27.

PROFILE ON THE PRODUCTION OF BEE

WAX
 27-ii

TABLE OF CONTENTS

PAGE

I. SUMMARY 27-2

II. PRODUCT DESCRIPTION & APPLICATION 27-2

III. MARKET STUDY AND PLANT CAPACITY 27-4

A. MARKET STUDY 27-4
B. PLANT CAPACITY & PRODUCTION PROGRAM 27-8

IV. MATERIALS AND INPUTS 27-9

A. RAW & AUXILIARY MATERIALS 27-9
B. UTILITIES 27-9

V. TECHNOLOGY & ENGINEERING 27-10

A. TECHNOLOGY 27-10
B. ENGINEERING 27-11

VI. HUMAN RESOURCE & TRAINING REQUIREMENT 27-15

A. HUMAN RESOURCE REQUIREMENT 27-15
B. TRAINING REQUIREMENT 27-16

VII. FINANCIAL ANLYSIS 27-16

A. TOTAL INITIAL INVESTMENT COST 27-17
B. PRODUCTION COST 27-18
C. FINANCIAL EVALUATION 27-19
D. ECONOMIC & SOCIAL BENEFITS 27-20

I. SUMMARY
 27-iii

This profile envisages the establishment of a plant for the production of bee wax with a
capacity of 500 tons per annum. Beeswax is used commercially to make fine candles,
cosmetics, pharmaceuticals, polishing materials and as a component of modeling waxes,
and in a variety of other products.

The present (2012) export demand for bee wax is estimated at 360 tons. The export
demand for bee wax is projected to reach 459 tons and 586 tons by the year 2017 and
2022, respectively

The principal raw material required is raw beeswax which is available locally.

The total investment cost of the project including working capital is estimated at Birr
16.02 million. From the total investment cost the highest share (Birr 10.54 million or
65.77%) is accounted by initial working capital followed by fixed investment cost (Birr
4.07 million or 25.41%) and pre operation cost (Birr 1.41 million or 8.82%). From the
total investment cost Birr 775.00 thousand or 4.84% is required in foreign currency.

The project is financially viable with an internal rate of return (IRR) of 21.04%and a net
present value (NPV) of Birr 11.67 million, discounted at 10%.

The project can create employment for 10 persons. The establishment of such factory will
have a foreign exchange earning effect to the country by exporting it products to the
international market. The project will also create backward linkage with the apiculture
sub sector and also generates income for the Government in terms of tax revenue and
payroll tax.

II. PRODUCT DESCRIPTION AND APPLICATION

Beeswax is a tough wax produced by bees in the form of tiny scales from glands on the
ventral surface of the abdomen and used in building the combs in which the young are
raised and pollen and honey are stored. The beekeeper collects beeswax at the time of
honey extraction and while also melting down old or damaged combs.
 27-iv

Though in many cases beeswax can be replaced with cheaper, synthetic waxes, its very
special characteristics, medicinal benefits, plasticity and aroma ensure its continuing use.
Many of these characteristics cannot be achieved with artificial waxes. The trend for
more natural products in cosmetics may also increase its use. Presently, there is a scarcity
of beeswax in industrialized countries.

Beeswax is used commercially to make fine candles, cosmetics and pharmaceuticals

including bone wax (cosmetics and pharmaceuticals account for 60% of total
consumption), in polishing materials (particularly shoe polish), as a component of
modeling waxes, and in a variety of other products. It is commonly used during the
assembly of pool tables to fill the screw holes and the seams between the slates. Beeswax
candles are preferred in most Eastern Orthodox churches because they burn cleanly, with
little or no wax dripping down the sides and little visible smoke.

Beeswax not only improves the appearance and consistency of creams and lotions but is
also a preferred ingredient for lipsticks, because it contributes to sheen, consistency and
color stabilization. Other cosmetic applications are found in cold creams (8-12% beeswax
content by weight), deodorants (up to 35 %), depilatories (hair removers, up to 50%), hair
creams (5-10%), hair conditioners (1-3%), mascara (6-12%), rouge (10-15%), eye
shadows (6-20%) and others.

Beeswax has been used in a variety of products and processes in food processing
industries from packaging to processing and preservation. It has also been used as a
separation agent in the confectionary industry and in cigarette filters.

It is also used as a coating for cheese to protect the food as it ages. While some cheese
makers have replaced it with plastic, many still use beeswax in order to avoid any
unpleasant flavors that may result from plastic. As a food additive, beeswax is known as
glazing agent.

III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY
 27-v

1. Past Supply and Present Demand

Bees wax is supplied to the export and domestic market for various applications. Of the
total production of wax produced the major part is utilized for the traditional production
of candle, which is called “twaf”. Studies made by IPS some years back indicate that
about 750 tons of bees wax is utilized for the production of ‘twaf’ consumed mainly by
about 25,000 Ethiopian Orthodox Churches. In addition more than 220 tons of wax is
consumed by existing candle producing enterprises.

Data on the domestic production of beeswax are not available since it is produced at
small scale levels, mostly home made. However, since bee wax is associated with the
production of honey, it can be deduced using the standard ratio of 10 kg honey: 1kg wax.
Accordingly, with an annual production of more than 25,000 tons of honey in Ethiopia
the volume of wax to be obtained is estimated at 2,500 tons.

Ethiopia imports a small amount of bee wax and exports a large quantity. Data obtained
from the Ethiopian Revenue and Customs Authority with regard to import and export of
bee wax for the period covering 2001--2011 are given in Table 3.1 and 3.2.

Table 3.1
IMPORT OF BEE WAX AND OTHER INSECT WAXES
 27-vi

Year Quantity Value

(Tons) ( Birr)
2001 0.11 6,024
2002 0.82 13,062
2003 0.98 10,382
2004 1.84 32,256
2005 242.03 1,284,049
2006 631.29 3,513,510
2007 1.35 112,007
2008 1.01 26,264
2009 1.95 84,708
2010 2.13 107,016
2011 2.39 77,797

Source: - Ethiopian Revenue and Customs Authority.

Table 3.1 reveals that the annual import of bee wax and other insect waxes in the past
eleven years was in the range of one to two tons except for the exceptional figures of year
2005 and 2006. During the years 2005 and 2006 the country has imported a huge amount
of the product which stands at about 242 tons and 631 tons, respectively.

Table 3.2
EXPOT OF BEE WAX AND OTHER INSECT WAXES
 27-vii

Year Quantity Value

(Tons) ( Birr)
2001 104.0 1,943,114
2002 319.9 6,401,948
2003 402.3 8,051,658
2004 305.0 8,365,826
2005 292.1 10,881,450
2006 264.8 10,485,903
2007 371.8 14,777,153
2008 373.5 16,526,820
2009 360.0 19,690,049
2010 310.5 22,105,174
2011 358.0 32,190,150

Source: - Ethiopian Revenue and Customs Authority.

The data depicted in Table 3.2 reveals that Ethiopia exports a significant amount of bee
and other insect waxes to the international market though relatively low to the quantity of
bees wax produced. The exported quantity in the year 2001 was 104 tons. During the
years 2002 to 2006 the yearly average volume of export has increased to about 317 tons.
Similarly, the yearly average level of export during the period 2007 to 2011 has increased
to 354 tons. This indicates that there is a growing demand for Ethiopian bee and other
insect waxes in foreign market.

According to a study made by Kline Group “Global Wax Industry 2010: Market Analysis
and Opportunities” the global demand for waxes reached an estimated 9,590 million lbs
in 2010. Mineral waxes (including petroleum) account for an estimated 85% of this
global demand, with synthetic waxes accounting for 11% and animal and vegetable
waxes, accounting for 4%.

By looking to the past five years data the current export demand for Ethiopian wax is set
at 360 tons.
 27-viii

2. Projected Demand

Waxes are used in hundreds of applications around the world. According to the above
source global consumption of wax is expected to grow at an average annual growth rate
of more than 2% from 2010—2020 but with insufficient supply growth or even a supply
decline. Hence, this indicates that there is a wide export market for the product if it is
supplied in the required quality and quantity. Since there is no constraint in the demand
side the projection for Ethiopian wax is worked out by taking an annual average growth
rate of 5% per annum (See Table 3.3). It should, however, has to be noted that the
country can export more than the projected figures if the supply of wax is assured.

Table 3.3
PROJECTED EXPORT DEMAND FOR ETHIOPIAN BEES WAX (TONS)

Year Projected Demand

2013 378
2014 397
2015 417
2016 437
2017 459
2018 482
2019 506
2020 532
2021 558
2022 586

The export demand for Ethiopian bee wax will grow from 378 tons in the year 2013 to
459 tons and 586 tons by the year 2017 and 2022, respectively.

3. Pricing and Distribution

 27-ix

The data collected from ERCA indicates that the average FOB price per ton of bee wax in
the year 2011 was Birr 89,916.6 per ton or US $ 5,269.16. Allowing 6% for the
depreciation of the Birr against the US$ a FOB price of Birr 95,312 per tone is
recommended for the project.

Currently, the product is directly exported by a number of exporters engaged in the

sector. The envisaged project can directly export its product to the end user industries of
the importing countries or can appoint agents in the importing countries.

B. PLANT CAPACITY & PRODUCTION PROGRAM

1. Plant Capacity

Based on the demand projection indicated, time required for implementation of the
project and full capacity attainment after the start of the project, the proposed plant will
have a capacity to produce 500 tons of beeswax per annum. The plant is envisaged to
operate in one shift of 8 hours per day and for 264 days per year. However, it is also
possible to work in two shifts based on actual market conditions.

2. Production Program

The fact that beeswax processing is familiar process in our country, it may take only a
short time to develop the skills and know how. However, it is recommended to start at
relatively lower capacity to get enough time to penetrate existing local market and
prepare for export. The production build-up program is, hence, made to start at relatively
lower (75%) and then gradually rise to full capacity in the 3 rd year of operation. The
detailed production program is given in Table 3.4 below.

Table 3.4
ANNUAL PRODUCTION PROGRAM

Year of Production 1st Year 2nd Year 3rd Year

 27-x

Capacity utilization (%) 75% 85% 100%

Beeswax(tons) 375 425 500

IV. MATERIALS AND INPUTS

A. MATERIALS

The raw materials required to prepare commercial beeswax is mainly raw beeswax and
some chemicals. The total cost of raw materials is estimated at Birr 41.90 million. The
detailed breakdown of material requirement at full operation capacity of the plant is given
in Table 4.1.
Table 4.1
RAW MATERIALS REQUIREMENT AND COST

Sr. Unit of Total Cost

No. Description Measure Qty. (`000 Birr)
1 Raw beeswax ton 670 41,540
2 Sulphuric acid ton 18 360
Grand Total 41,900

B. UTILITIES

The plant will use electrical energy and water as main utilities. The total annual cost of
utilities is estimated at Birr 17,760. Annual consumption of utilities at full operation
capacity along with corresponding cost is indicated in Table 4.2.

Table 4.2
ANNUAL UTILITIES CONSUMPTION AND COST

Unit of
Description Measure Consumption Unit Cost Total
Electricity kWh 12,000 0.58 6,960

Water m3 1,080 10.00 10,800

 27-xi

Grand Total 17,760

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Production Process

During beeswax processing, dark honeycombs should first be soaked in water to remove
non-wax components (honey, pollen …etc). Otherwise, while melting the wax emulsion
is formed in the water reducing wax quality. Soft water is required for this purpose as
hard water contains cations of some metals contributing to the emulsion formation. As
wax contains uncombined fatty acids that react the metals of which the equipment is
made and change the wax coloring (e.g.: iron colors wax in brown, zink-in dark-blue,
copper - in green), that facilitates emulsion formation and deteriorates wax quality. So it
is necessary to use technological equipment produced from non-corrosive materials,
enamelled metals, aluminium, wood or ceramics. Water enulgated in wax is removed by
long settling of melted wax. Water and not-containing wax components will fall out and
the wax quality will be improved.

While melting raw wax materials again wax may store some insoluble admixtures. The
coarse ones are removed by another melting in soft water and by settling of melted wax.
The length of settling depends on the degree of wax pollution and its temperature. Very
small admixtures that are commonly kept in wax by the forces of absorption and
electrostatics are removed by adding of sulphuric and hydrochloric acids to melted
wax (5.0 – 30.0 cm3 per 10 kg of wax). Wax is carefully mixed with the acid and kept to
mature in melted state. Sometimes, it is washed repeatedly in cold boiled water until dark
wax gains yellow colorings.

Beeswax withstands the atmospheric influence and does not need any special storage
facilities. Wax is not liable to damage of moth that is common in raw wax materials. It
retains its properties, content and quality under long storage and heating.
 27-xii

2. Environmental Impact Assessment

Since the process uses sulfuric and hydrochloric acid in small amount, the liquid waste to
be generated during the production process of bee wax has to be collected and neutralized
before disposal in order to avoid the adverse impact on environment. The investment cost
of the liquid waste treatment unit is included in the cost of machinery and equipment.

B. ENGINEERING

1. Machinery and Equipment

The total cost of plant machinery and equipment is estimated at Birr 900,000, of which
Birr 775,000 is required in foreign currency. The list of machinery and equipment
required by the envisaged plant is given in Table 5.1.

Table 5.1
LIST OF MACHINERY AND EQUIPMENT

Sr.
No. Machine / Equipment Description Qty.
1 Wax processor (melting oven, separator & storage) 1
2 Wax moulding tanks 2
3 Stainless steel tanks 3
4 Liquid waste treatment unit 1

2. Land, Building and Civil Works

The required area for both building and open space for the plant is estimated to be 800
m2, out of which 400 m2 will be a built-up area. The building will be constructed with
EGA sheet roof, HCB wall and cement screed floor finish. The total cost of building and
civil works at the rate of Birr 5,000 per m2 is estimated at Birr 2,000,000.
 27-xiii

According to the Federal Legislation on the Lease Holding of Urban Land (Proclamation
No 721/2004) in principle, urban land permit by lease is on auction or negotiation basis,
however, the time and condition of applying the proclamation shall be determined by the
concerned regional or city government depending on the level of development.

The legislation has also set the maximum on lease period and the payment of lease prices.
The lease period ranges from 99 years for education, cultural research health, sport,
NGO , religious and residential area to 80 years for industry and 70 years for trade while
the lease payment period ranges from 10 years to 60 years based on the towns grade and
type of investment.

Moreover, advance payment of lease based on the type of investment ranges from 5% to
10%.The lease price is payable after the grace period annually. For those that pay the
entire amount of the lease will receive 0.5% discount from the total lease value and those
that pay in installments will be charged interest based on the prevailing interest rate of
banks. Moreover, based on the type of investment, two to seven years grace period shall
also be provided.

However, the Federal Legislation on the Lease Holding of Urban Land apart from setting
the maximum has conferred on regional and city governments the power to issue
regulations on the exact terms based on the development level of each region.

In Addis Ababa, the City’s Land Administration and Development Authority is directly
responsible in dealing with matters concerning land. However, regarding the
manufacturing sector, industrial zone preparation is one of the strategic intervention
measures adopted by the City Administration for the promotion of the sector and all
manufacturing projects are assumed to be located in the developed industrial zones.

Regarding land allocation of industrial zones if the land requirement of the project is
below 5,000 m2, the land lease request is evaluated and decided upon by the Industrial
Zone Development and Coordination Committee of the City’s Investment Authority.
 27-xiv

However, if the land request is above 5,000 m2 the request is evaluated by the City’s
Investment Authority and passed with recommendation to the Land Development and
Administration Authority for decision, while the lease price is the same for both cases.

Moreover, the Addis Ababa City Administration has recently adopted a new land lease
floor price for plots in the city. The new prices will be used as a benchmark for plots that
are going to be auctioned by the city government or transferred under the new “Urban
Lands Lease Holding Proclamation.”

The new regulation classified the city into three zones. The first Zone is Central Market
District Zone, which is classified in five levels and the floor land lease price ranges from
Birr 1,686 to Birr 894 per m2. The rate for Central Market District Zone will be
applicable in most areas of the city that are considered to be main business areas that
entertain high level of business activities.

The second zone, Transitional Zone, will also have five levels and the floor land lease
price ranges from Birr 1,035 to Birr 555 per m2 .This zone includes places that are
surrounding the city and are occupied by mainly residential units and industries.

The last and the third zone, Expansion Zone, is classified into four levels and covers
areas that are considered to be in the outskirts of the city, where the city is expected to
expand in the future. The floor land lease price in the Expansion Zone ranges from Birr
355 to Birr 191 per m2 (see Table 5.2).

Table 5.2
NEW LAND LEASE FLOOR PRICE FOR PLOTS IN ADDIS ABABA

Floor
Zone Level Price/m2
Central Market
1st 1686
District
2nd 1535
3rd 1323
 27-xv

4th 1085
5th 894
1st 1035
2nd 935
Transitional zone 3rd 809
4th 685
5th 555
1st 355
2nd 299
Expansion zone
3rd 217
4th 191

Accordingly, in order to estimate the land lease cost of the project profiles it is assumed
that all new manufacturing projects will be located in industrial zones located in
expansion zones. Therefore, for the profile a land lease rate of Birr 266 per m 2 which is
equivalent to the average floor price of plots located in expansion zone is adopted.

On the other hand, some of the investment incentives arranged by the Addis Ababa City
Administration on lease payment for industrial projects are granting longer grace period
and extending the lease payment period. The criterions are creation of job opportunity,
foreign exchange saving, investment capital and land utilization tendency, etc.
Accordingly, Table 5.3 shows incentives for lease payment.

Table 5.3
INCENTIVES FOR LEASE PAYMENT OF INDUSTRIAL PROJECTS
Payment Down
Grace Completion Paymen
Scored Point Period Period t
Above 75% 5 Years 30 Years 10%
From 50 - 75% 5 Years 28 Years 10%
From 25 - 49% 4 Years 25 Years 10%
 27-xvi

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

Accordingly, the total land lease cost at a rate of Birr 266 per m 2 is estimated at Birr
212,800 of which 10% or Birr 21,280 will be paid in advance. The remaining Birr
191,520 will be paid in equal installments within 28 years i.e. Birr 6,840 annually.

VI. HUMAN RESOURCE AND TRAINING REQUIREMENT

A. HUMAN RESOURCE REQUIREMENT

The plant will require about 10 labor force at the beginning of the plant operation. The
total annual cost of labor is estimated at Birr 100,500. The breakdown of human resource
allocation and corresponding labor cost is indicated in Table 6.1.

Table 6.1
HUMAN RESOURCE REQUIREMENT & LABOUR COST (IN BIRR)

Sr. Req. Monthly Annual

No. Position Description No. Salary Salary
1 Production supervisor 1 1,500 18,000
2 cashier 1 800 9,600
3 Operators 3 1800 21,600
 27-xvii

4 Sells & Purchase Officer 1 900 10,800

5 Store keeper 1 500 6,000
6 Driver 1 500 6,000
7 Guard 2 700 8,400
Sub-total 10 80,400
Workers benefit ( 25 % of basic
salary) 20,100
Total 10 100,500

B. TRAINING REQUIREMENT

Beeswax processing is not such a new and complicated process and does not need any
special training arrangement.

VII. FINANCIAL ANALYSIS

The financial analysis of the bee wax project is based on the data presented in the
previous chapters and the following assumptions:-

Construction period 1 year

Source of finance 30 % equity & 70 loan
Tax holidays 5 years
Bank interest 10%
Discount cash flow 10%
Accounts receivable 30 days
Raw material local 30 days
Work in progress 1 day
Finished products 30 days
Cash in hand 5 days
Accounts payable 30 days
Repair and maintenance 5% of machinery cost

A. TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr
16.02 million (see Table 7.1). From the total investment cost the highest share (Birr
10.54 million or 65.77%) is accounted by initial working capital followed by fixed
investment cost (Birr 4.07 million or 25.41%) and pre operation cost (Birr 1.41 million or
 27-xviii

8.82%). From the total investment cost Birr 775.00 thousand or 4.84% is required in
foreign currency.

Table 7.1

INITIAL INVESTMENT COST ( ‘000 Birr)

Sr. Local Foreign Total %

No Cost Items Cost Cost Cost Share
1 Fixed investment
1.1 Land Lease 21.80 21.80 0.14
1.2 Building and civil work 2,000.00 2,000.00 12.48
1.3 Machinery and equipment 125.00 775 900.00 5.62
1.4 Vehicles 900.00 900.00 5.62
1.5 Office furniture and equipment 250.00 250.00 1.56
Sub total 3,296.80 775.00 4,071.80 25.41
2 Pre operating cost *
2.1 Pre operating cost 365.00 365.00 2.28
2.2 Interest during construction 1,048.29 1,048.29 6.54
Sub total 1,413.29 1,413.29 8.82
3 Working capital ** 10,538.78 10,538.78 65.77
Grand Total 15,248.87 775.00 16,023.87 100
* N.B Pre operating cost include project implementation cost such as installation,
startup, commissioning, project engineering, project management etc and capitalized
interest during construction.

** The total working capital required at full capacity operation is Birr 14.07 million.
However, only the initial working capital of Birr 10.53 million during the first year of
production is assumed to be funded through external sources. During the remaining
years the working capital requirement will be financed by funds to be generated
internally (for detail working capital requirement see Appendix 7.A.1).

B. PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 44.36 million
(see Table 7.2). The cost of raw material account for 94.45% of the production cost. The
other major components of the production cost are financial cost, depreciation and
administration cost, which account for 2.27%, 1.21% and 0.56%, respectively. The
 27-xix

remaining 1.51% is the share of utility, repair and maintenance, labor overhead and labor.
For detail production cost see Appendix 7.A.2.

Table 7.2

ANNUAL PRODUCTION COST AT FULL CAPACITY (YEAR THREE)

Items Cost %
Raw Material and Inputs 41,900.0
0 94.45
Utilities 17.7
6 0.04
Maintenance and repair 45.0
0 0.10
Labour direct 80.4
0 0.18
Labour overheads 20.1
0 0.05
Administration Costs 250.0
0 0.56
Land lease cost - -
Cost of marketing and distribution 500.0
0 1.13
Total Operating Costs 42,813.2
6 96.51
Depreciation 538.0
0 1.21
Cost of Finance 1,008.9
8 2.27
Total Production Cost 44,360.2
4 100

C. FINANCIAL EVALUATION

1. Profitability

Based on the projected profit and loss statement, the project will generate a profit
throughout its operation life. Annual net profit after tax will grow from Birr 2.41 million
to Birr 3.31 million during the life of the project. Moreover, at the end of the project life
 27-xx

the accumulated net cash flow amounts to Birr 33.56 million. For profit and loss
statement and cash flow projection see Appendix 7.A.3 and 7.A.4, respectively.

2. Ratios

In financial analysis financial ratios and efficiency ratios are used as an index or yardstick
for evaluating the financial position of a firm. It is also an indicator for the strength and
weakness of the firm or a project. Using the year-end balance sheet figures and other
relevant data, the most important ratios such as return on sales which is computed by
dividing net income by revenue, return on assets (operating income divided by assets),
return on equity (net profit divided by equity) and return on total investment (net profit
plus interest divided by total investment) has been carried out over the period of the
project life and all the results are found to be satisfactory.

3. Break-even Analysis

The break-even analysis establishes a relationship between operation costs and revenues.
It indicates the level at which costs and revenue are in equilibrium. To this end, the
break-even point for capacity utilization and sales value estimated by using income
statement projection are computed as followed.

Break- Even Sales Value = Fixed Cost + Financial Cost = Birr 20,015,100
Variable Margin ratio (%)

Break- Even Capacity utilization = Break- even Sales Value X 100 = 19.43%
Sales revenue
4. Pay-back Period

The pay- back period, also called pay-off period is defined as the period required for
recovering the original investment outlay through the accumulated net cash flows earned
by the project. Accordingly, based on the projected cash flow it is estimated that the
project’s initial investment will be fully recovered within 6 years.

5. Internal Rate of Return

 27-xxi

The internal rate of return (IRR) is the annualized effective compounded return rate that
can be earned on the invested capital, i.e., the yield on the investment. Put another way,
the internal rate of return for an investment is the discount rate that makes the net present
value of the investment's income stream total to zero. It is an indicator of the efficiency or
quality of an investment. A project is a good investment proposition if its IRR is greater
than the rate of return that could be earned by alternate investments or putting the money
in a bank account. Accordingly, the IRR of this project is computed to be 21.04%
indicating the viability of the project.

6. Net Present Value

Net present value (NPV) is defined as the total present (discounted) value of a time series
of cash flows. NPV aggregates cash flows that occur during different periods of time
during the life of a project in to a common measuring unit i.e. present value. It is a
standard method for using the time value of money to appraise long-term projects. NPV
is an indicator of how much value an investment or project adds to the capital invested. In
principle, a project is accepted if the NPV is non-negative. Accordingly, the net present
value of the project at 10% discount rate is found to be Birr 11.67 million which is
acceptable. For detail discounted cash flow see Appendix 7.A.5.

D. ECONOMIC AND SOCIAL BENEFITS

The project can create employment for 10 persons. The project will generate Birr 8.77
million in terms of tax revenue. The establishment of such factory will have a foreign
exchange earning effect to the country by exporting it products to the international
market. The project will also create backward linkage with the apiculture sub sector and
also generates income for the Government in terms of payroll tax.
 27-xxii

Appendix 7.A
FINANCIAL ANALYSES SUPPORTING TABLES
 27-22

Appendix 7.A.1
NET WORKING CAPITAL ( in 000 Birr)

Items Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11
10,475.0 10,475.0 10,475.0 10,475.0 10,475.0 10,475.0 10,475.0 10,475.0
Total inventory 7,856.25 8,903.75 0 0 0 0 0 0 0 0

Accounts receivable 2,686.25 3,038.86 3,567.77 3,567.77 3,568.34 3,568.34 3,568.34 3,568.34 3,568.34 3,568.34

Cash-in-hand 4.12 4.67 5.49 5.49 5.59 5.59 5.59 5.59 5.59 5.59
10,546.6 11,947.2 14,048.2 14,048.2 14,048.9 14,048.9 14,048.9 14,048.9 14,048.9 14,048.9
CURRENT ASSETS 2 8 6 6 3 3 3 3 3 3

Accounts payable 7.84 8.88 10.45 10.45 10.45 10.45 10.45 10.45 10.45 10.45
CURRENT
LIABILITIES 7.84 8.88 10.45 10.45 10.45 10.45 10.45 10.45 10.45 10.45
TOTAL WORKING 10,538.7 11,938.3 14,037.8 14,037.8 14,038.4 14,038.4 14,038.4 14,038.4 14,038.4 14,038.4
CAPITAL 8 9 1 1 8 8 8 8 8 8
 27-23

Appendix 7.A.2
PRODUCTION COST ( in 000 Birr)

Item Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11

Raw Material and Inputs 31,425 35,615 41,900 41,900 41,900 41,900 41,900 41,900 41,900 41,900

Utilities 13 15 18 18 18 18 18 18 18 18

Maintenance and repair 34 38 45 45 45 45 45 45 45 45

Labour direct 60 68 80 80 80 80 80 80 80 80

Labour overheads 15 17 20 20 20 20 20 20 20 20

Administration Costs 188 213 250 250 250 250 250 250 250 250

Land lease cost 0 0 0 0 7 7 7 7 7 7

Cost of marketing
and distribution 500 500 500 500 500 500 500 500 500 500

Total Operating Costs 32,235 36,466 42,813 42,813 42,820 42,820 42,820 42,820 42,820 42,820

Depreciation 538 538 538 538 538 105 105 105 105 105

Cost of Finance 0 1,153 1,009 865 721 577 432 288 144 0

Total Production Cost 32,773 38,157 44,360 44,216 44,079 43,502 43,358 43,213 43,069 42,925
 27-24

Appendix 7.A.3
INCOME STATEMENT ( in 000 Birr)

Year Year Year Year Year Year Year Year

Item 2 3 4 5 6 7 8 9 Year 10 Year 11

Sales revenue 35,741 40,507 47,655 47,655 47,655 47,655 47,655 47,655 47,655 47,655
Less variable costs 31,735 35,966 42,313 42,313 42,313 42,313 42,313 42,313 42,313 42,313

VARIABLE MARGIN 4,006 4,541 5,342 5,342 5,342 5,342 5,342 5,342 5,342 5,342
in % of sales revenue 11.21 11.21 11.21 11.21 11.21 11.21 11.21 11.21 11.21 11.21
Less fixed costs 1,038 1,038 1,038 1,038 1,045 612 612 612 612 612

OPERATIONAL MARGIN 2,968 3,503 4,304 4,304 4,297 4,730 4,730 4,730 4,730 4,730
in % of sales revenue 8.30 8.65 9.03 9.03 9.02 9.93 9.93 9.93 9.93 9.93
Financial costs 1,153 1,009 865 721 577 432 288 144 0
GROSS PROFIT 2,968 2,350 3,295 3,439 3,576 4,153 4,297 4,442 4,586 4,730
in % of sales revenue 8.30 5.80 6.91 7.22 7.50 8.72 9.02 9.32 9.62 9.93
Income (corporate) tax 0 0 0 1,032 1,073 1,246 1,289 1,332 1,376 1,419
NET PROFIT 2,968 2,350 3,295 2,407 2,503 2,907 3,008 3,109 3,210 3,311
in % of sales revenue 8.30 5.80 6.91 5.05 5.25 6.10 6.31 6.52 6.74 6.95
 27-25

Appendix 7.A.4
CASH FLOW FOR FINANCIAL MANAGEMENT ( in 000 Birr)

Item Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Scrap
TOTAL CASH INFLOW 4,437 47,336 40,508 47,657 47,655 47,655 47,655 47,655 47,655 47,655 47,655 16,309
Inflow funds 4,437 11,595 1 2 0 0 0 0 0 0 0 0
Inflow operation 0 35,741 40,507 47,655 47,655 47,655 47,655 47,655 47,655 47,655 47,655 0
Other income 0 0 0 0 0 0 0 0 0 0 0 16,309
TOTAL CASH
OUTFLOW 4,437 43,830 40,461 47,365 46,151 46,056 46,084 45,983 45,882 45,781 44,239 0
Increase in fixed assets 4,437 0 0 0 0 0 0 0 0 0 0 0
Increase in current assets 0 10,547 1,401 2,101 0 1 0 0 0 0 0 0
Operating costs 0 31,735 35,966 42,313 42,313 42,320 42,320 42,320 42,320 42,320 42,320 0
Marketing and
Distribution cost 0 500 500 500 500 500 500 500 500 500 500 0
Income tax 0 0 0 0 1,032 1,073 1,246 1,289 1,332 1,376 1,419 0
Financial costs 0 1,048 1,153 1,009 865 721 577 432 288 144 0 0
Loan repayment 0 0 1,441 1,441 1,441 1,441 1,441 1,441 1,441 1,441 0 0
SURPLUS (DEFICIT) 0 3,506 47 292 1,504 1,599 1,571 1,672 1,773 1,874 3,416 16,309
CUMULATIVE CASH
BALANCE 0 3,506 3,553 3,845 5,348 6,948 8,519 10,190 11,963 13,837 17,253 33,561
 27-26

Appendix 7.A.5
DISCOUNTED CASH FLOW ( in 000 Birr)

Year Year Year Year Year Scra

Item Year 1 2 Year 3 4 Year 5 6 Year 7 8 Year 9 10 Year 11 p
16,30
TOTAL CASH INFLOW 0 35,741 40,507 47,655 47,655 47,655 47,655 47,655 47,655 47,655 47,655 9
Inflow operation 0 35,741 40,507 47,655 47,655 47,655 47,655 47,655 47,655 47,655 47,655 0
16,30
Other income 0 0 0 0 0 0 0 0 0 0 0 9

TOTAL CASH OUTFLOW 14,976 33,635 38,566 42,813 43,846 43,893 44,066 44,109 44,153 44,196 44,239 0
Increase in fixed assets 4,437 0 0 0 0 0 0 0 0 0 0 0
Increase in net working capital 10,539 1,400 2,099 0 1 0 0 0 0 0 0 0
Operating costs 0 31,735 35,966 42,313 42,313 42,320 42,320 42,320 42,320 42,320 42,320 0

Marketing and Distribution cost 0 500 500 500 500 500 500 500 500 500 500 0
Income (corporate) tax 0 0 0 1,032 1,073 1,246 1,289 1,332 1,376 1,419 0
16,30
NET CASH FLOW -14,976 2,106 1,941 4,842 3,809 3,762 3,589 3,546 3,502 3,459 3,416 9
- 35,30
CUMULATIVE NET CASH FLOW -14,976 12,869 -10,928 -6,086 -2,277 1,485 5,074 8,620 12,122 15,581 18,997 6
Net present value -14,976 1,915 1,604 3,638 2,602 2,336 2,026 1,819 1,634 1,467 1,317 6,288
- 11,67
Cumulative net present value -14,976 13,061 -11,456 -7,819 -5,217 -2,881 -855 965 2,598 4,065 5,382 0

NET PRESENT VALUE 11,670

INTERNAL RATE OF RETURN 21.04%
NORMAL PAYBACK 6 years