189.

PROFILE ON QUARRING AND GRAVEL

189-2
TABLE OF CONTENTS
PAGE

I.

I.

SUMMARY

189-3

II.

PRODUCT DESCRIPTION & APPLICATION

189-3

III.

MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY
B. PLANT CAPACITY & PRODUCTION PROGRAMME

189-4
189-4
189-13

IV.

MATERIALS AND INPUTS

A. RAW MATERIALS
B. UTILITIES

189-14
189-14
189-15

V.

TECHNOLOGY & ENGINEERING

189-15

A. TECHNOLOGY
B. ENGINEERING

189-15
189-16

VI.

MANPOWER & TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT
B. TRAINING REQUIREMENT

189-17
189-17
189-18

VII.

FINANCIAL ANLYSIS
A. TOTAL INITIAL INVESTMENT COST
B. PRODUCTION COST
C. FINANCIAL EVALUATION
D. ECONOMIC BENEFITS

189-18
189-18
189-19
189-20
189-22

SUMMARY

This profile envisages the establishment of a quarry for the production of gravel with a
capacity of 100,000 m3 per annum.
The present demand for the proposed product is estimated at 236,468 m3 per annum.
The demand is expected to reach at 798,210 m3 by the year 2020.

189-3
The total investment requirement is estimated at Birr 15.23 million, out of which Birr
13.04 million is required for plant and machinery. The plant will create employment
opportunities for 63 persons.

The project is financially viable with an internal rate of return (IRR) of 26.63 % and a
net present value (NPV) of Birr 13.32 million, discounted at 8.5%.
The project creates forward linkage with the construction sector.

II.

PRODUCT DESCRIPTION AND APPLICATION

Quarrying and gravel plant produces different sizes of gravel and selected materials. The
sizes of gravels that would be produced would include the following: 0 10mm, 10 15
mm and 15 25 mm. The products are used for building and road construction projects.
The process involves using explosives to break down reserve material into pieces. There
is also a lot of dust involved. Consequently, the plant site has to be located away from
residential areas.

III.

MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Past Supply and Present Demand

The demand for quarrying and gravel is derived from building and road construction
activities.

189-4

One of the factors that indicate housing construction activity is trend in the provision of
land by the city administration. In this regard the city administration has provided a total
of 11, 387 plots of land with a total land area of 7 million m 2 during the period 1998
2005 to private residential quarters, commercial buildings and real estate developers. (see
Table 3.1).
From the total land provided during the period of analyses the largest share in terms of
number of plots is accounted by private residential quarter which is 93.9%. However, in
terms of land area the largest (52.79 %) is provided to real estate developers followed by
commercial buildings (24%) and private residential quarter (23%).

Table 3.1
LANDS PROVIDED BY THE CITY ADMINISTRATION FOR HOUSING AND
REAL ESTATE DEVELOPMENT (1998 - 2005)
Year

Purpose, Number of Plot and Land Area in m2

Commercial
Real Estate
Private
buildings
# of

Land

Total

Residential
# of

Land

Quarter
# of
Land

# of

Land

189-5
Plot
5
53
27
65
61
98
186
177
672
5.9

1998
1999
2000
2001
2002
2003
2004
2005
Total
%

Area
3,000
28,000
21,000
83,000
40,000
162,000
1,199,000
133,000
1,669,000
23.84

Plot
2
0
2
0
0
1
5
15
25
0.22

Area
1,951,000
356,000
58,000
670,000
661,000
3,696,000
52.79

Plot
184
689
1,690
2,173
4,131
1,451
359
13
10,690
93.9

Area
28,000
103,000
268,000
326,000
619,000
218,000
47,000
27,000
1,636,000
23

Plot
191
742
1,719
2,238
4,192
1,550
550
205
11,387
100

Area
1,982,000
131,000
645,000
409,000
659,000
438,000
1,916,000
821,000
7,001,000
100

Share
Source: Land Administration Bureau of the Addis Ababa City Administration, 2006.
During the period under review provision of land by the city administration for housing
construction activity has registered an average annual growth rate of 49.63% indicating
the high magnitude of housing demand and construction activity in the city both for
commercial and residential purpose.
In order to estimate the present demand for gravel based on end users method the present
level of construction activity is estimated by type of housing i.e. private residential
quarters, commercial buildings and real estate.

Commercial buildings

As can be seen from Table 3.1 during the period 1998 2005 the maximum number of
plots provided by the city administration for the construction of commercial buildings
was 186 in year 2004 while the minimum was 5 in year 1998. However, during the period
under consideration on average 84 plots were annually granted for commercial building
construction.
Even though during the same period plot of land provided for the construction of
commercial buildings shown a 172 % average growth rate, in order to estimate the

189-6
present (2008) level of commercial building construction it is conservatively assumed
that commercial building construction in Addis Ababa grows by 4% annually which is
equivalent to the growth rate of urban population.

Accordingly, by taking the average of 1998 - 2005 as a base and employing a 4% growth
rate the number of commercial building construction in Addis Ababa in the year 2008 is
estimated at 94.
Moreover, in order to estimate the size of the commercial buildings, data on construction
permits in Addis Ababa is collected and analyzed. Table 3.2 shows the average building
construction permits given during the period 2000 2002 by type of building.

Table 3.2
AVERAGE BUILDING CONSTRUCTION PERMITS GIVEN DURING THE
PERIOD 2000 2002 BY TYPE OF BUILDING.
Types of Building

Average

% share

No. of Plots
3 Storeys
4 Storeys
5 Storeys
6 Storeys
7 Storeys
8 Storeys
9 Storeys

( 2000- 2002)
53
32
10
9
3
2
2

46.90
28.32
8.85
7.96
2.65
1.77
1.77

189-7
10 Storeys and above

2
113

Total

1.77
100

Source Statistical abstract CSA.

As can be seen from Table 3.2, the highest number of permits were for three storey type
of buildings followed by four storeys and five storeys.
Accordingly, assuming that the past trend in the type of commercial building construction
in Addis Ababa will also currently apply , out of the total 94 commercial buildings
estimated to be constructed in year 2008, the estimated share of building types is shown
in Table 3.3 .

Table 3.3
NUMBER OF COMMERCIAL BUILDINGS ESTIMATED TO BE
CONSTRUCTED IN YEAR 2008 BY BUILDING TYPE
Types of Building

% share

Estimated
Number of
Commercial

3 Storeys
4 Storeys
5 Storeys
6 Storeys
7 Storeys
8 Storeys
9 Storeys
10 Storeys and above
Total

46.90
28.32
8.85
7.96
2.65
1.77
1.77
1.77
100

Buildings
44
27
8
7
2
2
2
2
94

189-8

Real Estate And Private residential Quarters

Regarding real estate and private residential quarters during the period 1998 2005 on
average 739,200 m2 and 204,500 m2 of land was provided by the City Administration.
Demand for housing among other factors is influenced by the growth of population.
Therefore, in order to estimate the present ( 2008) level of real estate and private
residential quarters construction, the following assumptions are employed.
-

The average land size provided for real estate and private residential quarters
during 2003 2005 approximates the size of land in year 2006;

The size of land used for the construction of real estate and private residential
quarters grow at an annual growth rate of 4% which is equivalent to population
growth rate;

The average size of one housing unit is 300 m2; and

About 25% of the houses will be ground plus one.

Accordingly based on the above assumptions, the number of housing units that will be
constructed by real estate developers and individuals in year 2008 is estimated at 2,022
units of which 1,516 are on storey /villa type and 505 are ground plus one.

Roads Construction

Regarding road construction at present the road situation of Addis Ababa is one of the
major handicaps of the city development. The road coverage and quality of the city is
below the standard. The city has a very low road density, which is only 7%. A road
density, which refers to the percentage share of the road area in the total built up area,
should be in the range of 20-25% according to planning standards. Among the total of
2,066 km road, only about 778km (38%) is asphalted (ERA, 2006).

189-9

According to five year strategic plan of the Addis Ababa City Roads Authority additional
roads will be constructed to increase the road coverage to 15% of the built-up area or to
increase the total road net work 2,231 km by the year 2010 . This goal is expected to be
realized through expansion and rehabilitation of the road network including road
connection to the ring road as well as new access road to the new industrial and
expansion areas (AACRA, 2006). Therefore, in order to realise the plan Addis Ababa
City Roads Authority is anticipated to construct a total of 165 km of roads in five years,
i.e., 33 km each year.

The determination of current demand for gravel is computed based on specifying

consumption requirement of by the end users. Accordingly the following consumption
coefficients were developed in consulation with knowledgeable professionals and by
reviewing Building Construction Manuals. The gravel requirement of buildings is shown
in Table 3.4.

Table 3.4
CONSUMPTION COEFFICIENT BY BUILDING TYPE AND THE
CORRESPONDING DEMAND FOR GRAVEL

Gravel
Consumption

Total

Estimated

Total

Floor

Gravel

Number

Gravel

Per M2 of

Area

Demand

of Houses

Demand

Floor Area
( m 3)
0.20

(m2)

Per House
( m3)

300
600
900

60
150
225

Building Type

1 Storey and villa

2 Storeys
3 Storeys

0.25
0.25

( m3)
1516
505
44

90,960
75,750
9,900

189-10
4 Storeys
5 Storeys
6 Storeys
7 Storeys
8 Storeys
9 Storeys
10 Storeys and above
Grand Total

0.3
0.3
0.35
0.35
0.35
0.35
0.35

1,200
1,500
1,800
2,100
2,400
2,700
3,000

360
450
630
735
840
945
1050

27
8
7
2
2
2
2

9,720
3,600
4,410
1,470
1,680
1,890
2,100
201,480

Moreover, it was learnt from knowledgeable sources that asphalt roads on average require
about 3,500 m3 gravel per km. Therefore, as indicated earlier 33 km of roads will be
constructed annually, which requires 115,500 m3 of gravel.
Accordingly, the total present demand for gravel is estimated at 316,980 m3.
There is no available data that indicates gravel production in Addis Ababa. However, at
national level during the period 2002 2006, annual average production of gravel was
239,058 m3 (see Table 3.5).
Table 3.5
ANNUAL PRODUCTION OF GRAVEL AT NATIONAL LEVEL
Production
Year
2002
2003
2004
2005
2006

(m2)
50,329
94,956
104,134
733,752
212,120

Source: CSAs Report On Large And Medium Scale Manufacturing And Electricity
Survey.

189-11

In order to estimate the current level of existing gravel supply to Addis Ababa, the
following assumptions are used.
-

The average production during the latest two years ( 2005 2006) approximates
present level of production at national level.

Due to high level of construction activity, 50% of annual gravel production is

supplied to Addis Ababa.

Accordingly based on the above assumptions, the present level of gravel supply to the
city and the supply demand gap is estimated at 236,468 m3and 80,512 m3, respectively.
2.

Projected Demand

The rapid development of high-rise buildings, housing complexes, malls, governmental

and non governmental buildings and road construction has created high demand for
gravel. The demand for gravel is directly related with the growth in the construction
sector which in turn depends on the overall economic development of the country.
Therefore, demand is projected at the annual average GDP growth rate achieved in the
past few years i.e. 8.%. Projected demand is presented in Table 3.6.
Table 3.6
PROJECTED DEMAND FOR GRAVEL
Year

2009
2010
2011
2012
2013
2014
2015
2016

Projected
Demand
342,338
369,725
399,304
431,248
465,748
503,007
543,248
586,708

Demanded
Existing
Supply
236,468
236,468
236,468
236,468
236,468
236,468
236,468
236,468

Supply
Gap
105,870
133,257
162,836
194,780
229,280
266,539
306,780
350,240

189-12
2017
2018
2019
2020

3.

633,644
684,336
739,083
798,210

236,468
236,468
236,468
236,468

397,176
447,868
502,615
561,742

Pricing and Distribution

The current price of crushed stone around Addis Ababa at quarrying site is Birr 120/m 3.
Accordingly, a factory-gate price of Birr 100/m 3 is considered for the product of the
envisaged plant. With regard to distribution, the plant can sell its product directly to
users including private house builders and contractors or to retailers that purchase from
production site using their own means of transportation.
B.

PLANT CAPACITY AND PRODUCTION PROGRAMME

1.

Plant Capacity

The capacity of the Quarrying and Gravel Plant is envisaged to be about 100,000m 3 of
gravel per annum. This is based on the projected demand and supply gap and the
technology recommended.
2.

Production Programme

It is envisaged that the plant would attain full capacity in the second year, while 80%
capacity utilization is planned for the first year during which time it is presumed the
learning experience curve would also reach the optimum level.
The plant would operate on a single shift of 8 hours a day and 300 working days in a
year.
Table 3.7

189-13
PRODUCTION PROGRAMME
Year
Production[m3]
Capacity

1
80,000
80

2-10
100,000
100

utilization[%]

IV.
A.

MATERIAL AND INPUTS

RAW MATERIALS

The raw materials and other inputs requirements of the plant at full capacity operation are
provided in Table 4.1 below. The total cost of explosives and accessories is estimated to
be Birr 486,000. The quarrying royalty fee for basalt is about Birr 450,000. The total cost
of materials would be Birr 936,000.
The plant site would be selected on the basis of basalt reserve in the area in the outskirts
of the city. Other materials have to be imported.
Table 4.1
ANNUAL RAW MATERIAL AND OTHER INPUTS REQUIREMENT
AND COST
Sr.

Material/Input

No.
1
2
3

Basalt
Ammonium Nitrate
Detonating cord &

4
5

Cap
Safety fuse
Short Delay

Unit of
Measure
m3
kg
m
kg

Qty.
LC
200,000
250,000
20,000
2.000

Cost (Birr)
FC

450,000
291,60 165,240
4,374
3,645
5,103

24,786
20,655
28,917

TC
450,000
194,400
29160
24,300

189-14

B.

Detonating
Dynamite
Grand Total

pcs
kg

3,000
100,000

30,618
72,900

173,502
413,100

34,020
204,120
936,000

UTILITIES

Electricity and water are the major utility requirement of the project and is shown in
Table 4.2.
Table 4.2
UTILITIES REQUIREMENT & COST
Utility
Electricity
Water
Total
V.

Qty.
300,000
5,000

Unit Rate
0.4736
3.25

Cost (Birr)
142,080
16,250
158,330

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Production Process

At the quarry site the raw material, basalt deposit is drilled and blasted. The resultant
fragmented rock is loaded onto dump trucks and transported to the crushing plant. The
jaw crusher crushes the stone into smaller size and passes to the cone crusher. The
crushed product is conveyed to the sieves where the product is screened and separated
into different sizes of gravels which constitute the final product.
2.

Source of Technology

189-15

Address of machinery supplier is given below

Shangahi Electric Power Equipment CO.Ltd.
Fax No. 0086-2150583955
B.

ENGINEERING

1.

Machinery and Equipment

The list of machinery and equipment required for quarrying and gravel plant is given in
Table 5.1 below. The total cost of machinery and equipment is estimated to be about Birr
13 million, out of which 11.088 million is required in foreign currency.
Table 5.1
MACHINERY AND EQUIPMENT REQUIREMENT AND COST
Sr.
No.
1

Description

Quantity
LC

Crusher plant complete,

Cost (BIRR)
FC

TC

crushing capacity
2
3
4
5
6

2.

Of 60 TPH
Dozer 350 HP
Wheel Loader 3m3
Drilling Equipment with
compressor
Workshop equipment
Dump truck 15 m3
Grand Total

1
1
1
1 set
5

156,750
600,000
420,000

888,250
3,400,000
2,380,000

105,000
595,000
75,000
425,000
600,000
3,400,000
1,956,750 11,088,250

1,045,000
4,000,000
2,800,000
700,000
500,000
4,000,000
13,045,000

Land, Building and Civil Works

The total land requirement for basalt source is estimated to be about 250,000m 2. The
project pays royalty fee for land use right, which is 3% of annual sales ( Birr 300,000).

189-16
Moreover, the envisaged quarry requires office, stores and workshop. The total land area
requirement of which is estimated at about 200 m 2, of which 80square meter would be
used for office; and 60 square meters each would be for store and workshop. The total
cost is estimated to be Birr 500,000 (at Birr 2500/m2).
VI.

MANPOWER AND TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

The total manpower requirement of the plant will be 63; and the annual cost is estimated
to be about Birr 621,750. The details are given in Table 6.1
Table 6.1
MANPOWER REQUIREMENT & ANNUAL LABOUR COST
Sr.
No.
1
2
3
4
5
6
7
8

Req.
Description
Manager
Division Head
Supervisor
Technician/Mechanic
Operator
Driver
Clerical Workers
Labourer
Guard
Sub-Total
Employees benefit(25% of
basic salary)
Total

B.

TRAINING REQUIREMENT

No.

Monthly

Annual salary

1
3
8
10
15
2
12
12
3
63

Salary (Birr)
3,000
6,000
8,000
7,000
9,000
800
4,200
2,400
1050
40,400

(Birr)
36,000
72,000
96,000
84,000
108,000
9,600
50,400
28,800
12,600
497,400
124,350
621,750

189-17
Operators and technicians will be given training on the operation and maintenance of
machineries by the experts of the machinery supplier during commissioning of the plant.
Such training is estimated to cost Birr 25,000.

VII.

FINANCIAL ANALYSIS

The financial analysis of the quarry and gravel 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

2 years

Bank interest

8.5%

Discount cash flow

8.5%

Accounts receivable

30 days

Raw material local

30 days

Raw Material import

90 days

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
15.23 million, of which 73 per cent will be required in foreign currency.
The major breakdown of the total initial investment cost is shown in Table 7.1.

189-18
Table 7.1
INITIAL INVESTMENT COST ( 000 Birr)
Sr.
No.

Cost Items

Land lease value

Building and Civil Work

Plant Machinery and Equipment

Office Furniture and Equipment

Vehicle

Local
Cost

Foreign
Cost

Total
Cost

500.
0
1,956.
8

11,088.
3
-

75.0
450.0
6

Pre-production Expenditure*

905.3

Working Capital

Total Investment cost

261.7
4,148.
7

11,088.3

500.
0
13,045.
0
75.
0
450.
0
905.
3
261.
7
15,237.
0

* N.B Pre-production expenditure includes interest during construction ( Birr 780.30

thousand ) training (Birr 25 thousand ) and Birr 100 thousand costs of registration,
licensing and formation of the company including legal fees, commissioning expenses,
etc.
B.

PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 4.78 million
(see Table 7.2).

The major components of the production cost are depreciation, raw

material and input and financial cost which account for 30.45 %, 19.56% and 13.79 %
respectively. The remaining 36.20 % is the share of utility, labour over head, maintenance
and repair, royalty and other administration cost.
Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

189-19

Items
Raw Material and Inputs
Utilities
Maintenance and repair
Labour direct
Labour overheads
Administration Costs
Royalty
Total Operating Costs
Depreciation
Cost of Finance

Cost

936.00
158.33

19.56
3.31

652.25
298.44

13.63
6.24

124.35
198.96

2.60
4.16

300.00
2,668.33
1,457.00

6.27
55.76

659.71

13.79

4,785.04

100

30.45

Total Production Cost

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 1.55 million to Birr
2.66 million during the life of the project. Moreover, at the end of the project life the
accumulated cash flow amounts to Birr 11.53 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

189-20
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

33 %

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
projects 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 26.63 %
indicating the vaiability of the project.

189-21
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
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 13.32 million which is acceptable.
D.

ECONOMIC BENEFITS

The project can create employment for 63 persons.

In addition to supply of the

domestic needs, the project will generate Birr 6.20 million in terms of tax revenue. The
project creates forward linkage with the construction sector.