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TABLE OF CONTENTS
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I. SUMMARY 220-3
A. TECHNOLOGY 220-9
B. ENGINEERING 220-9
I. SUMMARY
This profile envisages the establishment of a plant for the production of enset starch
with a capacity of 300 tones per annum.
The present demand for the proposed product is estimated at 412 tones per annum. The
demand is expected to reach 1137 tones by the year 2020.
The total investment requirement is estimated at about Birr 2.76 million, out of which
Birr 1.11 million is required for plant and machinery.
The project is financially viable with an internal rate of return (IRR) of 26 % and a net
present value (NPV) of Birr 2.05 million discounted at 8.5%.
Starch is a source of carbohydrate, which is one of the three essential elements of food. It
widely occurs in agricultural products, mainly in cereals (such as wheat, maize and rice),
and in roots and tubers of potatoes, Sweet potatoes, Enset (commonly known as false
banana) and Cassava.
The starch in the roots and tubers of Potato and Enset is large in particle and easily settles,
and moreover the fat and protein existing with starch is small in quantity, and thus good
starch can be extracted comparatively easily.
Enset is Ethiopia’s most important root crop. Its harvest estimated to be 10-20 tonnes per
hectare depending on the growing conditions. It contains an average of 20% starch.
220-4
A. MARKET STUDY
Enset starch has both domestic and industrial uses. Industrially, its applications are
numerous and is used in various modern industries including the manufacturing of
textile, paper, adhesives, insecticides paints, soaps, explosives and such derivatives as
dextrin and nitro starch. Industries use the product mainly as binding, diluting adhesive,
water absorber agent in their production process.
The source of supply of starch is local as well as import. However, starch production in
the country is insignificant. Currently there is only one privately owned starch
production plant from enset so much so that the demand for the product is essentially
satisfied through imports. Apparently data on imports of starch from enset is not
available. Moreover, data on domestic production of the product is not readily
available. Accordingly, since starch is occurring widely in plants and obtained chiefly
from grain and root crops, imports of starch categorized as other starches in the external
trade statistics (i.e., excluding starch obtained from maize wheat and potato) is used as
a proxy in estimating the demand for enset starch.
Table 3.1 presents imports of enset starch, i.e. other starches (excluding maize, wheat
and potato starch) during 1997 - 2006. Apparently, imports highly fluctuated and
averaged at 385.32 tons during the period under reference.
220-5
Table 3.1
IMPORT OF ENSET STARCH
Year Imports(ton)
1997 1481.6
1998 49.6
1999 1404.77
2000 30.96
2001 13.64
2002 252.67
2003 206.06
2004 141.79
2005 52.95
2006 219.11
Average 385.32
Given the considerable fluctuations in the supply of the product, which comprises of
only imports, the average annual supply for the period under reference is considered as
the effective demand for enset starch for the year 2006. Since the consumption of the
product is associated mainly with the industrial sector the demand for the product is
influenced by developments in the sector. Accordingly, a rate of growth of 7% is
adopted in estimating the demand for the product. The present demand for the product
(i.e., for 2007) is thus estimated at 412.29 tons.
2. Demand Projection
As stated above, a rate of growth of 7% is used in projecting the demand for starch
from enset. Table 3.2 depicts the projected demand for the product.
220-6
Table 3.2
DEMAND PROJECTION
Year Projection(ton)
2007 412.29
2008 441.15
2009 472.03
2010 505.07
2011 540.43
2012 578.26
2013 618.74
2014 662.05
2015 708.39
2016 757.98
2017 811.04
2018 867.81
2019 928.56
2020 993.55
2021 1063.10
2022 1137.52
Based on the CIF price of the external trade statistics for 2006 (the latest data
available), and allowing 30% for import duty and other clearing expenses, the factory
gate price for the envisaged plant is estimated at Birr 4447.12 per ton.
The plant can directly supply its product to industries. The plant can also appoint agents
at selected locations.
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1. Plant Capacity
The plant is envisaged to produce 300 ton/year, in 300 working days and operating 8
hrs/day.
2. Production Programme
The production programme is shown in Table 3.3. The production programme is set by
considering just 300 working days per annum.
Table 3.3
PRODUCTION PROGRAMME
Year 1 2 3 4
Capacity utilisation (%) 70 80 90 100
A. RAW MATERIALS
The annual material requirement of the plant is shown in Table 4.1 below.
220-8
Table 4.1
ANNUAL RAW MATERIAL REQUIREMENT
In addition to the above raw materials the annual requirement of packaging materials will
be 6,000 bags of 50kg holding capacity. The total annual cost of which is estimated to be
Birr 30,000.
B. UTILITIES
Utilities such as oil, water and electricity are required by the plant. The annual
consumption is shown in Table 4.2 below.
Table 4.2
ANNUAL CONSUMPTION OF UTILITIES
A. TECHNOLOGY
1. Production Process
The production of starch starts with wet grinding of the enset to destroy its tissue, and then
the starch is extracted by filtering it through water and also washing with running water.
The washed starch will then be dried and will be made ready for packing.
2. Source of Technology
The technical data and information are compiled from a document of Japan Consulting
Institute.
B. ENGINEERING
The list of machinery and equipment required by the plant is given in Table 5.1.The total
cost of these machinery and equipment is estimated at about Birr 1,116 thousands out of
which Birr 930 thousand will be required in foreign currency.
220-10
Table 5.1
LIST OF MACHINERY AND EQUIPMENT
No Item
1 Weighing Scale
2 Separator
3 Washing machine
4 Chute
5 Peeling table
6 Conveyor
7 Grinder
8 Starch extractor
9 Cylindrical sieve
10 Milk tank
11 Self plying pump
12 Nozzle Separator
13 Settling Pond
14 Grinder
15 Packing machine
16 Delivery pump
17 Refuse conveyor
The total land requirement is close to 1000 m2. The built up area is estimated at 400 m2
while the remaining part is for open space and for future expansion. The lease cost for 99
years lease holding will be Birr 79,200. Building and civil works cost about Birr
1,000,000.
220-11
3. Proposed Location
The proposed location for the plant is Gonchere town in Eaner woreda, Gurage Zone.
A. MANPOWER REQUIREMENT
The manpower requirement of the plant and the monthly and annual salary expenditure
are shown in Table 6.1.
Table 6.1
REQUIRED MANPOWER
B. TRAINING REQUIREMENT
The technical personnel of the plant should be trained by qualified engineers of the
machinery supplier. The cost of training shall be Birr 25,000.
The financial analysis of the enset starch project is based on the data presented in the
previous chapters and the following assumptions:-
The total investment cost of the project including working capital is estimated at Birr
2.76 million, of which 31 per cent will be required in foreign currency.
The major breakdown of the total initial investment cost is shown in Table 7.1.
220-13
Table 7.1
INITIAL INVESTMENT COST
B. PRODUCTION COST
The annual production cost at full operation capacity is estimated at Birr 3 million (see
Table 7.2). The material and utility cost accounts for 75.62 per cent, while repair
and maintenance take 2.66 per cent of the production cost.
220-14
Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)
Items Cost %
Raw Material and Inputs
1,360.00 45.20
Utilities
915.6 30.43
Maintenance and repair
80 2.66
Labour direct
182.88 6.08
Factory overheads
60.96 2.03
Administration Costs
121.92 4.05
Total Operating Costs
2,721.36 90.44
Depreciation
184.1 6.12
Cost of Finance
103.7 3.45
Total Production Cost 3,009.16 100
C. FINANCIAL EVALUATION
1. Profitability
According to the projected income statement, the project will start generating profit in
the first year of operation. Important ratios such as profit to total sales, net profit to
equity (Return on equity) and net profit plus interest on total investment (return on
total investment) show an increasing trend during the life-time of the project.
220-15
2. Break-even Analysis
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 = 21 %
Sales – Variable Cost
The investment cost and income statement projection are used to project the pay-back
period. The project’s initial investment will be fully recovered within 4 years.
Based on the cash flow statement, the calculated IRR of the project is 26 % and the net
present value at 8.5% discount rate is Birr 2.05 million.
D. ECONOMIC BENEFITS
The project can create employment for 15 persons. In addition to supply of the
domestic needs, the project will generate Birr 1.38 million in terms of tax revenue. The
establishment of such factory will have a foreign exchange saving effect to the country
by substituting the current imports