PROJECT PROPOSAL ON THE ESTABLISHMENT OF

ANIMAL FEED PRODUCING PLANT IN GONDAR

ZURIYA WOREDA MAKSEGNIT TOWN

JUNE 2023

SHEGER CITY ETHIOPIA

 Table of Contents

1. Executive Summary..........................................................................................2
2. Product Description and Application..............................................................2
3. Market Study, Plant Capacity and Production Program..............................3
3.1 Market Study.....................................................................................................................3

3.1.1 Present Demand and Supply......................................................................................3

3.1.2 Projected Demand......................................................................................................5

3.1.3 Pricing and Distribution.............................................................................................7

3.2 Plant Capacity...................................................................................................................7

3.3 Production Program..........................................................................................................7

4. Raw Materials and Utilities..............................................................................8

4.1 Availability and Source of Raw Materials........................................................................8

4.2 Annual Requirement and Cost of Raw Materials and Utilities.........................................8

5. Location and Site...............................................................................................9

6. Technology and Engineering............................................................................9
6.1 Production Process............................................................................................................9

6.2 Machinery and Equipment..............................................................................................10

6.3 Size of the Project...........................................................................................................11

6.4 Alternative Technology...................................................................................................11

7. Human Resource and Training Requirement

………………………………11
7.1 Human Resource.............................................................................................................11
1
 7.2 Training Requirement.....................................................................................................13

8. Financial Analysis...........................................................................................13
8.1 Underlying Assumption..................................................................................................13

8.2 Investment.......................................................................................................................14

8.3 Production Costs.............................................................................................................16

8.4 Financial Evaluation.......................................................................................................17

9. Economic and Social Benefit and Justification............................................18

ANNEXES..............................................................................................................19

2
INTRODUCTION

Ethiopia has a large livestock population and diverse genetic resources, diverse agro-ecologies
suitable for different kinds of Livestock production. However, the productivity and economic
contribution of Livestock sector much below the potential due to shortage of feed supply in
terms of both quantity and quality. According to CSA 2011/12 the animals feed requirement per
annum is 95.83 million tons dry matter but the available feed is 65.64 million tones dry matter
per annum. The difference between the supply and demand shows 30.2 million tones dry matter
shortage per annum. The main sources of animal feeds are Natural pastures Crop residues

,Conserved forages, Agro industrial by products /wheat bran, Wheat midillings.oil cakes etc/ and
Processed compound feeds.

Feed cost accounts for 60 to 70% of the total cost of Livestock production shortage of feed and
escalating price of Livestock feed is adversely affecting the productivity and profitability of
Commercial livestock operations. The feed milling industry and modern live stock production
both are interdependent. The feed milling industry depends on the growth or success of
commercial live stock production. The market for different compound feeds are concentrated
along the Addis Abeba-Adama corridor, where the feed processing industries and modern
Livestock farms (Poultry, dairy, pig, cattle fattening) are concentrated.

The existing feed industries capacity of the feed mills range widely from 20 quintals to 125
quintals per hour. The standard for feed mills is 2000 hours of operation annually but, feed mills
in Ethiopia generally operating much lower than this standard i.e.below30 % of their designing
capacity. The sources of compound feed production are purchased grains, agro-industrial-by
products and imported vitamins and Minerals. Hence it is feasible for local and foreign investors
to be engaged in field of animal feed industries in order to enhance feed development and full fill
the shortage of animal feed supply both in quantity and quality in Ethiopia.

The project envisages production of 5000 tons or 50,000 quintals of assorted animal feed per
annum. The total investment requirement of the project is estimated at about Birr 18,403,122; of
3
 which Birr 1.2 million is the cost of working capital. Based on the cash flow statement, the
calculated internal rate of return (IRR) and simple rate of return of the project are 25.9 % and
21.8, respectively. And the net present value (NPV) at 18 % discounting rate is Birr 818 millions.
The plant is expected to create employment opportunities for about 55 persons. The project uses
the local raw materials as the main ingredients of the products. Therefore it creates forward and
backward linkages to the different sectors of the economy
Project Brief

The proposed project will be producing 8,400 tons of compound animals feed and 42,000 no. of
Urea Molasses Block (UMB) both in first year. This feed and UMB will be supplemented to
livestock in addition to green fodder and libitum (Freely available to animals) for high
production. Different formulae may be used to prepare compound feed such as calf fattening
formula and dairy animal formula etc. to facilitate the customers nationwide. The proposed
business will be manufacturing compound animal feed and Urea Molasses Block (UMB) for
meeting the demand of dairy and livestock farmers.

Product Description and Application

Assorted animal feed is used for feeding domestic animals like cattle, sheep and goats, poultry
and hogs. The feed is prepared by modern industrial production method and the main
ingredients are maize, Milo, wheat, barley, mash, molasses, soybean oil lees, other vegetable oil
lees, crushed bones, oil and fat, and some other additives. Depending on the availability of
inputs, some of the above inputs could be substituted to each other without affecting the quality
of the animal feed.

Animal feed is a kind of feed prepared for oxen, cows, sheep, goat, poultry etc. reared for their
milk, meat and egg. It contains protein, minerals and other nutrients which are useful for milk
egg and beef production as well as survival and growth of the animals. Animal feed can be
prepared from oil cakes, agro - residues, flour mill by - products, cereals, molasses, minerals and
vitamins etc. The major animal feed consumers are large and small scale cattle rising and
fattening farms

4
Economic and Social Benefits
The project will create backward linkage with the agriculture and agro processing sectors and
forward linkage with the livestock sector and also generates income for the government in terms
of payroll tax. The project can create employment for 92 persons

INVESTMENT OPPORTUNITIES
 High livestock population & Diverse agro-ecologies

 There is an increasing trend of intensification of livestock production especially the

poultry industry. This opens the opportunity for a substantial increase in the demand of
compound feeds
 A welcome trend in the increase of the commercial orientation of animal production in
Ethiopia; the breeds/strains of animals have also started to change in line with advanced
countries.

 The improved breeds are dependent on commercial mixed feeds. This is expected to
continue at a faster rate in the future;
 Rapid expansion of

 Feed lot operations more than 120 with a holding capacity

of 70- 2000/operations
 Dairy, poultry and pig farms
 Presence of agro industrial by products (flour mills, oil, sugar
factories)
 5 years GTPII plan of the country (2014/15-2019/20)
aimed at filling the identified feed deficient gap
 Price increment of feed from time to time
 Prospects of marked Increased consumer demands for Livestock products
 Prospects for increase in availability of raw materials &equipment i.e. Increase in the
production of especially maize, Soybeans & oilseeds in terms of yield per unit area and
encouraging development in manufacture of small capacity feed milling and mixing equipment
locally
 The industries are importing premixes from abroad revealing existence of investment
5
 opportunities
 Fostering development of agro-industries( Increased availability of ingredients
 Increased consumer demands as a result of forecasted increase in income and purchasing
power of the population;
 Opportunity Rationale
Livestock production is an integral part of Ethiopia agriculture sector and plays a vital role in
national economy. At present, livestock is contributing about 52% to the agricultural sector and
10.9% to the GDP. The role of livestock in rural economy may be assessed by the fact that 30 to
35 million of the total rural population is engaged in livestock farming, having 2 to 3 cattle/buffalo
and 5 to 6 sheep/goats per family deriving 30 to 40 per cent of income from it1.

Ethiopia livestock population is supported by feed resources derived from the crops sector,
rangelands, grazing areas and agro industrial by-products. The type, availability and utilization of
these feed resources vary greatly in the country's different agro ecological zones. In order of
importance, the major feed resources are crop residues (46%), grazing (27%), cultivated fodder
(19%), cereal/legume grains and by-products (6%) and oil cakes, meals and animal protein (2%).
Most farmers (about 75%) have small land holdings on which most of the livestock population is
concentrated. The smallholders' priority is to grow cereal grains for human consumption, but these
also provide straw and Stover for their animals, which is low in protein and energy. In the case of
wheat, the value of the straw is around 60% of that of the grain. The nutrients available under the
present pattern of feed utilization do not meet the requirements of Ethiopia existing livestock
population.

Table 4-1: Population of livestock (million)2

Species 2005-06 2006-07 2007-08
Cattle 29.6 30.7 31.8
Poultry 27.3 28.2 29.0
Sheep 26.5 26.8 27.1
Goats 53.8 55.2 56.7

Table 4-2: Production of Livestock Products3

Product 2005-06 2006-07 2007-08
Milk (Million Tones ) 39.596 40.872 42.199
Beef (Thousand tones) 1,449 1,498 1,549
Mutton(Thousand tones) 554 566 578

6
There appear to be deficiencies of 24% of the Total Digestible Nutrients (TDN) and 39.4% of
Crude Protein (CP) requirements for livestock. There is a growing trend towards the
establishment of more intensive dairy cattle and buffalo production systems in peri-urban
areas of Pakistan. An estimated 40 million tones of crop residues are produced annually in
Pakistan, out of which 52.5 % and 22.0 % are contributed by wheat and rice respectively.
Traditionally, cereal straws are fed to cattle and buffalo year-round, but their proportion in the
ration increases during periods of feed scarcity. The major sources of supplementary feed in
Pakistan are by-products from cereal milling and oilseed production. Wheat bran, rice bran
and rice polishing are the main milling by-products. Cottonseed cake, rapeseed cake and
maize oil cake account for almost two-thirds of the total protein supplement used to feed
dairy animals.

Cultivated fodder is used as cut-and-carry feeds and may include berseem, oats, rape, barley
and sometimes wheat during the winter season and maize, sorghum and millet during the
summer season. Most of these crops are ready for harvesting about 2 to 3 months after
sowing. Periods of scarcity occur in May-June. Fodder becomes available in July and again in
October- November. Of the total cultivated area, only 13% is devoted to fodder crop
production. Despite large increases in the ruminant population (62%) during the past 20
years, the land devoted to fodder crops has declined by about 17%, with a corresponding
increase in land used for food grain production. This has further increased the dependence of
livestock on crop residues and by-products.

Animal feed mill with UMB preparation is an agro-based project in which locally available feed
resources rich in protein and carbohydrate are mixed according to nutritional formula in order to raise
the livestock in such a manner that when fed to livestock, they get nutritionally balanced feed
according to their body needs. The process is done through semi mechanized and with/ with out
manual handling of different feedstuffs

7
Market Study, Plant Capacity and Production Program
Market Study

Present Demand and Supply

With a livestock and poultry population of 31.9 million, the ANRS has the second largest
livestock resources of the country. But, due decreasing size of grazing land caused by the
expansion of farmlands and lack of modern animal feeding system, the livestock population of
the region is increasing at a very low rate; and in some areas, there is an actual decline of the
livestock population. Besides, because of poor and inadequate feeding, the quality of the meat,
hides and skins of the livestock resources of the region has been declining during the past 25
years.

The estimated and reported animal feed deficit for the ANRS in 1984 is 28-40 percent. The data
is outdated by nearly two decades, but it is doubtful whether development activities implemented
have had a say in changing the figure. The traditional feeding of livestock by letting cattle and
other domestic animals to wander in an ever decreasing grazing land is no longer practical;
simply there is no enough grazing land for the animals.

If the ANRS has to maintain and further develop its livestock resources for domestic use and for
export, the system of feeding the animals should be modernized and at the same time
economical. One option for providing feed for the animals is the establishment of a number of
small to medium scale animal feed making factories in the major urban centers; and if
infrastructures allow, in the major cattle growing areas of the region. The animal feed from the
factories may not be the only source of feed for the animals; it can be used as supplementary but
important feed for livestock productivity.

8
Traditionally, Ethiopian dairy farmers as well as cattle fatteners prepared their own concentrated
feed from different ingredients such as milling and oil factory by-products. In other words, agro-
industrial by-products are important rations in ruminant livestock feed. They are generally feeds
of high energy. If such products are mixed with cereals and some sorts of vitamins and minerals,
they are very useful for animal growth and health. However, despite the availability of various
agro-industrial by-products, most of them are under-utilized; mainly because of lack of
appropriate technologies for processing.

In connection to this, however, many inputs used to produce animal feeds have alternative uses,
either for human consumption or for industrial use. These competing demands are determined by
price and availability of the commodity. In country like Ethiopia, where there is shortfall in food
grains production, the availability of raw materials for animal feed plants could be the major
problem. In other words, there is a direct competition between human and livestock for cereal
grains.
To compute the demand for concentrated animal feed in ANRS, it is reasonable to start with the
utilization of agro-industrial by-products as animal feed in the region. Utilization of agro-
industrial by products (millers’ by products, oil cakes, brewer’s spent grain, etc…) is a bit higher
in moisture deficit areas (4.1 percent for Dega, 7.0 percent for Woina-Dega and 4.5 percent for
Kola) as compared to sufficient rainfall areas (2.5, 4.3 and 2.3). Transport problem and higher
price prevent by-products from being utilized effectively.

Utilization of concentrated or improved animal feed in the ANRS is only 0.2 %. And, it is from
other regions that the feed is come. Like that of agro-industrial by-products, transport problem
and higher price prevent the use of industrially processed animal feed in the ANRS. Feed
resources for livestock in rural and urban holdings in ANRS are given in Table 3.1.

9
 Table 3.1

Feed resources for livestock in rural and urban holdings in ANRS

Number of % Rural Urban

Households

Green fodder/.grazing 2,670,653 46,58 51.36 35.08

Crop residues 2,545,602 35.31 32.99 17.05

Improved feed (alfalfa) 22,475 0.18 0.16 0.38

Hay (grass, clover, etc) 1,433,118 13.08 11.43 16.05

By – products/others 277,131 1.31 1.02 8.96

By – products: rapeseed cake, Noug

cake, safflower cake, brewing residue

and bran. 617,411 3.54 3.04. 22.47

3.1.1 Projected Demand

The following assumptions are made to project the future demand for industrially processed
animal feed:

 In the year 2001 E.C., the cattle population in ANRS is estimated to be 11,026,549 and
estimated to grow at 1.2 % per annum in the coming years.
 Of the total cattle population, it is conservative to say at least 0.5 %( which is two times
the current use) can be fed from industrially processed animal feed in the short-run while,
as awareness increases, it can grow at 10 % per annum in the coming years, if the supply
is available at a reasonable price.
 The average consumption per head per day is assumed to be 2.7 K.G, which is taken from
10
 the State Dairy Farms past record.

Based on the above facts and assumptions, the ANRS’s demand for industrially processed animal
feed can be projected as given in Table 3.2 below. By the year 2001 E.C, the projected demand
equals 54,333 tons; the figure is projected to reach 62,688 tons and 66,540 tons by the year 2005
E.C. and 2010 E.C.
TABLE 3.2
Processed animal feed demand projections in ANRS

Year (E.C.) Quantity (in Ton)

2001 54,333

2002 60,484

2003 61,210

2004 61,944

2005 62,688

2006 63,440

2007 64,201

2008 64,971

2009 65,751

2010 66,540

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 3.1.2 Pricing and Distribution
Market prices of industrially processed animal feed depends upon the availability and value of
raw materials, number of processing units, number of processing firms and their production
efficiency, prevailing demand and etc. As discussed earlier, the demand for industrially
processed or concentrated animal feeds for ANRS’s alone surpasses the existing animal feed
supply in the country. The current producer’s prices of the product range between Birr 160 and
Birr 180 per quintal at industry gate. In this project profile, it is proposed to sell the product at
Birr 150 per quintal at the factory gate.

1.1 Plant Capacity

According to market study, the present demand supply gap of animal feed is very large. In this
study, a plant with a capacity of 5000 tons per annum is envisaged; which is a small fraction of
the projected demand of the region. The plant will operate 275 days a year. Sundays and national
holidays, amounting to 65 days a year, are registered holidays for the plant. For maintenance and
repair work as well as for contingence of unexpected work interruption additional 25 days are
assigned.

1.2 Production Program

The plant can start operation at 75 % of its capacity in the first year. It will then build up its
production capacity to 85 % and then 100 % in the second and third year, respectively. As the
plant is new and is equipped with new machinery, production build-up is made to start at reduced
capacity and gradually rise to full capacity. The low production level at the initial stage is also to
develop substantial market outlets for the product. Machinery operators will also get enough time
to develop the required skills and experience.

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 2. Raw Materials and Utilities

2.1 Availability and Source of Raw Materials

The main ingredients for the production of industrially processed animal feed are Milo, maize,
wheat bran, mash, molasses, soybean grounds, fish grounds (meal) and some vitamins.
Depending on the availability of other inputs, the above inputs could be substituted without
affecting the quality of the animal feed. All the raw materials, except molasses, can be obtained
within the region. Molasses can be brought from the existing sugar factories or from the region
if these factories are established.

2.2 Annual Requirement and Cost of Raw Materials and Utilities

The quantities and costs of raw materials required for the production of 5000 tons of
concentrated animal feed are indicated in Table 4.1.Utilities required by the plant consist of
electricity, water and fuel oil. The annual requirement and costs of these utilities is shown in
Table 4.2.
TABLE 4.1

Raw and auxiliary materials requirement

No Description Qty Cost ('000 Birr)

(tons) F.C L.C Total

1 Oil Cake 1150 - 555 555

2 Frushka (Bran of Cereals) 1235 - 573.6 573.6

3 Molasses 250 - 120.8 120.8

4 Low Quality Maize 2000 - 1200 1200

5 Salt 7 - 5 5

6 Limestone (ground) 8 - 4.3 4.3

13
 7 Meal (bone or flesh or blood) 200 - 36 36

8 Sacks (150 kg capacity) 100,000 pcs - 600 600

9 Twine Rope lump sum - 8.4 8.4

10 Other grains (low quality 150 - 216 216

wheat, barely and etc)

Total Cost - - 3,319.1 3,319.1

UTILITIES REQUIREMENT AT FULL CAPACITY

No Item Annual Requirement Cost ('000 Birr)

1 Electricity 45,000 KWH 24.5

2 Water 4800 m3 12.7
3 Fuel Oil 374,000 liter 2618
Total 2655.2

3. Location and Site

For its convenience for distribution shager city is an appropriate choice for the establishment
animal feed production plant in the region.

4. Technology and Engineering

4.1 Production Process
The major operations involved in the production of animal feed are:- raw materials preparation;
primary crushing; assorting and measuring; mixing; molasses mixing; fine crushing; pellet
making; packaging.

14
Raw and auxiliary materials are first charged into silos and tanks where they are made ready for
further processing. Then, they are processed by primary crusher. Crushed materials are further
separated by means of a sifter, and then stored to assorting tanks according to the kind of raw
materials.
In assorting and measuring operation, small amounts of additives are charged into the bins
containing different assortments of raw materials. The raw materials stored in the assorting tanks
are measured in accordance with their use (cattle feed, hog feed, etc).
The raw materials are then mixed by means of a mixer. In this process, fatty ingredients are
added to the materials in order to raise the nutrient value of the feed. The feed obtained from the
mixer is added with molasses. The product is next accommodated in the product tanks, then
weighed and packaged.

Machinery and Equipment

Machinery and equipment required by the plant together with auxiliary equipment and their costs
are given in Table 6.1.
TABLE 6.1

MACHINERY AND EQUIPMENT REQUIRED BY CATTLE FEED PRODUCING

PLANT

No Description Cost(In Birr)

1 Tanks And Silos for Raw and Auxiliary Materials 0

2 Metal Screen & Shaker 0

3 Mixer 0

4 Hammer Mill (Crusher) 0

5 Blender 0

6 Weighing Scale (5 Tons) 0

15
 7 Bagging Equipment 0

8 Dust Collector 0

9 Product Tank 0

10 Tanks for Oil Cakes and Molasses 0

11 Boiler 0

12 Other Accessories 0

Sub-Total 5,680,000

Freight, Insurance, Banks, Charges, Inland Transport, etc. 550,000

Total Cost of Machinery and Equipment 6,230,000

Size of the Project

The total area required by the plant is estimated to be 5000 m2.

Alternative Technology

Alternatively, assorted animal feed can be produced using a capital intensive technology that
involves fine crushing and pellet making. In this case, after the feed is mixed with molasses, it is
further crushed by means of the second chamber, and the assorted animal feed that is crushed in
to fine particles is further formed in to pellets. The pellets, which are cylindrical type and come
in sizes measuring 6mm in diameter and 2 cm in length, are then dried.

Human Resource and Training Requirement

Human Resource

16
The manpower requirement of the plant will be 55. In terms of annual expenditure a total of
437,400 Birr will be expended for salary and wages. The following Table 7.1 shows the details
of manpower requirement of the plant.
TABLE 7.1 Manpower requirement of animal feed producing plant

No Description Qt Monthly Annual

(no) Salary/Wages Expenditure

A. Administration

1 Plant Manager 1 2500 30000

2 Secretary 1 500 6000

3 Accountant 1 800 9600

4 Personnel Officer 1 800 9600

5 Salesman 1 800 9600

6 Cashier 1 600 7200

7 Clerks 2 250 6000

8 General Services 5 300 18000

B. Production

1 Production Supervisor 1 1200 14400

2 Electrical/Mechanical Eng. 1 1500 18000

3 Skilled Workers 10 600 72000

4 Unskilled Workers 30 400 144000

Sub-total - 317400
Training Cost - - 120000
Total annual cost 55 - 437,400

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 4.2 Training Requirement

Training is required for key production personnel. For this purpose, one expert from the
technology suppliers can be sent.

5. Financial Analysis

5.1 Underlying Assumption

The financial analysis of milk powder producing plant is based on the data provided in the
preceding chapters and the following assumptions.

A. Construction and Finance

Construction period 2 years

Source of finance 40% equity and 60% loan

Tax holidays 2 years

Bank interest rate 12%

Discount for cash flow 18%

Value of land Based on lease rate of ANRS

Spare Parts, Repair & Maintenance 3% of fixed investment

18
 B.Depreciation

Building 5%
Machinery and equipment 10%

Office furniture 10%

Vehicles 20%

Pre-production (amortization) 20%

B. Working Capital (Minimum Days of Coverage)

Raw Material-Local 30 days

Raw Material-Foreign 120 days

Factory Supplies in Stock 30 days

Spare Parts in Stock and Maintenance 30 days

Work in Progress 10 days

Finished Products 15 days

Accounts Receivable 30 days

Cash in Hand 30 days

Accounts Payable 30 days

5.2 Investment

The total investment cost of the project including working capital is estimated at Birr 18,403,122
as shown in Table 8.1 below. The Owner shall contribute 40 % of the finance in the form of
equity while the remaining 60 % is to be financed by bank loan.

19
 Table 8.1 Total initial investment

Items Total

Land 3750

Building and Civil Works 7,200,000

Office Equipment 500,000

Vehicles 2,500,000

Plant Machinery & Equipment 6,230,000

Total Fixed Investment Cost 16,433,750

Pre production capital expenditure* 750,000

Total Initial Investment 17,183,750

Working Capital at Full Capacity 1,219,372

Total 18,403,122

*Pre-production capital expenditure includes - all expenses for pre-investment studies,

consultancy fee during construction and expenses for company‘s establishment, project

administration expenses, commission expenses, preproduction marketing and interest expenses

during construction.

The major components of the investment are building and civil works, plant and machinery
expenses and working capital which are accounting for 35.2 %, 24.4 % and 35.8 %, respectively.
The foreign component of the project accounts for 24.4 % of the total investment cost.

20
 5.3 Production Costs

The total production cost at full capacity operation is estimated at Birr 6.7 million (See Table
8.2). Raw materials and utilities amounts Birr 89.8 % of the total production cost.

Table 8.2 production cost at full capacity

Raw Material Requirement Cost

1.Local Raw Materials 3,319,100

2.Foreign Raw Materials 0

Total Production Cost at full Capacity

Items Cost

1. Raw Materials 3,319,100

2.Utilities 2,655,200

3.Wages and Salaries 241,200

4.Spares and Maintenance 62,490

Factory costs 6,277,990

5. Depreciation 168,830

6.Financial Costs 204,391

Total Production Cost 6,651,211

21
5.4 Financial Evaluation

I. Profitability

According to the projected income statement (See Annex 4) the project will generate profit
beginning from the first year of operation and increases on wards. The income statement and
other profitability indicators also show that the project is viable.

II. Breakeven Analysis

The breakeven point of the projects is given by the formula:

BEP = Fixed Cost

Sale –Variable Cost at full capacity.

The project will break even at 21.8 % of capacity utilization

III. Payback Period

Investment cost and income statement projection are used in estimating the project payback
period. The projects will payback fully the initial investment less working capital in three years.

IV. Simple Rate of Return

The project’s simple rate of return is given by the formula:

SRR= (Net Profit + Interest)/ (Total Investment Outlay) at full capacity utilization.

22
The SRR would be 22.2 % at full capacity utilization.

V. Internal Rate of Return and Net Present Value

Based on cash flow statement (Annex 2) the calculated internal rate of return (IRR) of the project
is 25.9 % and the net present value (NPV) at 18 % discount is Birr 818 thousand.

VI. Sensitivity Analysis

The sensitivity test result which undertaken by increasing the cost of production by 5 % still
indicates that the project would be viable.

6. Economic and Social Benefit and Justification

Based on the foregoing presentation and analysis, we can learn that the proposed project
possesses wide range of benefits that complement the financial feasibility obtained earlier. In
general, the envisaged project promotes the socio-economic goals and objectives stated in the
strategic plan of the Amhara National Regional State, particularly in Gondar Zuriya woreda
maksegnit Town. These benefits are listed as follows:
A. Profit Generation

The project is found to be financially viable and earns on average a profit of Birr 621 thousands
per year and Birr 6.2 million within the project life. Such result induces the project promoters to
reinvest the profit which, therefore, increases the investment magnitude in the region.
B. Tax Revenue

In the project life under consideration, the region will collect about Birr 2.3 million from
corporate tax payment alone (i.e. excluding income tax, sales tax and VAT). Such result create
additional fund for the regional government that will be used in expanding social and other basic
services in the region

23
 C. Employment and Income Generation

The proposed project is expected to create employment opportunity to several citizens of the
country. That is, it will provide employment to 55 staffs. This would be one of the commendable
accomplishments of the project.
D. Pro Environment Project

The proposed production process is environmentally friendly

ANNEXES

24
 Annex 1: Total Net Working Capital Requirements (in Birr)

CONSTRUCTION PRODUCTION

Year 1 Year 2 1 2 3 4

Capacity Utilization (%) 0 0 75% 85% 100% 100%

1. Total Inventory 0.00 0.00 949113.26 1075661.70 1265484.35 1265484.35

Raw Materials in Stock- Total 0.00 0.00 271562.73 307771.09 362083.64 362083.64

Raw Material-Local 0.00 0.00 271562.73 307771.09 362083.64 362083.64

Raw Material-Foreign 0.00 0.00 0.00 0.00 0.00 0.00

Factory Supplies in Stock 0.00 0.00 5274.67 5977.96 7032.89 7032.89

Spare Parts in Stock and Maintenance 0.00 0.00 5112.82 5794.53 6817.09 6817.09

Work in Progress 0.00 0.00 131866.77 149449.01 175822.36 175822.36

Finished Products 0.00 0.00 263733.55 298898.02 351644.73 351644.73

2. Accounts Receivable 0.00 0.00 613636.36 695454.55 818181.82 818181.82

3. Cash in Hand 0.00 0.00 236978.18 268575.27 315970.91 315970.91

CURRENT ASSETS 0.00 0.00 1528165.08 1731920.42 2037553.44 2037553.44

4. Current Liabilities 0.00 0.00 613636.36 695454.55 818181.82 818181.82

Accounts Payable 0.00 0.00 613636.36 695454.55 818181.82 818181.82

TOTAL NET WORKING CAPITAL REQUIRMENTS 0.00 0.00 914528.72 1036465.88 1219371.62 1219371.62

1
INCREASE IN NET WORKING CAPITAL 0.00 0.00 914528.72 121937.16 182905.74 0.00

2
 Annex 1: Total Net Working Capital Requirements (in Birr) (continued)

PRODUCTION

5 6 7 8 9 10

Capacity Utilization (%) 100% 100% 100% 100% 100% 100%

1. Total Inventory 1265484.35 1265484.35 1265484.35 1265484.35 1265484.35 1265484.35

Raw Materials in Stock-Total 362083.64 362083.64 362083.64 362083.64 362083.64 362083.64

Raw Material-Local 362083.64 362083.64 362083.64 362083.64 362083.64 362083.64

Raw Material-Foreign 0.00 0.00 0.00 0.00 0.00 0.00

Factory Supplies in Stock 7032.89 7032.89 7032.89 7032.89 7032.89 7032.89

Spare Parts in Stock and Maintenance 6817.09 6817.09 6817.09 6817.09 6817.09 6817.09

Work in Progress 175822.36 175822.36 175822.36 175822.36 175822.36 175822.36

Finished Products 351644.73 351644.73 351644.73 351644.73 351644.73 351644.73

2. Accounts Receivable 818181.82 818181.82 818181.82 818181.82 818181.82 818181.82

3. Cash in Hand 315970.91 315970.91 315970.91 315970.91 315970.91 315970.91

CURRENT ASSETS 2037553.44 2037553.44 2037553.44 2037553.44 2037553.44 2037553.44

4. Current Liabilities 818181.82 818181.82 818181.82 818181.82 818181.82 818181.82

Accounts Payable 818181.82 818181.82 818181.82 818181.82 818181.82 818181.82

3
TOTAL NET WORKING CAPITAL REQUIRMENTS 1219371.62 1219371.62 1219371.62 1219371.62 1219371.62 1219371.62

INCREASE IN NET WORKING CAPITAL 0.00 0.00 0.00 0.00 0.00 0.00

4
 Annex 2: Cash Flow Statement (in Birr)

CONSTRUCTION PRODUCTION

Year 1 Year 2 1 2 3 4

TOTAL CASH INFLOW 1093575.00 2312946.62 6238636.36 6456818.18 7622727.27 7500000.00

1. Inflow Funds 1093575.00 2312946.62 613636.36 81818.18 122727.27 0.00

Total Equity 437430.00 925178.65 0.00 0.00 0.00 0.00

Total Long Term Loan 656145.00 1387767.97 0.00 0.00 0.00 0.00

Total Short Term Finances 0.00 0.00 613636.36 81818.18 122727.27 0.00

2. Inflow Operation 0.00 0.00 5625000.00 6375000.00 7500000.00 7500000.00

Sales Revenue 0.00 0.00 5625000.00 6375000.00 7500000.00 7500000.00

Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00

3. Other Income 0.00 0.00 0.00 0.00 0.00 0.00

TOTAL CASH OUTFLOW 1093575.00 1093575.00 6782477.24 6149905.03 7400266.33 7066018.53

4. Increase In Fixed Assets 1093575.00 1093575.00 0.00 0.00 0.00 0.00

Fixed Investments 1041500.00 1041500.00 0.00 0.00 0.00 0.00

Pre-production Expenditures 52075.00 52075.00 0.00 0.00 0.00 0.00

5. Increase in Current Assets 0.00 0.00 1528165.08 203755.34 305633.02 0.00

5
6. Operating Costs 0.00 0.00 4732231.15 5360227.97 6302223.20 6302223.20

7. Corporate Tax Paid 0.00 0.00 0.00 0.00 247366.65 259630.13

8. Interest Paid 0.00 0.00 522081.01 245269.56 204391.30 163513.04

9.Loan Repayments 0.00 0.00 0.00 340652.16 340652.16 340652.16

10.Dividends Paid 0.00 0.00 0.00 0.00 0.00 0.00

Surplus(Deficit) 0.00 1219371.62 -543840.88 306913.15 222460.95 433981.47

Cumulative Cash Balance 0.00 1219371.62 675530.75 982443.90 1204904.84 1638886.31

6
 Annex 2: Cash Flow Statement (in Birr): Continued

PRODUCTION

5 6 7 8 9 10

TOTAL CASH INFLOW 7500000.00 7500000.00 7500000.00 7500000.00 7500000.00 7500000.00

1. Inflow Funds 0.00 0.00 0.00 0.00 0.00 0.00

Total Equity 0.00 0.00 0.00 0.00 0.00 0.00

Total Long Term Loan 0.00 0.00 0.00 0.00 0.00 0.00

Total Short Term Finances 0.00 0.00 0.00 0.00 0.00 0.00

2. Inflow Operation 7500000.00 7500000.00 7500000.00 7500000.00 7500000.00 7500000.00

Sales Revenue 7500000.00 7500000.00 7500000.00 7500000.00 7500000.00 7500000.00

Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00

3. Other Income 0.00 0.00 0.00 0.00 0.00 0.00

TOTAL CASH OUTFLOW 7037403.75 7015037.97 6986423.18 6617156.24 6617156.24 6617156.24

4. Increase In Fixed Assets 0.00 0.00 0.00 0.00 0.00 0.00

Fixed Investments 0.00 0.00 0.00 0.00 0.00 0.00

Pre-production Expenditures 0.00 0.00 0.00 0.00 0.00 0.00

5. Increase in Current Assets 0.00 0.00 0.00 0.00 0.00 0.00

7
6. Operating Costs 6302223.20 6302223.20 6302223.20 6302223.20 6302223.20 6302223.20

7. Corporate Tax Paid 271893.61 290406.08 302669.56 314933.04 314933.04 314933.04

8. Interest Paid 122634.78 81756.52 40878.26 0.00 0.00 0.00

9. Loan Repayments 340652.16 340652.16 340652.16 0.00 0.00 0.00

10.Dividends Paid 0.00 0.00 0.00 0.00 0.00 0.00

Surplus(Deficit) 462596.25 484962.03 513576.82 882843.76 882843.76 882843.76

Cumulative Cash Balance 2101482.57 2586444.60 3100021.42 3982865.18 4865708.94 5748552.70

Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED

CONSTRUCTION PRODUCTION

Year 1 Year 2 1 2 3 4

TOTAL CASH INFLOW 0.00 0.00 5625000.00 6375000.00 7500000.00 7500000.00

1. Inflow Operation 0.00 0.00 5625000.00 6375000.00 7500000.00 7500000.00

Sales Revenue 0.00 0.00 5625000.00 6375000.00 7500000.00 7500000.00

Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00

2. Other Income 0.00 0.00 0.00 0.00 0.00 0.00

8
TOTAL CASH OUTFLOW 1093575.00 1093575.00 5646759.87 5482165.13 6485128.94 6561853.33

3. Increase in Fixed Assets 1093575.00 1093575.00 0.00 0.00 0.00 0.00

Fixed Investments 1041500.00 1041500.00 0.00 0.00 0.00 0.00

Pre-production Expenditures 52075.00 52075.00 0.00 0.00 0.00 0.00

4. Increase in Net Working Capital 0.00 0.00 914528.72 121937.16 182905.74 0.00

5. Operating Costs 0.00 0.00 4732231.15 5360227.97 6302223.20 6302223.20

6. Corporate Tax Paid 0.00 0.00 0.00 0.00 0.00 259630.13

- -

NET CASH FLOW 1093575.00 1093575.00 -21759.87 892834.87 1014871.06 938146.67

- - - -

CUMMULATIVE NET CASH FLOW 1093575.00 2187150.00 2208909.87 1316075.00 -301203.94 636942.73

Net Present Value (at 18%) 1093575.00 -926758.47 -15627.60 543406.86 523459.20 410072.56

- - - -

Cumulative Net present Value 1093575.00 2020333.47 2035961.07 1492554.21 -969095.01 -559022.45

Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED (Continued)

PRODUCTION

9
 5 6 7 8 9 10

TOTAL CASH INFLOW 7500000.00 7500000.00 7500000.00 7500000.00 7500000.00 7500000.00

1. Inflow Operation 7500000.00 7500000.00 7500000.00 7500000.00 7500000.00 7500000.00

Sales Revenue 7500000.00 7500000.00 7500000.00 7500000.00 7500000.00 7500000.00

Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00

2. Other Income 0.00 0.00 0.00 0.00 0.00 0.00

TOTAL CASH OUTFLOW 6574116.81 6592629.28 6604892.76 6617156.24 6617156.24 6617156.24

3. Increase in Fixed Assets 0.00 0.00 0.00 0.00 0.00 0.00

Fixed Investments 0.00 0.00 0.00 0.00 0.00 0.00

Pre-production Expenditures 0.00 0.00 0.00 0.00 0.00 0.00

4. Increase in Net Working Capital 0.00 0.00 0.00 0.00 0.00 0.00

5. Operating Costs 6302223.20 6302223.20 6302223.20 6302223.20 6302223.20 6302223.20

6. Corporate Tax Paid 271893.61 290406.08 302669.56 314933.04 314933.04 314933.04

NET CASH FLOW 925883.19 907370.72 895107.24 882843.76 882843.76 882843.76

CUMMULATIVE NET CASH FLOW 1562825.92 2470196.64 3365303.88 4248147.64 5130991.40 6013835.16

Net Present Value (at 18%) 342976.34 284846.38 238132.69 199042.49 168680.07 142949.21

Cumulative Net present Value -216046.11 68800.27 306932.95 505975.44 674655.51 817604.73

Net Present Value (at 18%) 817,604.73

Internal Rate of Return 25.9%

10
 Annex 4: NET INCOME STATEMENT ( in Birr)

PRODUCTION

1 2 3 4 5

Capacity Utilization (%) 75% 85% 100% 100% 100%

1. Total Income 5625000.00 6375000.00 7500000.00 7500000.00 7500000.00

Sales Revenue 5625000.00 6375000.00 7500000.00 7500000.00 7500000.00

Other Income 0.00 0.00 0.00 0.00 0.00

2. Less Variable Cost 4637616.15 5255964.97 6183488.20 6183488.20 6183488.20

VARIABLE MARGIN 987383.85 1119035.03 1316511.80 1316511.80 1316511.80

(In % of Total Income) 17.55 17.55 17.55 17.55 17.55

3. Less Fixed Costs 263445.00 273093.00 287565.00 287565.00 287565.00

OPERATIONAL MARGIN 723938.85 845942.03 1028946.80 1028946.80 1028946.80

(In % of Total Income) 12.87 13.27 13.72 13.72 13.72

4. Less Cost of Finance 522081.01 245269.56 204391.30 163513.04 122634.78

5. GROSS PROFIT 201857.84 600672.47 824555.50 865433.76 906312.02

6. Income (Corporate) Tax 0.00 0.00 247366.65 259630.13 271893.61

7. NET PROFIT 201857.84 600672.47 577188.85 605803.63 634418.42

RATIOS (%)

11
Gross Profit/Sales 3.59% 9.42% 10.99% 11.54% 12.08%

Net Profit After Tax/Sales 3.59% 9.42% 7.70% 8.08% 8.46%

Return on Investment 23.34% 26.24% 22.94% 22.58% 22.22%

Return on Equity 14.81% 44.08% 42.36% 44.46% 46.56%

12
 Annex 4: NET INCOME STATEMENT (in Birr):Continued

PRODUCTION

6 7 8 9 10

Capacity Utilization (%) 100% 100% 100% 100% 100%

1. Total Income 7500000.00 7500000.00 7500000.00 7500000.00 7500000.00

Sales Revenue 7500000.00 7500000.00 7500000.00 7500000.00 7500000.00

Other Income 0.00 0.00 0.00 0.00 0.00

2. Less Variable Cost 6183488.20 6183488.20 6183488.20 6183488.20 6183488.20

VARIABLE MARGIN 1316511.80 1316511.80 1316511.80 1316511.80 1316511.80

(In % of Total Income) 17.55 17.55 17.55 17.55 17.55

3. Less Fixed Costs 266735.00 266735.00 266735.00 266735.00 266735.00

OPERATIONAL MARGIN 1049776.80 1049776.80 1049776.80 1049776.80 1049776.80

(In % of Total Income) 14.00 14.00 14.00 14.00 14.00

4. Less Cost of Finance 81756.52 40878.26 0.00 0.00 0.00

5. GROSS PROFIT 968020.28 1008898.54 1049776.80 1049776.80 1049776.80

6. Income (Corporate) Tax 290406.08 302669.56 314933.04 314933.04 314933.04

7. NET PROFIT 677614.20 706228.98 734843.76 734843.76 734843.76

13
RATIOS (%)

Gross Profit/Sales 12.91% 13.45% 14.00% 14.00% 14.00%

Net Profit After Tax/Sales 9.03% 9.42% 9.80% 9.80% 9.80%

Return on Investment 22.29% 21.93% 21.57% 21.57% 21.57%

Return on Equity 49.73% 51.83% 53.93% 53.93% 53.93%

14
 Annex 5: Projected Balance Sheet (in Birr)

CONSTRUCTION PRODUCTION

Year 1 Year 2 1 2 3 4

TOTAL ASSETS 1093575.00 3406521.62 4222015.83 4563854.32 4923118.28 5188269.75

1. Total Current Assets 0.00 1219371.62 2203695.83 2714364.32 3242458.28 3676439.75

Inventory on Materials and Supplies 0.00 0.00 281950.22 319543.58 375933.62 375933.62

Work in Progress 0.00 0.00 131866.77 149449.01 175822.36 175822.36

Finished Products in Stock 0.00 0.00 263733.55 298898.02 351644.73 351644.73

Accounts Receivable 0.00 0.00 613636.36 695454.55 818181.82 818181.82

Cash in Hand 0.00 0.00 236978.18 268575.27 315970.91 315970.91

Cash Surplus, Finance Available 0.00 1219371.62 675530.75 982443.90 1204904.84 1638886.31

Securities 0.00 0.00 0.00 0.00 0.00 0.00

2. Total Fixed Assets, Net of Depreciation 1093575.00 2187150.00 2018320.00 1849490.00 1680660.00 1511830.00

Fixed Investment 0.00 1041500.00 2083000.00 2083000.00 2083000.00 2083000.00

Construction in Progress 1041500.00 1041500.00 0.00 0.00 0.00 0.00

Pre-Production Expenditure 52075.00 104150.00 104150.00 104150.00 104150.00 104150.00

Less Accumulated Depreciation 0.00 0.00 168830.00 337660.00 506490.00 675320.00

15
3. Accumulated Losses Brought Forward 0.00 0.00 0.00 0.00 0.00 0.00

4. Loss in Current Year 0.00 0.00 0.00 0.00 0.00 0.00

TOTAL LIABILITIES 1093575.00 3406521.62 4222015.83 4563854.32 4923118.28 5188269.75

5. Total Current Liabilities 0.00 0.00 613636.36 695454.55 818181.82 818181.82

Accounts Payable 0.00 0.00 613636.36 695454.55 818181.82 818181.82

Bank Overdraft 0.00 0.00 0.00 0.00 0.00 0.00

6. Total Long-term Debt 656145.00 2043912.97 2043912.97 1703260.81 1362608.65 1021956.49

Loan A 656145.00 2043912.97 2043912.97 1703260.81 1362608.65 1021956.49

Loan B 0.00 0.00 0.00 0.00 0.00 0.00

7. Total Equity Capital 437430.00 1362608.65 1362608.65 1362608.65 1362608.65 1362608.65

Ordinary Capital 437430.00 1362608.65 1362608.65 1362608.65 1362608.65 1362608.65

Preference Capital 0.00 0.00 0.00 0.00 0.00 0.00

Subsidies 0.00 0.00 0.00 0.00 0.00 0.00

8. Reserves, Retained Profits Brought

Forward 0.00 0.00 0.00 201857.84 802530.31 1379719.17

9.Net Profit After Tax 0.00 0.00 201857.84 600672.47 577188.85 605803.63

Dividends Payable 0.00 0.00 0.00 0.00 0.00 0.00

Retained Profits 0.00 0.00 201857.84 600672.47 577188.85 605803.63

16
 Annex 5: Projected Balance Sheet (in Birr): Continued

PRODUCTION

5 6 7 8 9 10

TOTAL ASSETS 5482036.01 5818998.04 6184574.86 6919418.62 7654262.38 8389106.14

1. Total Current Assets 4139036.01 4623998.04 5137574.86 6020418.62 6903262.38 7786106.14

Inventory on Materials and Supplies 375933.62 375933.62 375933.62 375933.62 375933.62 375933.62

Work in Progress 175822.36 175822.36 175822.36 175822.36 175822.36 175822.36

Finished Products in Stock 351644.73 351644.73 351644.73 351644.73 351644.73 351644.73

Accounts Receivable 818181.82 818181.82 818181.82 818181.82 818181.82 818181.82

Cash in Hand 315970.91 315970.91 315970.91 315970.91 315970.91 315970.91

Cash Surplus, Finance Available 2101482.57 2586444.60 3100021.42 3982865.18 4865708.94 5748552.70

Securities 0.00 0.00 0.00 0.00 0.00 0.00

2. Total Fixed Assets, Net of Depreciation 1343000.00 1195000.00 1047000.00 899000.00 751000.00 603000.00

Fixed Investment 2083000.00 2083000.00 2083000.00 2083000.00 2083000.00 2083000.00

Construction in Progress 0.00 0.00 0.00 0.00 0.00 0.00

Pre-Production Expenditure 104150.00 104150.00 104150.00 104150.00 104150.00 104150.00

17
 Less Accumulated Depreciation 844150.00 992150.00 1140150.00 1288150.00 1436150.00 1584150.00

3. Accumulated Losses Brought Forward 0.00 0.00 0.00 0.00 0.00 0.00

4. Loss in Current Year 0.00 0.00 0.00 0.00 0.00 0.00

TOTAL LIABILITIES 5482036.01 5818998.04 6184574.86 6919418.62 7654262.38 8389106.14

5. Total Current Liabilities 818181.82 818181.82 818181.82 818181.82 818181.82 818181.82

Accounts Payable 818181.82 818181.82 818181.82 818181.82 818181.82 818181.82

Bank Overdraft 0.00 0.00 0.00 0.00 0.00 0.00

6. Total Long-term Debt 681304.32 340652.16 0.00 0.00 0.00 0.00

Loan A 681304.32 340652.16 0.00 0.00 0.00 0.00

Loan B 0.00 0.00 0.00 0.00 0.00 0.00

7. Total Equity Capital 1362608.65 1362608.65 1362608.65 1362608.65 1362608.65 1362608.65

Ordinary Capital 1362608.65 1362608.65 1362608.65 1362608.65 1362608.65 1362608.65

Preference Capital 0.00 0.00 0.00 0.00 0.00 0.00

Subsidies 0.00 0.00 0.00 0.00 0.00 0.00

8. Reserves, Retained Profits Brought

Forward 1985522.80 2619941.21 3297555.41 4003784.39 4738628.15 5473471.91

9. Net Profit After Tax 634418.42 677614.20 706228.98 734843.76 734843.76 734843.76

Dividends Payable 0.00 0.00 0.00 0.00 0.00 0.00

Retained Profits 634418.42 677614.20 706228.98 734843.76 734843.76 734843.76

18
19