3.

PROFILES ON WIRE MESH, BARBED WIRE AND FENCIMG NET

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TABLE OF CONTENTS
PAGE

I. SUMMARY 3-3
II. PRODUCT DESCRIPTION AND APPLICATION 3-3
III. MARKET STUDY AND PLANT CAPACITY 3-3
A. MARKET STUDY 3-3
B. PLANT CAPACITY AND PRODUCTION PROGRAMME 3-7
I. MATERIALS AND INPUTS 3-8
A. MATERIALS 3-8
B. UTILITIES 3-9
II. TECHNOLOGY AND ENGINEERING 3-9
A. TECHNOLOGY 3-9
B. ENGINEERING 3-10
III. MANPOWER AND TRAINING REQUIREMENT 3-10
A. MANPOWER REQUIREMENT 3-10
B. TRAINING REQUIREMENT 3-11
IV. FINANCIAL ANALYSIS 3-11
A. INVESTMENT 3-12
B. PRODUCTION COSTS 3-13
C. FINANCIAL EVALUATION 3-14
D. ECONOMIC BENEFITS 3-15
 3-3
I. SUMMARY
This profile provides basic information on the establishment of wire mesh & barbed
wire producing plant with annual capacity of 350 tons at full capacity, utilization.

The market study shows that there is sufficient market in the country for the items.
The initial investment cost is planned to be Birr 1,675,434 out of which about 13.449%
is in foreign currency.
The plant will create employment opportunities for 22 persons.
The plant will operate at 70%, 80% and 90% in the l st, 2nd and 3rd year of operation,
respectively reaching at full capacity operation in the 4th Year.

The project will be profitable with the 1 st year profit of Birr 1,472,277 growing to Birr
1,724,808 by the year 2011.
The internal rate of return (IRR) at 16% discount rate is 85.68% and the net present
value in Birr 26021.93 thousands.

II. PRODUCT DESCRIPTION AND APPLICATION

Wire-mesh is interlocking of wires in desired geometrical shape to produce nets.
Common wire mesh opening shapes are either rhomboidal or square. The mesh can be
made with different size of wire and opening for various purposes.

Barbed wire is made from two or three wires are commonly used for fencing and
retaining works.

III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY
1. Present Demand
2. Present Demand
The Akaki Metal Works Factory established in Akaki about25 Years ago was planned
to produce iron bars, nails, wire mesh, barbed wire, bed spring and other fencing nets
for the market with some projection to satisfy the demand unto a certain period of time,
definitely about a little more than half of 25 years.
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This factory has been using imported raw materials for all of its products and the
existing machines are obsolete. Furthermore, the factory has not been producing at full
capacity over the last years because of foreign exchange problems to import the raw
material. Even if the foreign exchange is availed priority is given to import raw
materials for iron bar production. In fact the tendency of the factory in the future is to
concentrate on iron bar production. The paradox is that the factory cannot satisfy the
market even if it concentrates on producing wire mesh, barbed wire and other fencing
net with the existing capacity.

The factory satisfies only a small, proportion of the market for barbed wire, wire mesh
and fencing nets. As the import data from the Annual External Trade statistics in the
table below indicate, the quantity of import of these items increased continuously over
the period covered by the data. Moreover, these items have been coming into the
country through the black market via.Moyale and Dire Dawa though there is not data
available of these types of incomings and so it is not possible to quantity that enter the
country through the back market (see Table 3.1)
Table 3.1
IMPORT AND LOCAL SUPPLY OF WIRE MESH, BARBED WIRE AND
FENCING NET
Import Local
Year Qty (kg) Value (Birr) Qty.(kg)
1986 194356 551597 367000
1987 105813 212392 187000
1988 142693 806662 391000
1989 121027 445542 270000
1990 138771 666976 45000
1991 109336 725137 218000
1992 40752 257889 207000
1993 234638 2379647 297000
539245 6045842
Sources: 1-The Annual External Trade Statistics of Customs & Excise Tax
Administration
2-Akaki Metal Works Factory
From the data above, the country’s expenditure on importing of these items is Birr
755730 per annum for the period covered by the data. The data for 1993 has shown
significant increase than all the previous years. During this year importing of goods
by buying the foreign exchange has started and the amount of money spent in this
year is over Birr 2.37 million, which is 39.4% in one year alone. This indicates that
the previous years data do not really reflect the actual situation as there was high
control over the foreign currency by the government to import as the required.
The local supply indicates high fluctuation in the data above. The data for 1986 and
1988 can be attributed to special order from one of the government organizations for
some project or other requirements but the high figure in 1993 can again be because
of the relaxation in getting foreign currency to import raw material to produce more
product. This shows that there is high demand at present for these products. (see
Table 3.2)
Table 3.2
DEMAND FOR BARBED WIRE, WIRE MESH & OTHER FENCING NET

Year Imported Locally Qty Total Demand

Qty (tons) (tons) Qty (tons)
1986 194 361 561
1987 106 187 293
1988 143 391 534
1989 121 270 391
1990 139 45 184
1991 109 218 327
1992 41 207 248
1993 235 297 532

2. Demand projection

To project the future demand for wire mesh, barbed wire and other fencing net the
data of the last column of the above (Table 3.2) are used. Then annual growth rate of
these data is calculated and the simple mean growth rate is taken to make the
projection of the demand of these items (see Table 3.3 below)
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Table 3.3
DEMAND GROWTH FOR BARBED WIRE,WIRE MESH AND OTHER
FENCING
Year Demand Qty Growth
(Ton) Rate %
1986 561 -
1987 293 (47.8)
1988 534 82.3
1998 391 (26.8)
1990 184 (52.9)
1991 327 77.7
1992 248 (24.2)
1993 532 114.5
3070 or 384 p.a 122.8 or
15.3% p.a
1994 614
1995 707
1996 816

The average annual demand for the period covered by the data is 384 tons. The
present demand is 816 tons. The projected demand is given in Table 3.4 below.
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Table 3.4
PROJECTED DEMAND OF WIRE MESH, BARBED WIRE AND OTER
FENCING NET
Year Qty. (Ton)
1997 941
1998 1085
1999 1251
2000 1442
2001 1663
2002 1917
2003 2210
2004 2549
2005 2939
2006 3338
2007 3907
2008 4505
2009 5194
2010 5989
2011 6905
The demand for wire mesh, barbed wire and other fencing nets are expected to grow
from 941 tons in 1997 to 6905 in the year 2011.That is there is sufficient market to
establish a factory to produce these items.

B. PLANT CAPACITY AND PRODUCTION PROGRAMME

1. Plant Capacity
As estimated in the year 1997 the demand for these products is 941 tons and grows
to 1917 tons in the year 2002.Though the Akaki steel Factory has been covering
about 65% of the total demand of these products in the years covered by the data, it
will not keep this proportion in the foreseeable future as the machines are old and
gives priority to the foundry activity. This depicts the need for additional new plant
with a capacity of 350 tons per year.
2. Production Programme
Allocating 105 days for holidays, planned and incidental maintenances, the plant is
considered to work 260 days per annum in one shift 8 hours a day. The plant will
operate at 70%, 805,90% and 100% of its production capacity for the lst,snd,3 rd and
4th year respectively, leaving provisions for familiarization, market and logistics
hindrances.
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3. Pricing and Distribution
The current retail price of the products is about Birr 14.75 per kg .The factory’s
selling price of wire mesh and barbed wire is Birr 13.50 per kg. The envisaged
factory could sell its products at 13.25/kg considering that the new plant will have
no unnecessary labour and other expense that inflate the overhead cost.

The product can be sold to the wholesaler or retailers. To introduce the products and
to make aware the existence of local production or a factory producing these
products to the general public and the businessmen in particular the use of mass-
media to advertise the products is essential.
I. MATERIALS AND INPUTS
A. RAW MATERIALS
Galvanized steel wires of diameter 0.6 mm to 5 mm are used in wire mesh
production and for this plant wires of 0.75 mm. and 2mm are taken as raw materials.
For barbed wire 1.6mm.to 3 mm. Wire can be used and wire of 2mm is considered.

As shown it table 4.1 the estimated cost for raw material is about Birr 1.75 million
per year at full capacity operation of the plant. Of this amount Birr 1,715,000 is
foreign purchase whereas Birr 30,000 is local.

Table 4.1
ANNUAL REQUIREMENT AND COST OF MATERIAL
Item No Description Estimated Unit price Annual Cost per
per ton in Birr Requirement Tons annum (Birr)
1 2mm. 4500 280 1.260,000
Galvanized
steel wire
2 0.75 mm. 6500 70 455,000
galvanized
steel wire
3 Warping cloth 3/sq.m 10,000(sq.m) 30,000
Total 174,500
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B. UTILITIES
The utilities required are: -

Power - 15 kw 220/380 volts,50 cycles

Water - Normal supply

Electric power consumption is estimated at 31200-kwh.and water at 300 m3 per

annum. Hence utilities cost per annum will be about Birr 12780.

II. TECHNOLOGY AND ENGINEERING

A. TECHONOLOGY
1. Production Process
- Fencing net
Coil of galvanized steel wire is put on a rotating stand. One end of the coil is
stretched out and fed into the wire mesh making machine where it is wound around
to an attached tool getting rhomboidal or square shape as desired and cut off at a
width of 1.5 or 2 meters. The piece is then secured on an adjust roller where the next
product is directly limited to it and rolled until the required length of wire mesh is
produced. Then the roll is removed, secured with string and wrapped with cloth.

- Barbed Wire
From decoyer stands two lines of wires are fed barbed wire making machine where
they are twisted and braced together with barbs that are fed from a perpendicular
direction to the lines of wires. If two pointed barbed wires are required one line of
wire is fed where as four pointed barbs are produced from two lines fed from
opposite sides. The continuous barbed wire product is reeled automatically by the
machine.
2. Source of Technology

The technical information for wire mesh, barbed wire and fencing net has been
complied through the visit to the A kaki Metal Works Factory and discussion with
the technical personnel as well as review of the technical documents of the plant.
 3-10
B. ENGINEERING
1. Machinery and Equipment
The required machines and accessories for this plant consist of wire mesh making
machine. Barbed wire making machine, coil stands and roller as shown in table 5.1
the cost of machinery and equipment as per the information gathered from the
factory visit is estimated at Birr 250,000.

Table 5.1
LIST OF MACHINERY AND EQUIPMENT
Item No Description Qty FOB Price
Birr
1 Wire Mesh making machine 1 96000
2 Barbed wire making machine 1 96000
3 Coil stands 5 5000
4 Netting bar 1 3000
Machinery and equipment FOB 200,000
Cost 20% Freight & insurance 50,000
cost 250,000
Total cost of Mach.& Equip.

2. Building and Civil Work

A total area of 500 sq.m is required and the built up area will be 400 sq.m. Adequate
space has been considered for movement and future expansion possibilities. The
building can be made with reinforced iron columns and beams, cement screed floor,
blocked walls, RHS tube and egg sheet roofing. The building is estimated to cost
Birr 600.000.

VI. MANPOWER AND TRAINING REQUIREMENT

A. MAN POWER REQUIREMENT
About 22 people are required to run the plant. The annual salary and benefits reach
Birr 125,250 (see Table 6.1 for details)
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Table 6.1
MANPOWER REQUIREMENT
Category Number Monthly Salary Annual Salary
Manager 1 1300 15600
Secretary 1 500 6000

Accounts &* Commercial Head 1 1100 13200

Accounts clerk 1 400 4800

Production & Maintenance Head 1 1100 13200
Production Workers 4 300 14400
Mechanic 1 500 6000
Assistant Mechanic 1 300 3600
Electrician 1 500 6000
Assistant Electrician 1 300 3600

Store keeper 1 400 4800

Laborers 3 200 7200

Drivers 2 400 9600

Guards 3 150 5400

Total 22 100,200
25% Benefits 25,050
Grand Total 125,250

A. TRAINING REQUIREMENT
Training is foreseen for production and maintenance workers. The training can be
arranged with Akaki Steel Foundry. The expense is estimated to be about Birr 7,500
for two months duration.

FINANCIAL ANALYSIS
The financial analysis of wire mesh and barbed wire is based on the data presented
in the previous chapter and on the following assumptions.
- General
- Construction period 2 years
- Source of finance 40% equity, 60% loans
- Tax holiday 3 years
 - Bank interest 16%
- Discount factory for cash flow 16%
- Land values based on lease rate of Region 14
- Repair and maintenance 0.6% of the total fixed investment
- Spare parts 1.0% of the total fixed investment
Depreciation
- Machinery and equipment 10%
- Vehicles 20%
- Office furniture and equipment 10%
- Building 5%
- Pre-production costs 20%
-Working capital
Working capital has been estimated for the following minimum days of coverage.
- Accounts receivable 30 days
- Inventory of materials 120 days
- Energy
- Work in progress 2 days
- Finished products 15 days
- Cash in hand 30 days
- Accounts payable 30 days
B. INVESTMENT

The total investment cost of the project including working capital (see Table 7.1) is
estimated at Birr 1,675,434.Owners are assumed to contribute 40% of the finance in
the form of equity while the remaining 60% is expected to be financed by long-term
bank loan.
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Table 7.1
TOTAL INITIAL INVESTMENT
IN ‘000 BIRR
No Items L.C F.C. Total %
1 Land 42.899 - 42.899 2.56
2 Building & Civil works 600 - 600 35.81
3 Office equipment 30 - 30
4 Vehicles 380 - 380
14.92
5 Plant machinery & equipment 50 200 250
6 Total fixed investment cost 1102.899 200 1302.899
7 Pre-production capital expenditure 329.268 - 329.268 19.65
8 Total initial investment 1432.167 200 1632.167
9 Working capital at full capacity 43.267 - 43.267

Total investment 1.475.434 200 1675.434

The major component of the investment are plant machinery and equipment, building
and civil works, pre production expenses accounting for 14.92 %, 35.81% and 19.65%,
respectively.
The foreign component of the project accounts for 13.449% of the total investment.

B. PRODUCTION COSTS
The total production costs at full capacity operation is estimated at Birr 2,241,272
thousand see Table 7.2. Raw materials and utilities account for 78.43%. Repair and
maintenance 0.37 percent.
.....................
* pre –production capital expenditure includes preliminary capital issues expenditure-
expense for registration and formation of the company including legal fees-expenditure
for preparatory studies and other related expenses. There are also other pre-operating
expenditures such as salaries, fringe benefits of personnel’s engaged in pre-production,
pre-production marketing expenses and promotional activities, training costs, interest
on loans and insurance cost during construction.
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Table 7.2
TOTAL ,PRODUCTION COST
(‘000 BIRR)
Items Year 3 4 5 6 7
Raw Materials 121.5 1396 1570.5 1745 1745
Utilities 12.8 12.8 12.8 12.8 12.8
Energy - - - - -
Labour, direct 27.00 27.00 27.00 27.00 27.00
Repair, maintenance 8.4 8.4 8.4 8.4 8.4
Spares, 12.5 12.5 12.5 12.5 12.5
Factory overhead 40.5 40.5 40.5 40.5 40.5
Factory costs 1322.70 1497.200 1671.700 1846.2 1846.2
Administrative overhead 107.750 107.750 107.750 107.750 107.750
Depreciation 193.654 193.654 193.654 193.654 193.654
Financial costs 149.869 143.624 118.646 93.668 68.690

C. FINANCIAL EVALUATION
1. Profitability
According to the projected income statement (see Table 7.A.1) the project will generate
profit beginning from lst year of operation. Important ratios such as the percentage of
net profit to total sales, net profit to equity (Return on equity) and net profit and interest
on total investment (return no total investment) are 33.586%, 150.408% and 82.431 %
respectively.
The income statement and other profitability indicators show that the project is viable.

2. Breakeven Analysis
The breakeven point of the project is estimated by using income statement
projection.

BEP = Fixed Cost = 402,604 = 13.92

sales-Variable cost 1892.5
The project will break even at 13.92 % of capacity utilization.

3. Payback period
Investment cost and income statement projection are used in estimating the project
payback period. The project will payback fully the initial investment less working
capital in 3 ½ year and 4 months.
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4. Simple Rate of Return
Simple rate of return is a ratio of the annual net profit on capital. This ratio is computed
only for one year at full capacity. Thus return on total capital is 93. %

1557.548 =93%
1675.549

5. Internal Rate of Return and Net present Value

Based on cash flow statement the calculated IRR of the project is 85.68% and the net
present value at 16 percent discount is Birr 26021.93 thousand. (See Table 7.A.2.)

D. ECONOMIC BENEFITS
The project can create employment opportunity for 22 people. In addition increasing the
supply of goods to the domestic market the project will generate Birr 8923.995
thousand in terms of tax revenue. The regional government can also collect employment
and income tax and sales tax from the project thereby increasing its tax base. Moreover,
the establishment of the plant will benefit steel industries, which will sell their products
to the project.