173.

PROFILE ON ELECTRONIC AND

COMMUNICATION EQUIPMENTS OPERATION
REPAIR AND MAINTENANCE SERVICE
 173-2

TABLE OF CONTENTS

PAGE

I. SUMMARY 173-3

II. SERVICE DESCRIPTION & APPLICATION 173-3

III. MARKET STUDY AND SERVICE CAPACITY 173-4

A. MARKET STUDY 173-4
B. SERVICE CAPACITY & PRODUCTION PROGRAMME 173-10

IV. SPARE PARTS AND UTILITIES 173-11

A. SPARE PARTS 173-11
B. UTILITIES 173-11

V. TECHNOLOGY , MACHINERY AND EQUIPMENT 173-12

A. TECHNOLOGY 173-12
B. MACHINERY AND EQUIPMENT 173-13

VI. MANPOWER & TRAINING REQUIREMENT 173-14

A. MANPOWER REQUIREMENT 173-14
B. TRAINING REQUIREMENT 173-15

VII. FINANCIAL ANALYSIS 173-15

A. TOTAL INITIAL INVESTMENT COST 173-15
B. OPERATION COST 173-16
C. FINANCIAL EVALUATION 173-17
D. ECONOMIC BENEFITS 173-19
 173-3

I. SUMMARY

This profile envisages the establishment of an electronic and communication equipments

operation repair and maintenance service center with a capacity of repairing 4,400 units
of assorted electronic and communication equipments per annum.

The annual present demand for the proposed service is valued at Birr 290 million. The
demand for the envisaged service is expected to increase to Birr 446 million in terms of
value by the year 2017 .

The total investment requirement is estimated at about Birr 675.09 thousand, out of
which Birr 60 thousand is required for equipment and machinery. The service will
create employment opportunities for 25 persons.

The project is financially viable with an internal rate of return (IRR) of 28.70 % and a
net present value (NPV) of Birr 704.10 thousand discounted at 8.5%.

II. SERVICE DESCRIPTION

Electronic and communication equipment are items including television, radio, tape
recorder, satellite dish, VCD, DVD, mobile telephone apparatus, fax machine, telephone,
video camera, digital camera, etc.

The service intended to be provided by the project is to install and maintain the stated
equipment charging a fair service fee.
 173-4

III. MARKET STUDY AND SERVICE CAPACITY

A. MARKET STUDY

1. Current Level of Service Provided

Electronic and communication equipments1 utilization is on the rise due to the economic
progress registered in the country and the City. The other factor that stimulates the use of
electronics and communication equipments is the modernization of the society and
globalization. The demand for equipment corrective maintenance (maintenance),
operation training, installation of new equipment, and scheduled or preventive
maintenance (PMs) service is expected to increase parallel with the rise of the use of the
equipments.

Electronic and communication equipments are by and large imported. Local production is
extremely limited. Table 3.1 below provides the CIF value and volume in metric tone of
imports of electronic and communications equipments into the country during the last six
years.

1
The major items include television, radio, tape player, cassette recorder, I pod, satellite dish, VCD,
DVD, VHS, mobile telephone apparatus, telephone apparatus, fax machine…etc
 173-5

Table 3.1
ANNUAL IMPORT OF ELECTRONIC AND COMMUNICATION
EQUIPMENTS INTO ETHIOPIA IN VALUE AND VOLUME (2000/01-2005/06)

Electronic Equipment Communication Total

Equipment
Year Value in Volume Value in Volume Value in Volume
000’ Birr in Tone 000’ Birr in Tone 000’ Birr in Tone
2000/01 782,018 24,421 66,419 20,588 848,437 45,009
2001/02 893,039 25,206 101,456 330 994,495 25,536
2002/03 1,059,754 29,329 111,634 716 1,171,388 30,045
2003/04 2,447,540 54,920 502,494 3,327 2,950,034 58,247
2004/05 3,062,726 58,571 344,108 89,893 3,406,834 148,464
2005/06 2,978,793 83,658 365,874 6,065 3,344,667 89,723
Average 1,870,645 46,018 248,664 20,153 2,119,309 66,171
Source: National Bank of Ethiopia, 2007

As can be observed from Table above the average value of imports into the country
during the last six years has been about Birr 2 billion. It increased at an average annual
growth rate of 33%. The average volume of import has been also about 66 thousand tones
during the period considered with an annual average growth rate of 19.9%. The import
level is expected to increase as the economy continues to grow and the living standards of
the population improve.

Though there are no actual data that indicates the amount of electronic and
communication equipments that are used in Addis Ababa, an attempt is done to estimate
the amount of electronic and communication equipments that are currently used in Addis
Ababa using the following assumptions:
 The use of electronic and communications equipment is directly related with
level of investment. According to the Ethiopian Investment Agency the
proportion of the average investment capital registered in Addis Ababa from
 173-6

the total investment capital registered at the country level is estimated to be

35.7% and accordingly it is assumed that from the total imports 35.7% is used
in Addis Ababa.
 The economic life of typical electronic and communications equipment is four
years. For this purpose TV is considered as typical electronic equipment.

The proportion of imports that is used in Addis Ababa and total value and volume of
electronic and communication equipment in use in Addis Ababa from 2000/01 -2005/06
is estimated and given under Table 3.2 below.

Table 3.2
THE PROPORTION OF ELECTRONIC AND COMMUNICATIONS
EQUIPMENT IMPORTED AND IN USE IN ADDIS ABABA IN VALUE AND
VOLUME (2000/01-2005/06)

Year Value of Total Value in Volume of Total Volume in

Imports in Use in 000 Birr Imports in Tone Use
000’ Birr
2000/01 302,892 - 16,068 -
2001/02 355,035 - 9,116 -
2002/03 418,186 - 10,726 -
2003/04 1,053,162 2,129,275 20,794 56,704
2004/05 1,216,240 3,042,623 53,002 93,638
2005/06 1,194,046 3,881,634 32,031 116,553
Average 3,017,844 88,965
302,892 16,068
Source: Calculated based the data of Table 3.1 and the above assumptions

As can be seen from Table 3.2 the average annual total value of electronic and
communication equipments in use in Addis Ababa during the last three years is estimated
to be about Birr 3 billion and it grows on average by 41.1% annually. The average
 173-7

volume during the same period has been also about 89 thousand and has been growing
annually by 52.8%.

An assessment has been done to look at how much TV owners spend on maintenance,
repair and routine training. The finding is that they spend Birr 20 a month and Birr 240
annually on repairs and installation. Considering that the average value of a single TV is
Birr 2,500, the annual expenditure on repair and maintenance of a TV is estimated to be
9.6% of its value.

Considering that TV is a typical electronic and communication equipment, the level of

commercial service provided by electronic and communication equipments, maintenance
training and repair firms in Addis Ababa in Birr for the last three years is calculated and
given under Table 3.3 below.
Table 3.3
ESTIMATED ELECTRONIC AND COMMUNICATION EQUIPMENTS
MAINTENANCE AND REPAIR AND TRAINING SERVICES PROVIDE IN
BIRR IN ADDIS ABABA (2003/4-2005/6)

Year Total Value in Use Annual Expenditure on Annual Growth

in 000 Birr Maintenance and Repair Rate of
in 000’ Birr Expenditure
2004 2,129,275 204,410 -
2005 3,042,623 292,092 42.9
2006 3,881,634 372,637 27.6
Average 3,017,844 41.1
289,713
Source: Calculated based on the above assumptions

As can be observed from Table 3.3 the average annual electronic and communications
equipment repair, maintenance and training service provided in Addis Ababa is estimated
 173-8

to be about 290 million Birr in the past three years. The average annual growth rate of
services provide in terms of value is also estimated at 41.1%.

2. Projected Demand

Demand for electronic and communications equipment maintenance, repair and training
service in the city is expected to continue to increase with the increasing applications of
the equipments in home, office and business establishments.

Assuming that demand for electronic and communications equipment maintenance, repair
and training service will increase at a rate parallel to urban population growth which is
4% per annum, the level of service for the coming ten years in Birr is calculated as
follows.

Table 3.4
PROJECTED DEMAND FOR ELECTRONIC AND COMMUNICATIONS
EQUIPMENTS MAINTENANCE, REPAIR AND TRAINING SERVICE IN BIRR
(2006/07-2016/17)

Year Service Demand in 000

Birr
2006/07 301,600
2007/08 313,664
2008/09 326,210
2019/00 339,259
2010/11 352,829
2011/12 366,942
2012/13 381,620
2013/14 396,882
2014/15 412,760
2015/16 429,271
2016/17 446,441
Source: Calculated based on the assumptions done above
 173-9

It is forecasted that the total demand for electronic and communications equipments
maintenance, repair and training service in the City in terms of value will reach about
446 million Birr in 2016/17( see Table 3.4 above for the details).

3. Service Fee

It is very difficult to come up with a standard service fee charged for repair and
maintenance. Fees highly depend on the type and quality of services provided as well as
the nature of operation of the service provider. In most cases service providers don’t
have pre determined fee structures. Fees are decided on spot looking at what types of
problem the electronic and communication equipments as well as by the type of service
demanded by the service receiver.

On the other hand an assessment has been done to look at the types and level of fees
charged by service provider. The finding for the typical service provided in the City and
the average service fees charged are given below:
 Television …………………………………...Birr 50-300
 Mobile telephone apparatus………………. Birr 50-200
 Satellite dish…………………………………Birr 120-150
 Cassette recorder……………………………. Birr 10-60
 Radio…………………………………………Birr 10-30
 Cassette player(Deck)………………………..Birr 50-200
 DVD player ………………………………….Birr 20-100
 VCD player…………………………………...Birr 20-50
 173-10

B. SERVICE CAPACITY AND PROGRAMME

1. Capacity

The annual maintenance capacity of the proposed project is to maintain 600

televisions,3,000 mobile telephone apparatus, 300 cassette recorders and 500 other
electronic and communication equipment; based on 300 working days per annum and 8
hours per day.

2. Service Programme

Table 3.5 shows the service programme of the project. The maintenance team need some
time to grasp the necessary workmanship to maintain electronic equipments. In addition,
marketing activities should also be carried out for some time. Therefore, the service will
start in the first year at 60% and in the second year at 80% of its capacity. In the third
year and then after, the project can provide maintenance service at its full capacity.

Table 3.5
SERVICE PROGRAMME

Sr.No. Maintenance Services Project Year

1 2 3-10
1 Television(pcs) 360 480 600
2 Mobile Tel. Apparatus(pcs) 1,800 2,400 3,000
3 Cassette Recorders(pcs) 180 240 300
4 Others(pcs) 300 400 500
Capacity utilization rate (%) 60 80 100
 173-11

IV. SPARE PARTS AND UTILITIES

A. SPARE PARTS

To maintain electronic and communication equipment different electronic components

such as diods, triodes, resistors, transistors, integrated circuits, etc, are required.

Table 4.1 shows the spare parts and other auxiliary parts requirement of the project. The
annual cost of spare and auxiliary parts of the maintenance shop is estimated at Birr
129,000. All spare parts and auxiliary materials are locally available from importers.

Table 4.1
ANNUAL SPARE AND AUXILIARY MATERIALS REQUIREMENT (AT FULL
CAPACITY)

Sr. Description Total Cost

No. (‘000 Birr)
1 Television 18
2 Mobile telephone apparatus 60
3 Cassette recorders 15
4 Rosin cored solder wire 6
5 Others 30
Total 129

B. UTILITIES

Electricity and water are utilities of the project. The annual utility requirement and cost
is indicated in Table 4.2.
 173-12

Table 4.2
ANNUAL UTILITY REQUIREMENT AND COST (AT FULL CAPACITY)

Sr. Utility Unit Qty Cost

No. (‘000 Birr)
1 Electricity kWh 60,000 28.38
2 Water M3 1,500 4.88
Total 33.26

V. TECHNOLOGY, MACHINERY & EQUIPMENT

A. TECHNOLOGY

1. Maintenance Procedure

The proposed project is a service provider. The electronic and communication equipment
with certain defect shall first be tested with oscilloscope for signal testing or multi-meter,
for example, for continuity or with some other testers. After testing, the defective
component shall be replaced or maintained.

The project does not have any negative impact on the environment.

2. Source of Technology

Maintenance of electronic equipment is a conventional electrical workshop practice

which requires no specific source of technology.
 173-13

B. MACHINERY & EQUIPMENT

1. Equipment

The list of maintenance equipment of an electronic and communication workshop is

indicated in Table 5.1. The total cost of equipment is estimated at Birr 60,000. All of
them can be purchased locally from importers.
Table 5.1
LIST OF EQUIPMENTS OF ELECTRONIC MAINTENANCE WORKSHOP

Equipment No. Cost (Birr)

1 Oscilloscope 2 13230
2 Signal (RF) generator 2 16,600
3 Multi meters 3 1,920
4 Transistor and diode tester 2 6,800
5 Testing boards 2 11,200
6 Blowers 3 7,500
7 Electric soldering bit 5 2,750
Total 60,000

2. Land, Building and Civil Work

The total built up area requirement of the project is 300 m 2. Out of the total built up
area, 200 m2 will be used for production hall, 75 m2 for store & 25 m2 for office.

It is assumed that the envisaged project will rent the required space. Accordingly, at the
rate of Birr 50 per m2 / month the annual rental cost is estimated at Birr 180,000.
 173-14

VI. MANPOWER AND TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT

The list of manpower and the annual labor cost is indicated in Table 6.1.
Table 6.1
MANPOWER REQUIREMENT AND COST
Sr. Manpower No. Monthly Annual
No. Salary (Birr) Salary (Birr)
1 Manager 1 4,000 48,000
2 Secretary 1 1,000 12,000
3 Accountant 1 2,500 30,000
4 Maintenance team head 1 3,000 36,000
5 Senior television expert 1 2,500 30,000
6 Senior mobile phone expert 1 2,500 30,000
7 Senior expert for cassette recorders 1 2,500 30,000
8 Senior expert for general electronic 1 2,500
equipment 30,000
9 Helpers 4 2,000 24,000
10 Reassemblers 4 4,000 48,000
11 Maintenance worker 4 6,000 72,000
12 Labourer 2 700 8,400
13 Guards 2 800 9,600
14 Store keeper 1 700 8,400
15 Sales man 1 1,200 14,400
Sub Total 25 34,700 474,400
Benefit (25%) 8,675 104,100
Total 25 43,375 520,500

B. TRAINING REQUIREMENT
 173-15

Senior maintenance experts usually train the juniors. It is also assumed that trained and
experienced experts shall be employed in the workshop. Therefore, the training cost is
practically negligible.

VII. FINANCIAL ANALYSIS

The financial analysis of the electronic and communication equipments repair and
maintenance project is based on the data presented in the previous chapters and the
following assumptions:-

Source of finance 30 % equity

70 % loan
Tax holidays -
Bank interest 8.5%
Discount cash flow 8.5%
Accounts receivable 30 days
Raw material local 30 days
Work in progress 2 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
675.09 thousand. The major breakdown of the total initial investment cost is shown in
Table 7.1.

Table 7.1
 173-16

INITIAL INVESTMENT COST ( ‘000 Birr)

Sr. Cost Items Local Foreign Total

Cost Cost Cost
No.
1 Land lease value - - -
2 Building and Civil Work - - -
3 Plant Machinery and 60.0 - 60.00
Equipment
4 Office Furniture and 50.00 - 50.00
Equipment
5 Vehicle 450.00 - 450.00
6 Pre-production 55.71 - 55.71
Expenditure*
7 Working Capital 59.38 - 59.38
Total Investment cost 675.09 - 675.09

* N.B Pre-production expenditure includes interest during grace period ( Birr 30.71
thousand) and Birr 25 thousand costs of registration, licensing and formation of the
company including legal fees, commissioning expenses, etc.

B. OPERATION COST

The annual production cost at full operation capacity is estimated at Birr 998.59 thousand
(see Table 7.2). The major components of the operation cost are direct labour, working
premise rental and administration cost which account for 25.02 %, 18.03% and 16.68 %
respectively. The remaining 40.28 % is the share of spare parts, utility, repair and
maintenance, labour overhead, financial cost and depreciation.

Table 7.2
 173-17

ANNUAL OPERATING COST AT FULL CAPACITY ('000 BIRR)

Items Cost %
Spare parts
129.00 12.92
Utilities 33.26 3.33
Maintenance and repair
3.00 0.30
Labour direct 249.84 25.02
Labour overheads
104.10 10.42
Administration Costs 166.56 16.68
Working premise rental 180.00 18.03
Total Operating Costs 865.76 86.70
Depreciation 106.00 10.61
Cost of Finance 26.83 2.69
Total Production Cost
998.59 100

C. FINANCIAL EVALUATION

1. Profitability

Based on the projected profit and loss statement, the project will generate a profit through
out its operation life. Annual net profit after tax will grow from Birr 12.98 thousand to
Birr 141.75 thousand during the life of the project. Moreover, at the end of the project life
the accumulated cash flow amounts to Birr 1.39 million.

2. Ratios

In financial analysis financial ratios and efficiency ratios are used as an index or yardstick
for evaluating the financial position of a firm. It is also an indicator for the strength and
weakness of the firm or a project. Using the year-end balance sheet figures and other
relevant data, the most important ratios such as return on sales which is computed by
dividing net income by revenue, return on assets ( operating income divided by assets),
return on equity ( net profit divided by equity) and return on total investment ( net profit
 173-18

plus interest divided by total investment) has been carried out over the period of the
project life and all the results are found to be satisfactory.

3. Break-even Analysis

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

BE = Fixed Cost = 54 %
Sales – Variable Cost

4. Payback Period

The pay back period, also called pay – off period is defined as the period required to
recover the original investment outlay through the accumulated net cash flows earned by
the project. Accordingly, based on the projected cash flow it is estimated that the
project’s initial investment will be fully recovered within 4 years.

5. Internal Rate of Return

The internal rate of return (IRR) is the annualized effective compounded return rate that
can be earned on the invested capital, i.e., the yield on the investment. Put another way,
the internal rate of return for an investment is the discount rate that makes the net present
value of the investment's income stream total to zero. It is an indicator of the efficiency or
quality of an investment. A project is a good investment proposition if its IRR is greater
than the rate of return that could be earned by alternate investments or putting the money
in a bank account. Accordingly, the IRR of this porject is computed to be 28.70 %
indicating the vaiability of the project.
6. Net Present Value
 173-19

Net present value (NPV) is defined as the total present ( discounted) value of a time
series of cash flows. NPV aggregates cash flows that occur during different periods of
time during the life of a project in to a common measuring unit i.e. present value. It is a
standard method for using the time value of money to appraise long-term projects. NPV
is an indicator of how much value an investment or project adds to the capital invested. In
principal a project is accepted if the NPV is non-negative.
Accordingly, the net present value of the project at 8.5% discount rate is found to be
Birr 704.10 thousand which is acceptable.

D. ECONOMIC BENEFITS

The project can create employment for 25 persons. The project will generate Birr
325.62 thousand in terms of tax revenue. The service provided by the service will enable
owners of electronic equipments to use the products for longer period in good conditions
and working order. This means the country will save some amounts of foreign exchange
through maintaining the existing ones rather than importing new ones.