continuous forming of steel sheet strip into an
open seam tube, welding of the open seam edges with high frequency resistance heating and
continuous pressure jointing into welded tube, followed by reduction in tube diameter and
then cutting into the desired length.

Alternatively, the production process or technology could be more labor intensive and be
developed in to multipurpose work shop.

5.2.1.2Source of Technology

The technology of Steel and wire products production has been widely applied by many
countries for many years in the past. Countries like Korea, Japan, European and other Asian
counties including China and India are well known for manufacturing and supply of
machinery and equipment. The promoter has undergoing a selection process to identify
technologically advanced roll forming machinery which is relatively less costly. The
promoter is finally convinced that Steel and wire products machines manufactured both in
China and India can serve the purpose if the right kind of supplier is chosen properly.

5.2.2 Engineering

5.2.2.1Machinery and Equipments

23
 The machinery and equipment required and the cost estimates are shown in Table 5.1. The
estimated cost of the machinery and equipment is about Birr 14.14 million, of which 87% is
in foreign currency.
Table 5.1:
Cost of Machinery and Equipment
Unit cost Total Cost (Birr)
S/N Description Qty (USD) F.C L.C Total
Automatic precision slitting
1 set 230,000 4,370,000 655,500 10,025,500
1 shears 0.5-4x1600mm
3 ZY50 tube mill 1 set 240,000 4,560,000 684,000 10,244,000
3 Overhead crane (5 tons)
LD type Europe design
electric single overhead crane
  5Tx24M,color-orange
1 set 16,120 306,280 45,942 352,222
Electric hoist (Taiwan )
5Tx9m, Lifting speed:
  2.7m/min
26
  H steel column pieces
  Longitudinal H steel 116m
23,560 447,640 67,1460 514,786
  Longitudinal rail 108m
  Longitudinal electric rail 58m
  Hardware spare parts 1 set
  Total 9,683,920 1,452,588 21,136,508

5.2.2.2Building and Construction

The building and construction to be carried out on the site comprises of main factory hall,
store, canteen, guard house and site works. The total cost of these construction items is
estimated to be Birr 10.6 million. The detail is shown in table 6.2 below.

Table 5.2:

24
 Summary of Building and Construction Costs

Description Size(M²) Unit Cost Amount

(Birr/M²) (Birr)
Light steel frame structure      
Main factory building 1500 3500 5,250,000
Store 1200 3500 4,200,000
Canteen 250 3100 775,000
Guard house 32 3100 99,200
Ground construction      
Car parking lot 60 500 30000
Intra communication road 500 500 250,000
Total 3,542.00 14,200.00 10,604,200.00

5.2.2.3Vehicles Requirement

Upon completion of the construction of building and installation of machinery, the project
needs to have at least three different types of vehicles for use in the day to day activities. The
types of vehicles needed and their respective cost estimate is given in table 6.3 below.

Table 5.3:
Vehicles Requirement
Unit Cost Total Cost
S.N Description Qty (Birr) (Birr)
Toyota Hailux Double
530,000 530,000
1 Cab 1
2 Toyota HIACE Minibus 1 669,000 669,000
  Total   1,199,000

5.2.2.4Office Furniture & Equipments

The company plans to purchase office furniture, equipment including computer &
accessories at an estimated cost of Birr 206,875. The detail is indicated below.

Table 5.4:

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 Cost of office furniture & equipment

Unit Cost Total Cost

S.N Description Unit Qty (Birr) (Birr)
1 Managerial table Pcs 2 2,000.00 4,000.00
2 Office Table (L-shape) Pcs 4 1,300.00 5,200.00
3 Secretarial swivel chair Pcs 1 600.00 600.00
4 Coffee table Pcs 4 350.00 1,400.00
5 Wooden shelf Pcs 2 400.00 800.00
6 File cabinet Pcs 1 2,300.00 2,300.00
7 Small back swivel chair Pcs 12 2,000.00 24,000.00
8 Guest chair Pcs 15 650.00 9,750.00
9 Office Table (Single pedestal) Pcs 10 980.00 9,800.00
10 File cabinet Pcs 3 3,000.00 9,000.00
11 4 Drawer file cabinet Pcs 3 2,500.00 7,500.00
12 Safe Box Pcs 1 6,700.00 6,700.00
13 Circular coffee table Pcs 3 500.00 1,500.00
14 Refrigerator Pcs 1 7,000.00 7,000.00
15 TV Pcs 1 4,000.00 4,000.00
16 Conference table Pcs 1 2,000.00 2,000.00
17 Printer (Hp) Pcs 2 5,600.00 11,200.00
18 Scanner (Hp) Pcs 1 7,200.00 7,200.00
19 Computer (Dell M782) Pcs 5 14,385.00 71,925.00
20 Photocopier Pcs 1 25,000.00 25,000.00
  Total       206,875.00

5.2.2.5Raw Material and Inputs

The raw material used is steel sheet, with various internal and outer diameters, width and
thickness. The unit cost of the coil is estimated to be USD 1400 per ton, of which about 71%
will be in foreign currency. Annual requirement of steel coil at full capacity production
would be 34,650 tons, and the corresponding cost is estimated at Birr 921.69 million.
Furthermore, the factory needs auxiliary materials including welding and other consumable
during manufacturing process. Annual requirement of welding material and other

26
 consumables at full capacity production would be 990 tons, and the corresponding cost is
estimated at Birr 19.99 million. See Table 6.5 below.

Table 5.5: Annual Raw Material requirement cost

Total Unit Total
Total RM
Description Un Consumption/ton Production/yr Total Cost Cost
SN cost
of Product it of production** consumption (USD)** (Birr)
(USD)
(ton) (ton) *
1 Major raw material          
Steel sheet
Ton 1.05 33,000.00 34,650.00 1,400 48,510,000.00 921,690,000
  /plate
  Sub-total 48,510,000.00 921,690,000
2 Auxiliary material
welding
wire and ton
0.03 33,000.00 990.00 1,063 1,051,875 19,985,625
other *
  consumables
  Sub-total 1,051,875 19,985,625
  Total 49,561,875 941,675,625
* Estimate
**Including
wastage
***including sure tax, freight cost, custom clearance

5.2.2.6Utilities

Electricity, water, fuel are the utilities required for the plant. Electricity is required as motive
power and to supply lighting and sockets. Water is required during manufacturing of steel
and wire products and for human consumption and general purposes. Fuel is required for
vehicles. The cost of utilities is computed as percent of sales and hence at full capacity
utilization the total cost of utilities will become Birr 29.63 million.

27
 5.2.2.7Production Capacity and Production Program

5.2.2.7.1 Production capacity

The envisaged plant’s maximum capacity in terms of weight reaches 120 tons per day
(considering three shifts per day). Annual capacity would be 33,000 tons, based on three
shifts per day and 275 annual working days.

A thorough assessment of the existing market condition is made to determine the product mix
of the factory. Accordingly, the product mix is scheduled to incorporate rectangular hollow
sections, circular hollow sections and LTZ with product mix ratio of 50%, 30% and 20%,
respectively.

The detail production mix and production capacity of the factory in terms of weight is given
in table 6.6 below.

Table 5.6: Production Capacity and Production Mix at Installed capacity

Description of machinery Product capacity/day Capacity per

Mix (ton) annum (ton)
 
Rectangular Hollow sections 50% 60 16,500.00
Circular Hollow sections 30% 36 9,900.00
LTZ 20% 24 6,600.00
Total 120 33,000

5.2.2.7.2 Production Program

The plant is expected to operate 50% in the initial year. But with ten percent increment in
capacity utilization per, the factory is expected to attain 90% of its installed capacity in the 5 th
year. The plant will reach the maximum attainable capacity on the 5 th year. The rationale

28
behind such production build-up is that the production equipment is new, and operators
usually take some time to develop the specific skills and knowhow.

5.2.3 Environmental Impact

The manufacturing of Steel and wire products by the proposed project doesn’t involve use of
any chemical that is hazardous to the environment. The factory is environmentally friendly
since its activities are limited to manufacturing of Steel and wire products from plain steel
sheet coils imported from abroad. The responsible government body can verify and hence
we confirm that the project bring no negative damage to the environment and the community
in the vicinity.

29
 VI. LAND USE PLAN
The envisaged project requires a plot area of 10,000m2. The factory in fact needs this
size of land considering the nature of products to be produced. Since the factory’s
location will presumably be in areas reserved for manufacturing industries. The
proposed land area will be used for construction of production hall, raw material store,
finished products store, sales and show room, office, canteen, office, gardening and
internal road.

Based on this notion, the utilization plan of the total area available that is 10,000m 2 is
shown in table below.
No Description Unit Size
1 Factory Building M2 4,000
2 Raw Materials Store M2 1,000
3 Changing Room & Wash Room M2 200
4 Finished Products Store M2 800
5 Office Building M2 500
6 Canteen M2 200
7 Sales and Show Room M2 200
8 Cafeteria and amusement area M2 200
9 Dumping Site(Loading & Unloading) M2 1,800
10 Parking, green area M2 250
11 Work shop and Spare part store M2 800
12 Guard House M2 50
  Total   10,000 m2

VII. ORGANIZATION AND MANAGEMENT

6.1Organization

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 The factory will have General Manager under which there will be Production and
Technical Manager, Marketing & sales and Finance and Administration.

The communication ladder is very easy and it facilitates smooth operations among
working units.

General Manager

Marketing & Sales Technical and Production Finance & Administration

6.2 Manpower Requirement

It is planned that the proposed manufacturing project will have a total of 84 persons
when it commences operation, with the necessary qualifications and skills appropriate
to the corresponding tasks. The required manpower is expected to be recruited from the
local available market. The total annual wages bill including the necessary benefits is
estimated to be Birr 1.83 million. The list of employees with their respective position
and remuneration is as depicted in the following table.
Table 6.1: List of Required Manpower and Salaries

Monthly Salary Annual Salary

Description
(Birr) (Birr)
Qty
i. Administrative & Support staff      
General Manager 1 7,000 84,000
Secretary 2 1,500 36,000

31
Finance and Procurement 2 4,200 100,800
Stores and Shipping 2 4,200 100,800
Sales and Marketing 3 4,200 151,200
Drivers 3 2,000 72,000
Security 3 1,500 54,000
Sub-total 16   598,800
Factory Staff      
Production Manager 1 6,500 78,000
Secretary 1 1,500 18,000
Operators 7 3,000 252,000
Laborers 51 1,200 144,000
Laboratory technician 2 2,500 60,000
Maintenance 2 2,100 50,400
Cleaners 4 800 38,400
Sub-total 27   640,800
Total 84   1,239,600
Social Insurance: Employer contribute 15% of wages 185,940
Medical Insurance: Employer contribute 25% of wages 309,900
Other allowances: Estimated 7.5% of wages 92,970
Total(ETB/annum) 1,828,410

VIII. Project Implementation

The project's implementation is expected to take one and half years. The major
activities include Bank loan processing, construction of the building, cleaning the
area around the building, procurement machinery & equipments, procurement of
vehicles, equipments and furniture, computer and accessories and recruitment of

32
employees. The project is expected to start full operation in March 31, 2021 while
part of 2019 and full 2020 are assumed to be the project's implementation periods.
The time schedule for the above mentioned major activities is presented below:

33
 Table 7.1:
Implementation Schedule

2023 2024
No Activities
Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Fe Ma
1 Bank loan processing x x                        
2 Building and
construction work x x x X x x            
3 Procurement of
machinery and
equipments       x x x X                
4 Installation of
machinery and
Equipments                 x X x x      
5 Purchasing of raw
materials                   X x x X X x
7 Procurement of
vehicles                       x X
6 Procurement of
furniture and fixtures,
computer &
accessories                       x X x  
8 Start up of full
operation                              x

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 IX. FINANCIAL Analysis

8.1Initial Investment

The total investment cost of the project is computed to be Birr 72.57million which is
required to finance machinery and equipments, vehicles, office furniture and equipment
and working capital.

The summary of total investment cost is presented in the following table.

Table 8.1: Planned Investment Cost

Sr. No. Description Total Financial
Asset( Birr)
1 Lease Cost Settled 135,000.00

2 Building and Civil Work 22,100,000.00

3 Electric Power 1,315,000.00
4 Machinery & Moulds 23,293,659.00
5 Vehicle 1,326,000.00
6 Office Furniture & Equipment 550,874.00
  Sub Total 48,720,533.00
7 Working Capital 23,852,835.44
  Total 72,573,368

8.2Source of Finance

The investment requirement of the envisaged project would be financed by equity and
long term bank loan. Accordingly, of the total Birr 72.57million the share of equity will
be 30% or Birr 19.59 million. The remaining 70% or 52.98 million of the total project
will be financed through borrowing from local banks at 11.5% interest rate having a
grace period of one and half year. The breakdown of investment items by source of
finance is as presented below.
Table 8.2:

35
 Summary of Investment and Source of Finance
Sr. Description Bank Loan Equity Total Finacial
No. Asset( Birr)
1 Lease Cost Settled 135,000.00 - 135,000.00

2 Building and Civil Work 22,100,000.00 - 22,100,000.00

3 Electric Power 1,315,000.00 - 1,315,000.00
4 Machinery & Moulds 3,698,849.52 19,594,809.48 23,293,659.00
5 Vehicle 1,326,000.00 - 1,326,000.00
6 Office Furniture & 550,874.00 - 550,874.00
Equipment
  Sub Total 29,125,723.52 19,594,809.48 48,720,533.00
7 Working Capital 23,852,835.44 - 23,852,835.44
  Grand Total 52,978,558.96 19,594,809.48 72,573,368
  Debt/ Equity Ratio 70% 30% 100%

8.3Financial Developments

1) Income Statement
On the basis of projected profit and loss statement, the project is found to be
profitable throughout its life. The annual net profit of the project will steadily grow
from Birr 69.52 million in the first year of operation to Birr 109.69 million by the
end of the tenth year.

2) Cash Flow
The projected cash flow statement shows that the project is liquid throughout its life
span. This is seen from the cumulative net cash surplus which grows from Birr
48.62 million in the beginning of the operation to Birr 471.06 million at the end of
the project life.

36
 3) Discounted Cash Flow
a) Internal Rate of Return
The internal rate of return (IRR) 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 investment or putting the money in a
bank account. Accordingly, IRR of the proposed project after tax is computed to be
37% indicating the viability of the project.

b) Net Present Value

Net Present value (NPV) is defined as the total present (discounted) value of a time
series of cash flows. NPV aggregates cash flows that occur during different periods
of time during the life of a project into a common measuring unit i.e. present value.
NPV is an indicator of how much value an investment or project adds to the capital
needed. In principle a project is acceptable if the NPV is no-negative.

c) Sensitivity Analysis
A sensitivity analysis was run to see into whether the project is sensitive to changes
in economic variables such as changes in capacity utilization, increase in cost of
production and decrease in selling prices and the result shows that the project can
sustain a cost escalation by up to 10% and these resulted in the economic viability
and social desirability of the project.

37
X. Annexes

38