Ethiopian Construction Works

Corporation

(ECWC)

Ceramic and Floor Tiles Factory

Feasibility Study Report

Final Draft

Consultant
Walya Management Consultancy & Training PLC
Address: Kirkos Sub City, Woreda 10, A.A. Branch: N/Lafto Sub City
Tel: 0940554040 or 0940664040 or 0118449101
Email: Waliya.management@gmail.com

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 SEPTEMBER 2019

Table of Contents
Page

Table of Contents i
I. EXECUTIVE SUMMARY 1
II. INTRODUCTION 5
2.1. Background 5
2.2. Objective 5
2.3. Product Description 6
III. KEY SUCCESS AND RISK FACTORS 9
3.1. Key Success Factors 9
3.2. Key Risk Factors 9
IV. MARKET STUDY OF CERAMIC PRODUCTS 11
4.1. Market Segmentation of Ceramic Products 11
4.2. Demand Analysis for Ceramic Products in Ethiopia 11
4.2.1. Determinants of demand for Ceramic Products 11
4.2.2. Demand for Ceramic Tiles and Sanitary Ware in Ethiopia 12
4.2.3. Demand for Ceramic Table Ware 14
4.2.4. Demand for Ceramic Insulator 15
4.2.5. Demand Projection of Ceramic Products in Ethiopia 16
4.2.5.1. Demand Projection for Ceramic Tiles and Sanitary ware...............16
4.2.5.2. Demand Projection for Ceramic Table Ware..................................17
4.2.5.3. Demand Projection for Ceramic Insulator.......................................17
4.3. Supply Analysis of Ceramic Products in Ethiopia 18
4.3.1. Domestic Production of Ceramic Products 18
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 4.3.1.1. Existing Domestic Production of Ceramic Products.......................18
4.3.1.2. New Entrants of Ceramic Factories.................................................19
4.3.1.3. Supply Projection of Ceramic Products..........................................20
4.3.2. Import 20
4.4. Demand and Supply Gap of Ceramic Products in Ethiopia 21
4.5. Market and Marketing Arrangement 23
4.6. Value Chain 23
4.7. Price Analysis 24
4.8. Marketing Strategy 25
V. TECHNICAL ANALYSIS 28
5.1. Project Location and Site 28
5.2. Building and Civil works 28
5.3. Production Process and Technology 29
5.3.1. Production Process of Ceramics Products 29
5.3.2. Planned Machinery and Equipment 34
5.3.3. Production Capacity and Capacity Utilization 37
5.4. Auxiliary items 39
5.5. Vehicles and Earth moving Machineries 41
5.6. Office Furniture and Equipment 42
5.7. Raw materials 43
5.8. Utility Requirement 46
5.9. Project Implementation Schedule 48
VI. OPPORTUNITIES AND THREATS 50
6.1. Opportunities 50
6.2. Threats 50
VII. ORGANIZATION AND MANAGEMENT 52
7.1. Organizational Structure 52
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 7.2. Management 53
7.3. Manpower 53
VIII. ENVIRONMENTAL IMPACTS AND SOCIO ECONOMIC
BENEFITS 58
8.1. Environmental Consideration of Ceramic Industry 58
8.1.1. Environmental Impacts 58
8.1.2. Environmental impact Mitigation Measures 59
8.2. Socio Economic Benefits 60
IX. FINANCIAL ANALYSIS 62
9.1. Summary of Investment Costs 62
9.1.1. Pre-Production Costs 62
9.1.2. Working Capital 63
9.2. Components of Planned Investment Cost 64
9.3. Investment Financing Plan 65
9.4. Projected Financial Operation Results 66
9.4.1. Sales Revenues 66
9.4.2. Production Costs 67
9.4.3. Projected Profit and Loss Statement 68
9.4.4. Projected Cash Flow Statement 68
9.4.5. Financial Internal Rate of Return (IRR) and Net Present Value (NPV)
68
9.4.6. Uncertainties 68
9.5. Assumption Used for Financial Analysis 70
X. ANNEX 74
Annex I: Working Capital Requirement 75
Annex II: Operating Costs 76
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Annex III: Projected Profit and Loss Statement 77
Annex IV: Projected Cash Flow Statement78
Annex V: Projected Balance Sheet Statement 79
Annex VI: Calculation of Financial Internal Rate of Return 80
Annex VII: Sensitivity Analysis 81
Annex VIII: Loan Repayment Schedule 84

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I. EXECUTIVE SUMMARY
The establishment of Ceramic Factory was initiated and promoted by Ethiopian
Construction Works Corporation (ECWC) to evaluate the commercial, technical
and financial and environmental viability of establishing ceramics and floor tiles
factory in Addis Ababa, Akaki Kality Sub City in the compound of ECWC
Building Technology and Construction Sector.

The product of the factory will be sold mainly within national market. In the near
future, the product can join international markets particularly the Middle East,
South Sudan, Somalia, Kenya and Djibouti etc. The market, technical and financial
study of the project has been conducted to fulfill licensing requirements and to
show the feasibility of the project to financiers so that loan beyond and above the
owners’ equity can be secured from banks.

It was found in the feasibility study that there is a lucrative market opportunity for
ceramic products locally. The market demand-supply gap analysis indicates that
there is a positive gap that necessitates the establishment of new companies
engaged in ceramic production.

Initially the proposed project will produce ceramic wall and floor tiles using latest
technology. The Production Capacity of the factory will be 5,000 m2 per day and
1,500,000 m2 per annum.

An experienced Chief Executive Officer/CEO with sufficient academic and real

life experience in manufacturing industry will be hired. The company will be
managed by professionals and business persons with several years of experience in
the fields of engineering, business management, economics and many more. The
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total human power needed for the entire operation of the project is about 167
permanent persons.

The total investment cost of the project is Birr 405.16 million. ECWC will
contribute 30% of this investment cost which will amount to Birr 121.55 million
and the it plans to borrow the remaining 70%, Birr 283.61 million from banks.
From the total investment, Birr 339,021,595 (83.8%) is fixed investment cost,
Birr 39,949,831 (9.9%) is working capital, Birr 25,688,983 (6.3%) is pre-
production expense i.e. Birr 3,000,000 is pre-production cost and Birr 22,688,983
is pre-production interest.

In general, the financial projections made justified that the project is financially
viable and profitable. The cash flow to be generated from the project is adequate
enough to service the debt within the planned time frame. To mention it, the
project will generate a net profit of Birr 58,425,977 and Birr 119,469,629 in the
first and last projection years, respectively. Similarly, the cumulative cash balance
will increase from Birr 76,681,376 to Birr 763,416,875 at end of projection
period.

The FIRR before and after tax is 42% and 38% respectively, where in both cases
it is higher than banks’ lending rate. The sensitivity test conducted reveals that the
FIRR after tax will decrease to 32%, 36% and 34% respectively with 10%
decrease in sales revenue, 10% increase in operating cost and investment cost.

The result of the business feasibility study indicates the soundness of the project.
Other than commercial benefits to the owners the project will result in additional
positive social and economic contribution to Ethiopia. The project will create
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permanent job opportunities to at least 167 individuals and will improve their
livelihood by enhancing their earning potential as well as helping them acquire
new skills by exposing them to modern water ceramic technologies. At a national
level the project will contribute to save the hard currency of the country via import
substituting. Moreover, it will augment government income through tax of an
average amount of Birr 37.46 million per annum.

Based on the forgoing arguments and observations, the Consultants recommend the
implementation of the project so that the macro and micro level benefits associated
with it can be realized.

Financial Summary
 Source of Finance:

Description Amount D/E-Ratio

Debt 283,612,287 70%
Equity 121,548,122 30%
Total 405,160,409 100%

 Project Investment:

Description Amount Share (%)

Fixed assets 339,521,595 83.8%
Working capital 39,949,831 9.9%
Pre operating costs 3,000,000 0.7%
Pre operating interest 22,688,983 5.6%
Total 405,160,409 100%

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 Expected Financial Results:

Description Year 1 Year 10

Sales Revenue 204,822,000 307,233,000
Profit (Loss) 58,425,977 119,469,629
Cumulative Cash Balance 76,681,376 763,416,875
FIRR Before Tax 42%
FIRR After Tax 38%

 Sensitivity Analysis

Description FIRR
Before Tax After Tax
Decrease in Sales Revenue by 10% 35% 32%
Increase in Operating Cost by 10% 40% 36%
Increase in Investment Cost by
10% 38% 34%

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II. INTRODUCTION

2.1. Background

The Ethiopian Construction Works Corporation (ECWC) is a government Public

Enterprise established with an authorized capital of Birr 20,324,608.143.90 (twenty
billion three hundred twenty four million six hundred eight thousand and one
hundred forty three birr and ninety cents) and with paid up capital of
7,754,333,613.80 (seven billion seven hundred fifty four million three hundred
thirty three and six hundred thirteen thousand birr and eighty cents), on December
18/2015 based on council of Ministers Regulation No. 366/2015 and with
amendment of the Council of Ministers Regulation No. 390/2016.

ECWC is governed by the Public Enterprises Proclamation No.25/1992. Its

supervising authority is The Ministry of Public Enterprises and its policy-making
body is the Board of the Corporation whose members are appointed by the
government selected from different organizations. The headquarters of the
corporation is located in the city of Addis Ababa, around Gurd Shola area. It is
head by a Chief Executive Officer (CEO).

The purposes for which the corporation is established are:

 To engage in domestic and overseas construction works as a

contractor in construction, upgrading and maintenance of roads,
bridges, works relating to dams, irrigations, hydropower generations,
water supply systems, sewerage systems, drainage, deep water wells,

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 reclamations, river diversions, construction of buildings, airfields, rail
ways, ports and other civil works;

 To engage in the assembling of construction equipment and

machineries, manufacturing spare parts and provide maintenance
service for construction equipment and machinery and produce
construction materials and different kinds of pipes necessary for its
activities and sell them as may be appropriate;
 To acquire, own and administer irrigation dams, deep water wells and
as may be necessary water supply canals constructed and to be
constructed by the Federal Government budget and collect charges
from the beneficiaries of such dams;
 To engage in the rental business of construction equipment,
machinery, warehouse and buildings;
 To produce qualified human resource with required discipline,
number and quality for the Corporation by using its own training
facilities or work in co-ordination with relevant domestic or
international research, educational and training institutions;
 To make studies and forward proposals in line with directions given
by the Ministry of Public Enterprises to get financial, technological
and modern administrative inputs (including attracting investment or
to engage in investment) to be competitive and profitable in domestic
and overseas works;
 To sell and pledge bonds and to negotiate and sign loan agreements
with local and international financial sources in line with the directive
issued by the Ministry of Finance and Economic Co-operation and in

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 accordance with policy direction given by Ministry of Public
Enterprises;
 To render design and construction, engineering procurement and
contracts, design building operation and management or transfer and
other general construction project management services;
 To engage in deep foundation excavation for specialized
electromechanical works, tunneling ready mix concrete production
and pouring, demolishing services; render a concrete and steel
structure based building technology and construction solution related
to pre-fabricated building and conventional system.
 To undertake any other related activities necessary for the attainment
of its purposes.

To achieve its purpose the Corporation has implemented the following

organizatonal structure.

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 Figure 1 Organizational Structure of ECWC

As it is clear from the mandates of the organization, ECWC can establish feasible
business to serve the public and generate reasonable profit to strengthen the

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financial capacity of the Company. The feasibility study is conducted by Walya
Management Consultancy and Training PLC based on a consultancy agreement
made with the Promoter and owner of the Project - Ethiopian Construction Works
Corporation.

This is the first draft report prepared to show the owner of the project (ECWC) the
market, technology, financial and environmental feasibility of the project for future
investment decision.

2.2. Objective
The ceramics and floor tiles factory has multiple objectives which are both
economical and social. The first main objective of this project is to engage in
ceramics and floor tiles production to generate income to the owner over the
invested capital, and to positively contribute to the sub-sector as well as the
country’s economy by generating revenue, promoting government investment
policy by import-substituting and other rational economic benefits driven from the
project’s operations. The second objective is creating job opportunity and
enhancing skill and knowledge transfer for Ethiopians.

Specifically, the project has the following objectives:

 To save cost of building of ECWC by availing input from the factory, which
will take long time and process to buy from the market.
 To fill the demand and supply gap of ceramics and floor tiles of the housing
construction sector,
 To generate profit to the ECWC that will be generated from the operation of
the project,
Ceramic Factory Feasibility Study 9|Page
  Create job opportunities for 167 persons who live in the project area and
elsewhere,
 The project will tune revenue to the treasury of local, regional and federal
government in the form of taxes,
 Save foreign currency by producing quality products as substitution to
imported products.

2.3. Product Description

The term ‘ceramics’ (ceramic products) is used for inorganic materials (with
possibly some organic content), made up of non-metallic compounds and made
permanent by a firing process with subsequent cooling. Ceramic products like
crockery, sanitary ware and tiles play a very important role in our daily lives.
Initially the Company is planned to produce ceramic tiles and sanitary ware and
then it will produce the other ceramic products like table ware and insulator in the
second phase.

i. Table Ware: Ceramic table wares are the items used at meals made of
ceramic materials. Typical products are plates, dishes, cups, bowls, jugs and
vases.

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ii. Sanitary ware: Sanitary is the general nomenclature given to ceramic wares
used for sanitary facilities, water supply, drainage, sewerage, and sanitary
treatment of excretion for the purpose of comfortable living.

iii. Ceramic tiles (wall and floor): Ceramic tiles are thin slabs made from clays
and/or other inorganic materials, generally used as coverings for floors and
walls. Ceramic tiles are usually shaped by extrusion or dust pressing at room
temperature, then dried and subsequently fired at temperatures sufficient to
develop the required properties

iv. Ceramic insulator: The ceramic electrical insulator is a material whose

internal electric charges do not flow freely, and therefore does not conduct an
electric current under the influence of an electric field.

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III. KEY SUCCESS AND RISK FACTORS

3.1. Key Success Factors

 Optimal site Selection: the proximity of the factory to both the resource
base and market site paramount advantage to their success.
 Production of High Quality and Standardized Products: production of
high quality and standardized products has advantage of penetrating the
market and reliability to customers.
 Professional Management and Skilled Labor: Since the sub sector
absorbs both skilled and unskilled laborer, their contribution is immense and
incalculable in factories profitability.
 Availability of Manpower: Existence of trained and cheap manpower and
sufficient availability of daily laborers in the country.

3.2. Key Risk Factors

 Import ceramic products: The ceramic industry is already in fierce
competition with low-priced sanitary ware, tiles and table wares mostly
imported from china.
 Local Completion: This sector is also facing strong competitive pressure
from firms in the industries offering substitute products. The demand for
low priced, attractive and convenient substitutes of ceramic tableware such
as melamine wares, aluminum wares, steel kitchen wares, glass wares and
plastic wares are raising and the local manufacture of these products are
also drawing significant profits from the thriving domestic market
crockery.

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  Risk mitigation Mechanisms
 The company has plan the lower selling price than competitors, use the
existing markets channels and have product diversification, and then
the company penetrates the market easily and successfully.
 Since ECWC is a construction company, there is a possibility to use
the finished good directly as input so that there is no such problem for
market. In addition, it has an opportunity for availing the finished
product for government organization as per the country law.

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IV. MARKET STUDY OF CERAMIC PRODUCTS

4.1. Market Segmentation of Ceramic Products

In Ethiopia the destination for ceramic products is mostly local market as there is
huge untouched or not served demand in the country. The segmentation of the
market can be based on the major consumer of the products: Government or
nongovernmental institutions, commercial centers, real estate developer and
private housings.

Meager export in the international market since there is a quality issue and as well
bottle neck of competitiveness. Beyond that, the nature of the product directly
associated with transportation could be a hindrance to penetrate the international
market. Hence, ceramic products destination tends to national (domestic) market in
light of the current competitive position both in price and quality. As a result, The
Company has also planned to produce its products to local market.

The niche market of the Company is own factory since ECWC is a construction
company. Moreover, since it is a public enterprise, there is an opportunity for
availing the final product for government organization as per the country law.

4.2. Demand Analysis for Ceramic Products in Ethiopia

4.2.1. Determinants of demand for Ceramic Products
The demand for ceramic products could be primarily geared by the dynamics of
construction sub-sector. Thus, ceramic products are mainly consumed by different
government construction and private house developers as an intermediate product.
The demand for these envisaged products is mainly influenced by:

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  Growth in the construction sector,
 Growth of population associated with urbanization, and
 Increase in income & economic growth of the country.
 List of possible end users of these products among multitudes are:
 Private house construction,

 Condominium house construction (low cost housing program run

by the government) ,
 Real estate construction, and

 Government and non government large investment projects such

as industrial parks, university and college building constructions,

etc.

4.2.2. Demand for Ceramic Tiles and Sanitary Ware in

Ethiopia
The potential percentage of the housing units that would consumes ceramic tiles
and sanitary ware as their construction materials are those housing units that
constructed using concrete; hallow block, bricks and stone wall as alternative
technology.

According to central statistical agency, population and housing census report, both
the total housing unit and the housing unit that are constructed using concrete,
hallow block, bricks, stone wall of the country has shown increasing trend in the
last thirteen years with the compound annual growth of 2.64 and 10 percent
respectively.

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Table 4.1: Housing Unit
Housing Unit 1994/95 2007/08 AAGR
Total Housing Unit 10,766,729 15,103,135 2.64 %
Construction & Building of houses 115,873 355,194 10 %
( with bricks , block & stone wall)
Percentage of Construction & Building of 1% 2%
houses( with bricks , block & stone wall)
Source: Central Statistical Agency Census Report on Population and Housing 1994
and 2007

CSA data discloses that the average number of rooms in urban housing is about 2.1
rooms. Besides, the average housing height of the building is estimated to be about
2.5 meters.

Table 4.2: Number of Private House Construction Data

Description Number of private houses constructed (2015/16

to 2017/18)
Private Residential 2015/16 2016/17 2017/18
House 16,065.00 18,601.00 13,534.00
Source: Ministry of Urban Development and Construction

The federal housing corporation is established to manage the house of the

government previously taken from different peoples during derg regime. The data
obtained from the corporation indicates that during the next five years the
corporation has a plan to construct 16,000 houses. The corporation has had a plan
also to construct 3,200 houses per annum in different areas of Addis Ababa city.
The constructed houses include Villa, G+0 up to G+35 floor building.

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The amount of housing unit that constructed using bricks, hallow blocks and stones
is 2% of the total housing unit population (Population and Housing census report,
2007). The future demand for ceramic tiles and sanitary ware is forecasted using
the last country wide census period (1994 &2007) annual average growth rate of
10 % of these housing units.

The effective demand for ceramic tiles and sanitary ware can best be determined
by estimating their per capita usage in housing unit. The apparent consumption of
ceramic products in the country that used in house construction and in house hold
equipment is divided for the housing units to get the per capita usage of each
housing unit. The average per capita usage of ceramic tiles and sanitary ware for
the past three years was 0.246 and 0.041 ton, respectively.

Table 4.3: Per capita usage of ceramic tile and sanitary ware
Year Housing Tiles Tile per- Sanitary Ware (SW) Per-
Units* production capita production and capita
and import usage(ton) import (ton) usage(ton)
(ton)
2015/16 761,390 153,346 0.201 22,577 0.030
2016/17 937,529 245,333 0.262 41,137 0.044
2017/18 921,282 251,914 0.273 45,580 0.049
Per capital Average 0.246 - 0.041
Source: *Ethiopian Central Statistic Authority

4.2.3. Demand for Ceramic Table Ware

The demand for table ware is best determined by the house holds while keeping
other things constant. Therefore, the demand for ceramic table ware here is
determined using the per-capita consumption of ceramic table ware in each
household. The average per capita usage of ceramic table ware for the past three
years was 0.00022.
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Table 4.4: Ceramic Table Ware Consumption
Year *Households Table Ware production + Per-capita
Import ( ton) Consumption
(ton)
2015/16 18,251,407 3,263 0.00018
2016/17 18,738,719 4,063 0.00022
2017/18 19,239,043 4,196 0.00022
Average PCC 0.00020
Source: *Ethiopian Central Statistic Authority

4.2.4. Demand for Ceramic Insulator

The demanders for ceramic insulator are Ethiopian Electric Utility to use it during
the expansion of electricity line. The demand for electricity power is increasing in
the country as the income of the nation is increasing along with the life style
change. According to the information from the Marketing and Distribution
department of the corporation their yearly demand for ceramic insulator is depicted
in the table below, which is without including the Universal Electrification
Program’s demand.

Table 4.5: Demand for Ceramic insulator by Ethiopian Electric Utility

Year Ceramic Insulator Demand (pc) Ceramic Insulator Total
Demand (ton) ceramic
Medium voltage Low Medium Low Insulato
voltage voltage voltage r
15kv 33kv 380-220v 15kv 33kv 380- demand
220v (ton)
2015/16 1,074,289 163,002 2,158,720 2,686 1,304 863 4,853
2016/17 1,396,575 156,681 2,432,320 3,491 1,253 973 5,718
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2017/18 1,815,548 159,999 2,432,320 4,539 1,280 973 6,792
Source: Marketing and Distribution department of Ethiopian Electric Utility
Note: To change the amount of insulator demand to ton we used the conversion
that the average 15 KV insulator piece weights 2.75 kg, 33 KV weights 8.1 kg
and busing insulator 17.5 KV weights 3.15 kg.

4.2.5. Demand Projection of Ceramic Products in Ethiopia

4.2.5.1. Demand Projection for Ceramic Tiles and Sanitary ware
The future demand for ceramic tiles and sanitary ware is forecasted using the
assumption that the past housing unit growth rate i.e 10% is expected to continue
in the future and using the average per- capita usage of 0.246 ton and 0.041 ton for
ceramic tiles and sanitary ware, respectively.

Table 4.6: Ceramic Tiles and Sanitary Ware Demand Forecast

Year Housing unit Demand for Demand for Sanitary
Tiles (ton) ware(ton)
2018/19 249,299 41,550
1,013,410
2019/20 274,229 45,705
1,114,752
2020/21 301,652 50,275
1,226,227
2021/22 331,817 55,303
1,348,849
2022/23 364,999 60,833
1,483,734
2023/24 401,499 66,916
1,632,108
2024/25 441,648 73,608
1,795,318
2025/26 485,813 80,969
1,974,850
2026/27 534,394 89,066
2,172,335
2027/28 2,389,569 587,834 97,972
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4.2.5.2. Demand Projection for Ceramic Table Ware
The future demand for ceramic table ware is forecasted using the assumption that
the past household growth rate i.e 2.67% is expected to continue in the future and
using the average per- capita usage of 0.00020 ton for ceramic table ware.

Table 4.7: Forecasted Demand for Ceramic Table Ware

year Households Demand for table ware (ton)
2018/19 3,951
19,752,725
2019/20 4,056
20,280,123
2020/21 4,164
20,821,603
2021/22 4,276
21,377,539
2022/23 4,390
21,948,320
2023/24 4,507
22,534,340
2024/25 4,627
23,136,007
2025/26 4,751
23,753,738
2026/27 4,878
24,387,963
2027/28 5,008
25,039,121

4.2.5.3. Demand Projection for Ceramic Insulator

The future demand for ceramic insulator is forecasted using the assumption that the
past insulator demand growth rate i.e 18% is expected to continue in the future and
this demand did not incorporate Universal Electric Power Supply Program
demand, because of this office use plastic insulator for rural area and translation.

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Table 4.8: Forecasted Demand for Ceramic Insulator
Year Demand for Ceramic Insulator (ton)
2018/19 6914
2019/20 7038
2020/21 7165
2021/22 7294
2022/23 7425
2023/24 7559
2024/25 7695
2025/26 7834
2026/27 7978
2027/28 8118

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4.3. Supply Analysis of Ceramic Products in Ethiopia
The supply of ceramic products emanates from both domestic production and
import.

4.3.1. Domestic Production of Ceramic Products

4.3.1.1. Existing Domestic Production of Ceramic Products
Based on Chemical &Construction Inputs Industry Development Institute data, the
actual production of sanitary ware, tile, table ware and insulator shows an
increasing trend for the past three years with a compound average growth rate
(CAGR) of 3.1%, 4.5%, 3% and 0.5%, respectively.

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Table 4.9: Production of Ceramic products, ton
Year Actual Production (ton)
Sanitary ware Tile Table ware Insulator Total
2015/16 11,585 32,438 927 1,390 10,79
7
2016/17 22,839 63,949 1,827 2,741 21,28
5
2017/18 23,547 66,827 1,882 2,754 21,92
4
Compound average 3.1% 4.5% 3.0% 0.5% 2.8%
growth rate(CAGR)
Source: Chemical & Construction Inputs Industry Development Institute

Based on Chemical &Construction Inputs Industry Development Institute data,

domestically there are two factories, namely, Diyuan Ceramic PLC and Tabore
Ceramic PLC, engaged in production of ceramic tiles, sanitary ware, table ware
and insulator.

Table 4.10: Existing Ceramic Manufacturing Companies Production Capacity

NO Company Name Design Capacity/Year
1 Diyuan Ceramic PLC 26,480,000 m2
2 Tabore Ceramic PLC 54,615 ton
Source: Chemical & Construction Inputs Industry Development Institute
4.3.1.2. New Entrants of Ceramic Factories
Based on Ministry of Industry data, there are two new entrants that plan to produce
ceramic products, namely, Meditak Ceramic PLC and Arerti Cermic PLC.

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  Meditak Ceramic PLC: its annual installed production capacity is 500,000
m2 wall and floor tile.
 Arerti Ceramic PLC: it has a plan to produce tile with 20,000 m2 /day at
its first phase on February 2009. Its aggregate installed production capacity
is 90,000 m2/day.

4.3.1.3. Supply Projection of Ceramic Products

The existing production of sanitary ware, tile, table ware and insulator is assumed
to continue for the coming years with an increasing compound average growth rate
of 3.1%, 4.5%, 3% and 0.5%, respectively.
Table 4.11: Future projection of ceramic products (ton)
Year Sanitary Tiles Table ware Insulator
ware
2018/19 24,277 69,834 1,938 2,768
2019/20 25,030 72,977 1,997 2,782
2020/21 25,805 76,261 2,056 2,796
2021/22 26,605 79,692 2,118 2,810
2022/23 27,430 83,278 2,182 2,824
2023/24 28,281 87,026 2,247 2,838
2024/25 29,157 90,942 2,315 2,852
2025/26 30,061 95,035 2,384 2,867
2026/27 30,993 99,311 2,455 2,881
2027/28 31,954 103,780 2,529 2,895

4.3.2. Import
Based on Ethiopian Custom and Revenue Authority, the import amount of
ceramics tiles, sanitary ware, table ware and insulator shows an increasing trend
for the past five years with average annual growth rate of 18 %, 21% and 7%
respectively.

Ceramic Factory Feasibility Study 26 | P a g e

Table 4.12: Import of Ceramic Products (ton)
Year Import (ton)
Wall and Floor Tiles Sanitary Ware Table Ware Insulator
2013/14 101,247 10,355 1,611 1,841
2014/15 114,128 11,672 2,205 1,686
2015/16 120,908 10,992 2,336 1,786
2016/17 181,384 18,298 2,236 1,830
2017/18 185,087 21,033 2,314 1,893
CAGR 16.28% 19.38% 9.47% 0.70%
Source: Ethiopian Custom and revenue Authority

4.4. Demand and Supply Gap of Ceramic Products in

Ethiopia
In the country more than 90% of the product is import with huge amount of foreign
currency. The people import these ceramic products for direct consumption due to
excessive shortage in the country. The demand supply gap analysis that made by
considering the import in demand side shows the existence of unsatisfied and
continuously increasing demand in the country. The calculated amount of
unsatisfied demand in the country shows that if the demand and supply situation
for ceramic products continuous with the same trend the gap of untouched demand
will get wide and wide in the coming years. Therefore, the quantitative market
demand supply gap analysis implies the domestic production as a supply and
import substitution must be accelerated in order to serve the foreseen unsatisfied
demand. Even if there is huge demand in local market high investment cost
requirement and working capital shortage may hesitate not to invest by new
investors.

Ceramic Factory Feasibility Study 27 | P a g e

 Table 4.13: Demand Supply Gap

Year Projected Demand for Ceramic Projected Supply of Ceramic Products Demand Supply Gap (ton)
Products (ton) (ton)
Sanitary Tiles Table Insulato Sanitary Tiles Table Insulato Sanitary Tiles Table Insulato
ware ware r ware ware r ware ware r
2018/19 41,550 249,299 3,951 6914 24,277 69,834 1,938 2,768 17,273 179,465 4,976 4,146
2019/20 45,705 274,229 4,056 7038 25,030 72,977 1,997 2,782 20,675 201,252 5,041 4,256
2020/21 50,275 301,652 4,164 7165 25,805 76,261 2,056 2,796 24,470 225,391 5,109 4,369
2021/22 55,303 331,817 4,276 7294 26,605 79,692 2,118 2,810 28,698 252,125 5,176 4,484
2022/23 60,833 364,999 4,390 7425 27,430 83,278 2,182 2,824 33,403 281,721 5,243 4,601
2023/24 66,916 401,499 4,507 7559 28,281 87,026 2,247 2,838 38,635 314,473 5,312 4,721
2024/25 73,608 441,648 4,627 7695 29,157 90,942 2,315 2,852 44,451 350,706 5,380 4,843
2025/26 80,969 485,813 4,751 7834 30,061 95,035 2,384 2,867 50,908 390,778 5,450 4,967
2026/27 89,066 534,394 4,878 7978 30,993 99,311 2,455 2,881 58,073 435,083 5,523 5,097
2027/28 97,972 587,834 5,008 8118 31,954 103,780 2,529 2,895 66,018 484,054 5,589 5,223

Ceramic Factory Feasibility Study 28 | P a g e

4.5. Market and Marketing Arrangement
In the country there is only one factory that engaged in the manufacturing of
ceramic products (table ware, sanitary ware, insulating and tiles). Due to the
shortage of supply in the country, the sale of factory product is contractual base
that held at the get of the factory. The buyers of the products are the government
agencies mainly Housing Agency and Ministry of Defense. The insulating
materials are bought by Ministry Defense while the rest have been sold for the
Housing Agency. The above mentioned buyers collect the produced materials and
transport by their own transport means by incurring cost up to the destination. The
sale is accomplished on contractual basis and the time and amount of installment of
payment is according to the agreement between producer/seller and both buyers.
On the other hand the imported ceramic products is distributed to customer through
wholesaler and retailer where the most payments are cash on hand and ownership
transfer is at the point of sale that the buyer transport the products by its own
means of transportation.

4.6. Value Chain

The raw material is obtained from both import and local sources. The major raw
materials such as Kaolin, Quartz, Fled spar, Silica sand, Lime stone are available in
the local market whereas, the other raw materials such as ball clay and spare parts
are bought from the foreign market. After manufacturing, the factory can supply its
products to the end users: Government organs, NGOs, Commercial firms and
private individuals.

29
Figure 4.1: Value Chain Diagram

Local areas (Kaolin, Feldspar, Foreign market (ball clay

Quartz, Silica sand, Limestone, and other inputs)
etc)

Producer

Government NGOs Commercial Private

organs Firms individuals

4.7. Price Analysis

Currently, the manufacturers sell their ceramic products by considering for
wholesale and retail margin, the factory-gate price for the product of the company
is estimated at as shown in the following table:

Table 4.14: The Company Selling price of ceramic tiles

product type Dimension Weight (kg/m2) Selling price
(Birr/ton)
Wall tile(Monoporosa) 150x150x6 10.56 138
150x200x6 10.56 154
200x300x7 12.32 170
floor tile 300x300x9 19.71 186
400x400x9 19.71 219
500x500x9 19.71 292

30
 450x450x9 19.71 259
600x600x10 19.71 340

4.8. Marketing Strategy

The marketing mix referred as 4P’s, product, price, place and promotion, involves
creating a unique blend of the right product, sold at the right price, in the right
place, using the most suitable methods of promotion. For a successful marketing
effort all the 4P’s should be maintained rightly and balanced. These controllable
elements should be adjusted until the right combination is found to serve the needs
of customers while generating optimum income.

A. Product
For this new project to meet its business objectives, it has to find out what
consumers require and then identify the best way in which it can satisfy these
needs and wants. The aim of producing ceramic products is to satisfy the product’s
end users and in return making profit. Therefore, the product produced by the new
project should meet customers’ expectations; it must benefit customers by doing
well the job it is supposed to do. Quality, attractiveness and reliability are the
features expected from the product.

B. Price
Pricing a product is an important and critical activity since it is the major factor in
determining revenue. If a lower price is fixed, it will affect the profitability of the
company, and if a higher price is fixed, the product will not be able to stand in
market competition and may be forced out of the market. Therefore, the right price
has to be fixed.

31
In general, price setting is done by selecting one of the two frequently used pricing
approaches. The simplest method is cost -based approach (Cost-plus pricing),
which involves adding a standard mark-up to the cost of the product, and
competition based approach (going-rate pricing), which bases its price largely on
competitors’ prices.

As the foregoing discussion pointed out, competition based or going rate pricing
approach is unavoidable as charging for a product more than the going rate would
not attract consumers and would eventually force the product out of the market.

C. Promotion
Market promotion is an important part of the marketing mix, as it is required to
create and increase consumer awareness, knowledge and readiness to buy through
media communications (advertising) and through special offers to trade and / or
consumers (sales promotion). However, it is important to realize that, on its own;
market promotion will not replace selling, change long -term trends, or build long-
term customer loyalty. It has to be supported by quality and distribution efficiency.

The envisaged factory is recommended to aggressively advertise its product by

distributing calendars, pamphlets as well as by participating in exhibitions and
bazaars. Moreover, in a competitive market, trade promotion should be made to
persuade or to make a product attractive for end users. Therefore, the envisaged
factory is recommended to offer discounts with the volume of product bought and
extend credit for one to two weeks.

D. Place or Distribution
Distribution refers to the distribution of the product to the consumers by the
producer while channel of distribution is the network of middlemen through whom

32
the products flows till it finally reaches to the hands of the actual users or
consumers.

Channel of distribution varies in its form and length from consumer goods to
industrial goods and within one class of goods; it varies from product to product.
For a consumer market a retailer is essential, whereas in the industrial market the
retailer can be eliminated. For a perishable commodity, the producer prefers few
and controlled levels of distribution, while for durable and standardized goods a
longer and diversified channel may be necessary. Size and average frequency of
customer’s orders also influence the channel decision.

The following are the main alternative distribution channels commonly used by
producers to reach consumers.

 Direct sale to consumers:

 Indirect sale through the medium of third party:
 A combination of both direct and indirect sale.
An ideal distribution system has economic benefits for both the manufacturer and
the consumer and it involves the manufacturer or the intermediaries offering the
right product, in the ‘right quantities’ at the ‘right price’ at the ‘right time’ with the
‘right appeal’.

33
IV. TECHNICAL ANALYSIS

5.1. Project Location and Site

The envisaged project will be located in Akaki Kality sub city, Kality area. The
location is ideal for clearing and receiving imported raw materials, distribution of
the final product to the major market center in Addis Ababa, and the location is an
industrial area where Government endeavours to ensure a continuous
(uninterrupted) supply of electricity and other utilities. This will significantly
reduce the logistical and distribution costs of the project. The presence of
widespread and large-scale construction project of residential, mixed use and
commercial buildings and can be considered as a good indicator of demand for the
products of the project.

The presence of well-established infrastructures such as telecommunication,

electricity and water supply contributes to a smooth operation of the project. The
project location is very close to a highway that leads to the Eastern, North eastern
and Southern parts of the Country and is close to a railway line / station, which
would be suitable for transporting finished products and imported raw materials.

At the project site all the necessary facilities, infrastructure and amenities are
readily available. There is ‘’all weather’’ transportation to the site both from port
(Djibouti) and from Addis Ababa. Hence locating the site just 25km from the area
where there is high demand is favourable/ conducive for the project’s operation as
it will help in reducing the cost of transportation and distribution. The total
landholding of the project should be good enough to make every necessary

34
construction and movement of any truck to load the product and unload the raw
materials.

5.2. Building and Civil works

The factory building (superstructure of the project) will be constructed from steel
and prefabricated structures. The structure will house the factory plant, store,
administration building, and other necessary facilities.

The total construction cost of the factory building and related works is estimated to
be Birr 75,773,814. Table 5.1 summarizes the breakdown of costs related to
building and constructions.

Table 5.1: Cost Estimates of Building Construction/Structures

No Description Amount (Birr)
1 Factory Building 46,584,941.19
2 Canteen And Fuel Depot 4,788,982.43
3 Garage And Workshop 1,121,110.08
4 Office And Administration 6,282,793.27
5 Staff Cafe And Show Room 3,861,484.41
6 Guard House (Two Blocks) 304,658.11
7 Site Work 5,208,205.87
8 Sanitary Work 1,454,200.39
9 Electrical Work 6,167,438.00
Total 75,773,813.75

35
5.3. Production Process and Technology

5.3.1. Production Process of Ceramics Products

Today Tiles, manufacturing is automated thought world, many of processing steps

are accomplished using automated equipment. The minerals are often refined or
beneficiated near the mine before shipment to the ceramic plant. The raw materials
must be pulverized and classified according to particle size. Primary crushers are
used to reduce large lumps of material. Either a jaw crusher or gyratory crusher is
used.

Once the raw materials are processed, a number of steps take place to obtain the
finished product. The selected milling processes for envisaged project are wet
milling. These steps include batching, mixing and grinding, spray-drying, forming,
drying, glazing, firing, sorting and packing. Each processing steps described in
flow chart as follow:

36
Figure 5.1 flow chart of tile production processes

37
 Figure 5.2 Layout of tile production processes
A. Raw Material Preparation
The raw material of the factory like clay necessary in ceramic tiles production are
available in the nearby areas of the factory within 100km radius, to mention some
places, around Mojo and Meki towns. Once the clay, other raw materials and
additives considered necessary in ceramic tiles production filled prepare the
composition for subsequent forming or molding processes with the approach for
preparation with wet method in which the clay and other compositional institute
are mixed with water for grinding or milling in rotating mill. Preparation includes:
I) Batching: Tile body composition is determined by the amount and type of
raw materials. The raw materials also determine the color of the tile body, which
can be red or white in color, depending on the amount of iron-containing raw
materials used. Therefore, it is important to mix the right amounts together to
achieve the desired properties. Batch calculations are thus required, which must
take into consideration both physical properties and chemical compositions of

38
 the raw materials. Once the appropriate weight of each raw material is
determined, the raw materials must be mixed together.

II) Mixing and grinding: Once the ingredients are weighed, they are added
together into a shell mixer, ribbon mixer, or intensive mixer. A shell mixer
consists of two cylinders joined into a V, which rotates to tumble and mix the
material. A ribbon mixer uses helical vanes, and an intensive mixer uses rapidly
revolving plows. This step further grinds the ingredients, resulting in a finer
particle size that improves the subsequent forming process. Sometimes it is
necessary to add water to improve the mixing of a multiple-ingredient batch as
well as to achieve fine grinding. This process is called wet milling and is often
performed using a ball mill. The resulting water-filled mixture is called a slurry
or slip. The water is then removed from the slurry by filter pressing (which
removes 40-50 percent of the moisture), followed by dry milling.
III) Spray drying: If wet milling is first used, the excess water is usually
removed via spray drying. This involves pumping the slurry to an atomizer
consisting of a rapidly rotating disk or nozzle. Droplets of the slip are dried as
they are heated by a rising hot air column, forming small, free flowing granules
that result in a powder suitable for forming.

Tile bodies can also be prepared by dry grinding followed by granulation.

Granulation uses a machine in which the mixture of previously dry-ground
material is mixed with water in order to form the particles into granules, which
again form a powder ready for forming.

B. Forming

39
Most tiles are formed by dry pressing. In this method, the free flowing powder
containing organic binder or a low percentage of moisture flows from a hopper into
the forming die. The material is compressed in a steel cavity by steel plungers and
is then ejected by the bottom plunger. Automated presses are used with operating
pressures as high as 2,500 tons.

Several other methods are also used where the tile body is in a wetter, more
moldable form. Extrusion plus punching is used to produce irregularly shaped tile
and thinner tile faster and more economically. This involves compact a plastic
mass in a high-pressure cylinder and forcing the material to flow out of the
cylinder into short slugs. These slugs are then punched into one or more tiles using
hydraulic or pneumatic punching presses.

Ram pressing is often used for heavily profiled tiles. With this method, extruded
slugs of the tile body are pressed between two halves of a hard or porous mold
mounted in a hydraulic press. The formed part is removed by first applying
vacuum to the top half of the mold to free the part from the bottom half, followed
by forcing air through the top half to free the top part. Excess material must be
removed from the part and additional finishing may be needed.

C. Drying

Ceramic tile usually must be dried (at high relative humidity) after forming,
especially if a wet method is used. Drying, which can take several days, removes
the water at a slow enough rate to prevent shrinkage cracks. Continuous or tunnel
driers are used that are heated using gas or oil, infrared lamps, or microwave
energy. Infrared drying is better suited for thin tile, whereas microwave drying
works better for thicker tile. Another method, impulse drying, uses pulses of hot air
40
flowing in the transverse direction instead of continuously in the material flow
direction.

D. Glazing

To prepare the glaze, similar methods are used as for the tile body. After a batch
formulation is calculated, the raw materials are weighed, mixed and dry or wet
milled. The milled glazes are then applied using one of the many methods
available. In centrifugal glazing or discing, the glaze is fed through a rotating disc
that flings or throws the glaze onto the tile. In the bell/waterfall method, a stream
of glaze falls onto the tile as it passes on a conveyor underneath. Sometimes, the
glaze is simply sprayed on. For multiple glaze applications, screen printing on,
under, or between tiles that have been wet glazed is used. In this process, glaze is
forced through a screen by a rubber squeegee or other device. Dry glazing is also
being used. This involves the application of powders, crushed frits (glass
materials), and granulated glazes onto a wet-glazed tile surface. After firing, the
glaze particles melt into each other to produce a surface like granite.

E. Firing

After glazing, the tile must be heated intensely to strengthen it and give it the
desired porosity. The tile is dried slowly and at high humidity, to prevent cracking
and shrinkage. Next, the glaze is applied, and then the tile is fired in a furnace or
kiln. Although some types of tile require a two-step firing process, wet-milled tile
is fired only once, at temperatures of 2,000 degrees Fahrenheit or more. Kilns are
used for firing tile. Firing processes take place in a continuous kiln, which consists
of a chamber through which the ware is slowly moved on a conveyor on refractory
bats shelves, built of materials that are resistant to high temperatures or in
41
containers called Saggers. Firing in a tunnel kiln can take two to three days, with
firing temperatures around 2,372 degrees Fahrenheit (1,300 degrees Celsius).

For tile that only requires a single firing usually tile that is prepared by wet milling
roller kilns are generally used. Firing times in roller kilns can be as low as 60
minutes, with firing temperatures around 2,102 degrees Fahrenheit (1,150 degrees
Celsius) or more.

F. Sorting and packing

After firing and testing the tile is packaged and shipped in automatic handling
system.

G. Source of raw material

5.3.2. Planned Machinery and Equipment

The planned machineries and equipment’s for the project include Water treatment
machine, Washing machine, capping & Labeling machine, PET Stretch Blow
Moulding unit machine, Automatic group packing machine and Conveyor. The
total machinery and equipment cost is Birr 223,360,594.69. Table 5.2 summarizes
the breakdown of costs related to machinery and equipment’s.

Production machinery for Tiles is selected based on technology and production

capacity. The planned machineries and equipment’s for the project include
Complete roller hearth kiln plant with wet milling and spray drying system consist
of: Batching and mill feeding equipments, slip preparation equipments, Powder
spray-drying and storage equipments, Press loading machines, Pressing and fast
42
drying equipment, Glaze preparation equipment, glazing equipment, firing system,
handling and storage equipment, sorting and packing, digital graphics laboratory
equipment, silk screen printing laboratory equipments, research laboratory
equipments, Auxiliary installation and spare parts. The total machinery and
equipment cost is Birr 223,360,594.69, which include Birr 194,381,777.58 for
machinery cost and Birr 28,978,817.11 for spare part and other related costs. Table
5.2 and Table 5.3 summarizes the breakdown of costs related to machinery and
equipment’s.

43
Table 5.2: Machinery list and its cost

No. Descriptions Unit Qty U. Price Total Price

1 Batching and mill feeding PCS 1 88,100.00 88,100.00
2 Slip preparation PCS 1 505,900.00 505,900.00
3 Powder spray-drying and PCS 1 612,600.00 612,600.00
storage
4 Press loading PCS 1 85,400.00 85,400.00
5 Pressing and fast drying PCS 1 1,616,700.00 1,616,700.00
6 Glaze preparation PCS 1 245,600.00 245,600.00
7 Glazing PCS 1 250,000.00 250,000.00
8 Firing PCS 1 1,184,300.00 1,184,300.00
9 Handling and storage PCS 1 267,000.00 267,000.00
10 Sorting and packing PCS 1 140,100.00 140,100.00
11 Digital graphics laboratory PCS 1 64,200.00 64,200.00
12 Silk screen printing PCS 1 36,300.00 36,300.00
laboratory
13 Research laboratory PCS 1 94,000.00 94,000.00
14 Auxiliary installation PCS 1 109,000.00 109,000.00
Subtotal in EURO 5,299,200.00
Sea Freight (3%) 158,976.00
Total cost in Euro 5,458,176.00
Total Cost in Birr 178,331,906.04
Cost build up (inc. insurance, bank charge, port handling, 16,049,871.54
loading, unloading, clearing and forwarding, local transport etc)
(9%)

44
 Total in Birr 194,381,777.58

Furthermore spare parts for machine that include erection drawing, drawing for
concrete foundation relevant to the machine and metal frame, drawing indicate
dimension of the reinforced concrete tanks for water and slip, working drawing for
hopper, spray dried material, for glaze tank etc.,

Table 5.3: Spare parts and other related costs

No. Descriptions Unit Qty U. Price Total Price
1 Spare part 486,800.00 486,800.00
2 Engineering 20,000.00 20,000.00
3 know-how 41,950.00 41,950.00
4 Training 86,200.00 86,200.00
5 Technical assistance 252,000.00 252,000.00
Subtotal in EURO 886,950.00
Total cost in Birr 28,978,817.11

5.3.3. Production Capacity and Capacity Utilization

The theoretical production capacity of the factory is determined based on the
following underlying assumptions:-
 Working Days per annum 300
 Working Hours per shift 8
 Number of Shifts per day 3

The project estimated production capacity (kiln output) glazed wall and floor tiles
with red body m2/day theoretical capacity is 5000m2/day; however, its production
capacity vary based on size of tiles and tabulated as follow:

45
Table 5.4: Annual Production capacity of plant in m2/day with it Tile size and mix
respective
product Dimension Mix M2/ Weight product/ Annual Annual
type day (kg/m2 m2 per production prodn/to
) annum in kg n
Wall tile 150x150x6 5% 0 10.56 75,000 792,000.00 792.00
150x200x6 15% 0 10.56 225,000 2,376,000.00 2,376.00
200x300x7 20% 1 12.32 300,000 3,696,000.00 3,696.00
floor tile 300x300x9 8% 0 19.71 120,000 2,365,200.00 2,365.20
400x400x9 8% 0 19.71 120,000 2,365,200.00 2,365.20
500x500x9 8% 0 19.71 120,000 2,365,200.00 2,365.20
450x450x9 18% 1 19.71 270,000 5,321,700.00 5,321.70
600x600x10 18% 1 19.71 270,000 5,321,700.00 5,321.70
Total 1,500,000 24,603,000 24,603

Similarly, it is planned that the factory will start its production by utilizing 60% of
its capacity in first year & reaches 90% at year four. The detail is illustrated in the
following table.

Table 5.5: Capacity Utilization

Project Year Capacity Utilization for existing
Rate
1 60%
2 70%
3 80%
4 90%

46
5.4. Auxiliary items
In order to run the project successfully auxiliary materials such as Generator, Air
compressor, Workshop tools, Workshop machinery are incorporated with the main
planned machinery & equipment’s. The total cost of auxiliary equipment is
estimated to birr 6,593,994.49. Detail cost breakdown of auxiliary items are
attached in annex part of the study.

Table 5.6: List of Auxiliary equipments and their cost

No. Description Unit Qty U. Price Total Price
(Birr) (Birr)
Generator and Air Compressor
1 Generator Set Model Pgs1250, SET 1 6,230,789.0 6,230,789.0
Rating 1250kva (1000kw 0 0
@0.8pf)
2 Air Compressors, Model: PCS 1 47826.09 47826.09
B6000/500ct
Work Shop Tools
1 Electrical Diagonal Cutting Pleir PCS 1 1268 1268
10mm. Beta
2 Electrical Wire Striping Plier PCS 1 795 795
160mm
3 Allen Rench Set 1.5-12mm SET 1 529 529
4 Electrical Utility Knife Beta Italy PCS 1 652 652
5 Flat Screw Driver SET 6 312 1872
6 Philiphes Screw Driver SET 5 316.8 1584
7 Crimping Plaier Beta Italy PCS 1 394 394
8 Digital Multi Meter Beta Italy PCS 1 3520 3520
9 Test Light PCS 1 175 175
10 Digital Clamp Meter PCS 1 4270 4270
11 Heavy Duty Pipe Wrench 8" Beta PCS 1 752 752
Italy
12 Heavy Duty Pipe Wrench 10" PCS 1 905 905
Beta Italy
13 Heavy Duty Pipe Wrench 14" PCS 1 1305 1305
47
No. Description Unit Qty U. Price Total Price
(Birr) (Birr)
Beta Italy
14 Heavy Duty Pipe Wrench 18" PCS 1 1920 1920
Beta Italy
15 Heavy Duty Pipe Wrench 24" PCS 1 4110 4110
Beta Italy
16 Rivet Gun Beta Italy PCS 1 996 996
17 Two Leg Universal Puller 25- PCS 1 1920 1920
130mm Beta
18 Two Leg Universal Puller 80- PCS 1 8390 8390
350mm Beta
19 Three Leg Extractor 40-220mm PCS 1 4280 4280
Beta
20 Three Leg Extractor 80-250mm PCS 1 6080 6080
Beta
21 Vernier Caliper 150mm Beta PCS 1 1400 1400
Italy
22 Screw Pitch Gauge Beta Italy PCS 1 369 369
23 Feeler Gauge Beta Itally PCS 1 285 285
24 Ring Rench 6-32mm Beta Italy SET 1 4976 4976
25 Hydraulic Pipe Bending 1/2"-2" PCS 1 30159 30159
Mega-Spain
26 Oxy-Acetylene Cutting And SET 1 24750 24750
Welding Torch With Regulator
Mujuni-Italy
27 Hydraulic Trolly Jack 3ton Mega- PCS 1 17500 17500
Spain
Sub Total 125,156.00
VAT 15% 18,773.40
Total 143,929.40
Work Shop Machinery
1 Lath Machine 1m PCS 1 165000 165000
2 Impact Drill 13mm PCS 1 850 850
3 Bench Grinder 6" PCS 1 750 750
4 Hand Grinder 180mm PCS 1 1800 1800
5 Chain Block 2 Ton PCS 1 1500 1500
6 Bench Vise 200m Swivel PCS 1 1550 1550
48
 No. Description Unit Qty U. Price Total Price
(Birr) (Birr)
Sub Total 171,450.00
Grand Total 6,593,994.4
9

5.5. Vehicles and Earth moving Machineries

The company will procure different vehicle for transportation of raw material,
finished tiles and for managerial supervision. As a result the company plan to
purchase different vehicle at cost of Birr 31,008,251.37 as described in the
following table as follow:

Table 5.7: Vehicles and Earthmoving machineries list and cost

No Description Uom Qty Unit Cost Total Cost
(Birr) (Birr)
Vehicles
1 IVECO Dump Truck with PCS 5 4,250,000.0 21,250,000
Mammut 3-Axel drawbar 0
trailer,
2 Toyota HI-LUIX P/UP PCS 2 857,125.69 1,714,251
double cabin
3 Toyota HIACE Minibus PCS 1 663,000.00 663,000
4 Fireght vehicles with 60 PCS 2 670,000.00 1,340,000
quintal capacity
5 Marco polo bus 38+1, seating PCS 1 1,005,000.0 1,005,000
0
6 Marco polo bus 28+1, seating PCS 1 890,000.00 890,000
Sub totals 12 26,862,251.37
Earth moving machineries
7 Forklift PCS 2 1,323,000.0 2,646,000.00
0
49
 8 Loader , Bucket Capacity: PCS 1 1,500,000.0 1,500,000.00
3M3 0
Sub totals 3 4,146,000.00
Grand Total cost in Birr 31,008,251.37

5.6. Office Furniture and Equipment

Office furniture and equipment’s are also vital and important for the project. The
cost of planned furniture and equipment’s is Birr 674,708.46. The detailed is
depicted in the table below.

Table 5.8:- Office Furniture and Equipment’s.

No Description Unit Qty U. Price Total Price
(Birr) (Birr)
Office Furniture
1 Executive Table PCS 1 15608.69 15608.69
2 High Back Chain Leather PCS 1 8260.86 8260.86
3 Guest Chair Metal Leg PCS 6 5173.91 31043.46
4 Three Door Shelf PCS 1 13,000.00 13000
5 Office M.Tabel 1.60 PCS 4 8652.17 34608.68
6 High Back M.Chair PCS 4 12608.69 50434.76
7 L-Shape Tabel 1.5m PCS 4 6913.04 27652.16
8 Medium Back Chair PCS 4 6043.47 24173.88
9 Office Tabel 1.40 Singel Pedistal PCS 8 5173.91 41391.28
10 Low Back Chair PCS 6 2173.91 13043.46
11 Conference Tabel 4.80 PCS 1 43434.78 43434.78
12 Guest Chair Conference Chair PCS 20 5173.91 103478.2
13 File Cabinet 4 Drawer Wooden PCS 4 4782.6 19130.4
14 Office Fabric Reception Sofa PCS 1 31260.86 31260.86
Sub Total 456,521.47
Office Equipment
1 Dell Optiplex Gx 7010 Set,500gb Pcs 15 11286.96 169,304.40
Hard Disk,4gb Ram,64bit Bus
Speed
2 Hp Leser Jet 1102 Printer Brand Pcs 6 2913.04 17,478.24
New
50
 3 Cannon Ir 2420 Copier Brand New Pcs 1 23304.35 23,304.35
4 Fax Machine,Hp 1536 Laser Jet 4 Pcs 1 5900 5,900.00
In 1
5 Hp Scan Jet 2710 Scaner Pcs 1 2200 2,200.00
Total Cost in Birr 218,186.99
Grand Total cost in Birr 674,708.46

5.7. Raw materials

Raw material used for ceramic tiles are kaolin, feldspar, ball clay or plastic clay,
silica sand, lime stone, fritz glaze and additive and discussed as follow:

I) Kaolin
Kaolin is white, soft, light colored plastic fire clay (ball clay) mainly composed
of fine grained platy minerals and kaolinite which used as a skeleton former,
are used as bonding agent for fabrication of ceramic products. The most
important properties of kaolin are plasticity, strength, fired color, drying and
firing shrinkage. Dry or wet dressing of raw kaolin composed of SiO 2 (up to
70%), Al2O3 (up to 22%), Fe2O3 (up to 1.5%), CaO+MgO+alkalis (Up to 3%)
and characterized by refractoriness about 1535oC.
Large quantity of kaolin available locally and largely produced by Ethiopian
mineral development enterprise in the country.

II) Feldspar
Feldspar is the most common raw material for ceramic tiles production and it is
the most common mineral on face of earth- making more than half of earth
crust. Feldspar is important ingredient in clay bodies and glazes. Its primary
function is to supply flux to the material preparation but they also provide
additional silica (SiO2), alumina (Al2O3). It is a natural occurring mineral and it
51
is generally classified as either potash (potassium) soda (sodium) feldspar
based upon predominant alkali metal element (flux).
Large quantity of Feldspars is available locally and largely produced by
Ethiopian mineral development enterprise.

III) Plastic or ball clay

Ball clays are sedimentary clays, that common it consist of 20-80% kaollinite,
10-25% mica, 6-65% quartz. It is fine dark grained turned white or nearly
white when fired and plastic in nature. Ball clay is a rare mineral, found in very
few place around the world.

IV) Quartz
Quartz is common raw material ceramic tiles making industry; it is hard
colorless, transparent crystalline minerals with varieties. It is used in glass
ceramic making, for foundry, and hydraulic fracturing applications.

V) Silica
Silica sand is used in making of glass and ceramic tiles, casting in industrial
processing due to its high melting point. It is used as filler along with quartz. It
is abundantly available in the mugger valley and around Enticho Adigrat
Tigray region.

VI) Lime stone

Lime stone used for ceramic tile production mainly for cost reduction purpose
and used as filler. It added in small amount as filler to reduce fired shrinkage.

52
 It is abundantly available in the Degachesibi, Hakim Gara, Wonchit, jimma
and Mugger valley and around Enticho Adigrat Tigray region.

VII) Fritz glaze

Glazes are used for appearance but they also help improve other physical
properties such as strength and imperviousness. Glaze materials are very
smooth and this makes the cleaning easier. It is imported from abroad.

VIII) Additive
The additives used for the production of ceramic tiles include deflocculants
and decorating materials. It helps to impart a charge to the surface of clay
particles. Decorating materials are used to increase the aesthetic value of the
ceramic product.

IX) Pitcher
Tiles pitcher is the broken ceramic tiles during manufacturing processes.

The raw materials used for the tiles production process is Kaolin, Field spar,
Plastic clay, Quartz, Magnesium silicate & frits. All raw material except frits
availably abundantly in Ethiopia as a result it will be sourced locally. However the
firt chemical will imported from foreign market from china, India, Turkish & the
like & could be easily accessible if foreign currency available timely. The detail
cost is depicted in the annex part under operating cost.

Table 5.9: Potential areas of Major raw materials in Ethiopia

Types of Area Provinces Name of Deposit Minerals in Million
Deposits tons
53
 Feldspar Oromiya Kenticha Feldspar 0.50
Quartz Oromiya Kenticha Quartz 0.53
Vein quartz Oromiya Kenticha Vain 0.30
quartz
Kaolin Southern Nation, Bombowha Kaolin 0.30
Nationalities & Peoples
Region (SNNPR)
Oromiya (E. Hararghe) Kombelcha Kaolin 0.29
Silica sand Fetra, Muger, and Entcho 212.5 and 3.413
respectively of the
areas.

Source: Geological Survey of Ethiopia

Ethiopia Minerals, Petroleum and bio fuel Corporation is the sole and large scale
order base producer of Kaolin, Quartz and feldspar in the country with an annual
installed production capacity of 7500 ton Kaolin, 5000 ton Quartz and 5000 ton
Feldspar.

5.8. Utility Requirement

The main utility in the production ceramic Tiles is electric power and water. The
companies required 2MW electric power for overall plant. On top of that, for
contingency purpose one stand by generator having 1000kw power capacity will be
procured at a cost of Birr 6,230,789.00 million. The generator will ensure
continuous power supply during power blackout from EEPCO. Regarding the
water supply, the company will dig one Borehole at estimated cost of Birr
1,610,231.84 million and for auxiliary machinery like compressor, work shop
machinery and tools will cost birr 363,205.49.

54
Table 5.10: Detail breakdown of Borehole cost
No Description Unit Qty Unit Total cost
Price (birr)
(birr)
1 General Items
1.1 Mobilization And Demobilization Of Drilling Ls 1 196441. 196441.6
Ring, Accessories As Well As Constaruction 6
Equipment
1.2 Site Clearing Befor Eand After Complition Of Ls 1 52980 52980
The Project
2 Drilling
2.1 Drilling In Soft Formation, 14 3/4" Well Diameter M 6 5500 33000
2.2 Drilling In All Formation, 10" Well Diameter M 124 5200 644800
3 Well Logging
3.1 Lithological Logging Ls 1 28900 28900
4 Supply And Installation Casing
4.1 12" Id Steel Surface Casing M 6 5950 35700
4.2 6" Id Pvc Blind Casing M 91 1200 109200
4.3 6" Id Pvc Screen Casing M 39 1500 58500
4.4 3/4" G.I. Observation Pipe (Class B) M 124 390 48360
5 Well Completion
5.1 Supply And Instal Clean, Rounded And Sorted M3 7 3900 27300
Natural Filter Gravel(6-9mm)
5.2 Well Cleaning And Development By Air Filtering Hr 10 4500 45000
Method
5.3 Supply And Place Paddle Clay Seal M3 1 1500 1500
6 Sanitary And Protection Work
6.1 Grout With Mass Concrete To 6m Depth Ls 1 8200 8200
6.2 Construct Rcc (C-25), Trapizoidal/Sledge Type Ls 1 1200 1200
Well Head
7 Conduct Test Pumping
7.1 Conduct Provision Test Hr 2 4700 9400
7.2 Conduct Step Drawn Down Test Hr 8 2250 18000
7.3 Conduct Constant Rate Test Hr 24 2250 54000
7.4 Monitor Recovery Test Hr 12 980 11760
8 Water Quality Analysis
8.1 Physico-Chemeichal Analysis TEST 1 5460 5460
9 Well Complition Report, One Electronic And Ls 1 10500 10500
Two Hard Copies
SUB TOTAL 1,400,201.60
VAT 15% 210,030.24
TOTAL 1,610,231.84

55
5.9. Project Implementation Schedule
The major activities required during the implementation phase are loan contract
signing and registration, L/C opening, building and construction, procurement of
planned machinery & auxiliary equipment’s, procurement of vehicles, sea and
inland transportation, installation of machineries and equipment’s, procurement of
office furniture and equipment’s, recruitment and training of new employees, trial
production and commence operation. The implementation activities are expected to
start in July 2019 and will be completed in October 2020. Hence, the overall
implementation works require a period of 16 months. Detail implementation
program is shown below:

56
Table 5.11: Project Implementation Schedule

2019 2020

September

September
November
December

February
January
October

October
August

August
March
No Type of Activities

April

June
May
July

July
1 Loan processing
2 Building and Construction
Procurement of Machineries and
3
Equipment’s
Procurement of Auxiliary
4
equipment’s
5 Procurement of Vehicles
Sea & Inland Transportation and
6
delivery
Installation of Machineries and
7
Equipment’s
Recruitments and Training of New
8
Employees
Procurement of Office furniture and
9
Equipment’s
10 Running Test for starting operation
11 Operation commencement

57
VI. OPPORTUNITIES AND THREATS

6.1. Opportunities
 Favorable Investment Policy and Strategies: To encourage private
investment, the Ethiopian government has developed a package of
incentives under regulation No.84/2003 for domestic and foreign
investors engaged in new enterprises and expansions, across a range of
sectors.
 Huge demand in the local market: This output has huge demand in the
domestic market. Therefore, excess demand is the major key driver and
an opportunity for expansion and development of this sector.
 Improved infrastructure facilities and accessibility of basic utilities, like
electricity, water Telephone etc.
 A continuously increasing GDP Growth which highlights a positive trend
of economic growth.
 Increasing consumption of ceramic products in line with the growth of
the economy.
 The change in well being and attitude of the society for better life which
includes having better housing, better infrastructure, etc.
 There is a fast growth in construction sector in the country.

6.2. Threats
 The emergence of new entrants to the industry: Nowadays, in developing
countries the flourishing number of new entrants to the ceramic products
with new marketing strategy has serious impact on such manufacturing
project.
58
 Rising costs of fuel: Increase in price of fuel in future because ceramic
factory consuming high fuels, since most of the operations are run by the
fuel energy.

59
VII. ORGANIZATION AND MANAGEMENT

7.1. Organizational Structure

This company will engaged in manufacturing of ceramics product and it requires a
large number of human powers employed to facilitate the process. In the
organization, different hierarchical levels require managing the activities of the
plant activities from starting to the end product delivery and marketing process.
Based on the operation and achievement of the desired goal for the establishment
of the project and strive to make a reasonable profit and operate in a cost effective
manner, it is vital to properly structure the organization set up of the factory.
The project is planned to be headed by the General Manager, who is responsible to
control the activities of all staffs of the organization. Under the General Manager,
major operations are performed by the middle level managements consist of
Technical & production dep’t head, marketing department head, Administration &
Finance department head, General Service department head and other technical
staffs, subordinate and assistant workers will be assigned under all departments as
consider necessary. Summarized organizational structure of the project depicted on
the following chart.

The proposed organization structure for the company is presented in Figure 7.1
below.

60
Figure 7.1: Organizational Structure of the Factory

7.2. Management
The availability of managerial staff and skilled labor is a crucial factor for success
of a project. A manager or supervisor of any firm should be equipped with
appropriate qualifications and experience for the success of an organization under
his supervision.
In this regard, the project is expected to recruit competitive members of
management which are widely available in the market.

7.3. Manpower
The required manpower with different disciplines and casual laborers will be hired
by the project from the project area and the nearby towns. The project will hire a
total of 167 permanent workers at the commencement of full operation. The labor
61
force for the project is a combination of professionals, semi-professionals and non-
professionals.
The Plant requires technical, production and administrative manpower. The table
below indicates the details of manpower requirement with their respective wages
and salaries.

Table 7.1: Manpower Requirement of the Company

S/N Job Positions No Monthly Annual

salary (Birr) Salary (Birr)
General Manager Office
1 General manager 1 25,000 300,000
2 Executive secretary 1 4,000 48,000
3 Lawyer 1 7,000 84,000
4 Legal Advisor 1 5,500 66,000
Sub Total 4 498,000
Production Department
1 Production Department Manager 1 20,000 240,000
2 Secretary 1 4,000 48,000
3 Production Division Head 1 10,000 120,000
4 Production Supervisor 3 4,000 144,000
5 Production Clerk 1 3,200 38,400
6 Trainee technologist 1 3,500 42,000
7 Loader and Forklift Operator 3 4,000 144,000
8 Body and Glaze Preparation Operator 3 4,000 144,000
Technician
9 Assistant Body and Glaze Preparation 2 4,000 96,000
Operator Technician
10 Body and Glaze preparation Worker 3 4,000 144,000
11 Spray Dryer Operator Technician 3 4,000 144,000
12 Assistant Spray Dryer Technician 3 4,000 144,000
13 Press Machine Operator Technician 3 4,000 144,000
14 Assistant Press Machine Operator 3 4,000 144,000
Technician
15 Press machine Production workers 6 6,000 432,000

62
S/N Job Positions No Monthly Annual
salary (Birr) Salary (Birr)
16 Glazing Worker 4 2,000 96,000
17 Glost Product workers 6 2,000 144,000
18 Finished Product Sorting and Packing 2 2,000 48,000
Operator Technician
19 Finished Product Sorting and Packing 9 2,000 216,000
Workers
Sub-total 58 2,672,400
Quality Assurance, Research and
Development
1 Quality Assurance, Research and 1 15,000 180,000
Development Department Manager
2 Senior Secretary 1 4,000 48,000
3 Quality Assurance Division Head 1 10,000 120,000
4 Senior Quality Assurance expert 1 8,000 96,000
5 Quality Assurance expert 2 4,500 108,000
6 Laboratory Analyst 3 8,000 288,000
7 Sampler 2 7,000 168,000
8 Research and Development Division 1 10,000 120,000
Head
9 Senior R & D expert 1 8,000 96,000
10 R & D expert 2 8,000 192,000
11 Modeller 2 4,500 108,000
12 Designer 1 4,800 57,600
13 Assistant Designer 1 3,000 36,000
Sub total 19 1,617,600
Administration and Human Resource
Development Department
1 Administration and Human Resource 1 15,000 180,000
Development Department Manager
2 Senior Secretary 1 4,000 48,000
3 Personnel and Training Division Head 1 10,000 120,000
4 Personnel Officer 1 5,000 60,000
5 Training Officer 1 5,000 60,000
6 Personnel Clerk 2 5,000 120,000
7 Time Keeper 2 2,000 48,000
8 Archive and documentation Head 1 5,000 60,000
63
S/N Job Positions No Monthly Annual
salary (Birr) Salary (Birr)
9 General Service Supervisor 1 5,000 60,000
10 Messenger and Cleaner 6 1,200 86,400
11 Telephone Operator and Receptionist 1 3,200 38,400
12 Gardner 3 3,000 108,000
13 Driver Grade III(heavy truck driver) 2 3,000 72,000
14 Driver Grade II(service drivers) 6 3,000 216,000
15 Driver Grade I(light Automobile) 5 3,000 180,000
16 General Service Worker 1 3,000 36,000
17 Heavy Truck Driver Assitant 2 3,000 72,000
18 Shift Security Head 2 3,000 72,000
19 Security 8 2,100 201,600
Sub Total 47 1,838,400
Finance Department
1 Finance Department Manager 1 15,000 180,000
2 Senior Secretary 1 4,000 48,000
3 Cost and Budget Division Head 1 10,000 120,000
4 Senior Accountant 1 7,500 90,000
5 Accountant 2 5,000 120,000
6 Junior Accountant 3 4,500 162,000
7 Accounting Clerk 1 3,000 36,000
8 Cashier 2 3,000 72,000
Sub total 12 828,000
Marketing Department
1 Marketing Manager 1 15,000 180,000
2 Secretary 1 4,000 48,000
3 Sales Division Head 1 10,000 120,000
4 Sales clerk 1 2,500 30,000
5 Finished Product Store Head 1 10,000 120,000
6 Finished Product Assistant 1 7,500 90,000
7 Senior Marketing Expert 1 6,500 78,000
8 Marketing Officer 1 4,500 54,000
Sub Total 8 720,000
Purchasing and Property
Administration Department
1 Purchasing and Property Administration 1 15,000 180,000

64
S/N Job Positions No Monthly Annual
salary (Birr) Salary (Birr)
Department Manager
2 Senior Secretary 1 4,000 48,000
3 Purchasing Division Head 1 10,000 120,000
4 Purchaser 2 4,000 96,000
5 Property Administration Division Head 1 10,000 120,000
6 Store Head 2 4,500 108,000
7 Store Head Assistant 2 4,500 108,000
8 Store labourer 8 2,500 240,000
9 Inventory Controller 1 2,500 30,000
Sub Total 19 1,050,000
Total 167 9,224,400

65
VIII. ENVIRONMENTAL IMPACTS AND SOCIO ECONOMIC
BENEFITS
8.1. Environmental Consideration of Ceramic Industry

8.1.1. Environmental Impacts

It’s known that ceramic industry is one of the energy intensive industries. In line
with energy consumption the environmental impacts of the industry is also
considered. Pollution aspects related to the ceramic industry are mainly due to dust
emission both in workplace and in ambient air. Other air pollution sources are from
fuel combustion in kilns and dryers. The pollutants in the stack emissions will
depend on the type of fuel used. The major impacts of ceramic factory are
specifically considered below:

Effluents: Spent lube oils from garage and workshops could be a cause for
concern if discharged into the sewer system, because they tend to coat surfaces
causing maintenance problems. Also, if they discharged to surface waters, they can
interfere with the aquatic life in these surface waters and create unsightly floating
matter and films.

Solid Wastes: The type of solid wastes varies from suspended matter, sledges,
chemicals, paints, glazes, fired defaulted products, to damaged equipment. If these
wastes manifest hazardous characteristics they considered as hazardous wastes,
and should be safely disposed. The disposal of sludge and fired defaulted products
of ceramic industries is proving to be an important issue because of their volume.
Process waste originating from the manufacture of ceramic products mainly
consists of sludge from process wastewater treatment and process sludge resulting
from glazing, plaster, and grinding activities. Other process wastes include broken
66
ware; solids from dust treatments; spent plaster molds; and packaging waste (e.g.
plastic, wood, metal, paper).

Noise impact (specific to factory site): Constant noise from ceramic factories
causes an increase in blood pressure, and may affect the nervous system of workers
on that line. Moreover, it can reduce a person’s attention and concentration, and
cause hearing loss as a result of long periods of exposure.

Air Emissions: Particulate emissions (dust) may be generated from storage and
handling of raw materials and during firing or spray drying of ceramics. Kiln
operations can generate nitrogen oxide (NOx) and sulfur dioxide (SO2). The
volume of these pollutants depends on the type of fuel and the temperature of the
kiln. Chlorides and fluorides are pollutants found in waste gases from ceramic
kilns, and are generated from impurities in clay materials. The heavy metal content
of most ceramic raw materials is generally low and of limited concern, with the
exception of some ceramic pigments glaze materials.

Wastewater: Process wastewater is mainly generated from cleaning water in

preparation and casting units, and other processes. The potential pollutants of
concern include suspended solids (e.g. clays and insoluble silicates), suspended
and dissolved heavy metals (e.g. lead and zinc), sulfates, boron, and traces of
organic matter.

8.1.2. Environmental impact Mitigation Measures

 In-Process modifications, which are changes performed on the process such as

the introduction of newer technology, substitution of a hazardous raw material,
performing process optimization and control.

67
 Equipment related to material handling and storage (such as conveyor systems,
silos and all transfer points) should be covered and equipped with dust collectors.
 Integration and segregation of sewer lines to minimize treatment needs and
ensure compliance with the environmental laws can be an option for many
factories.
 The primary concern is to reduce the volume of solid waste generated. Process
improvements such as polymer molds, using electronic controls for the firing
curve, and using specialized spray booths can reduce the amount of breakage and
allow reclamation of excess glaze. Broken ware, used molds, and sludge can be
recycled. Solid waste generated during the manufacturing steps (except after firing)
whether a mixed raw materials or product could be recycled to the preparation
step. Effluent treatment processes generate solids. It should be dried and dumped
in waste disposal sites.
 Wastewater: The first concern is to reduce the volume of wastewater, which can
be done by the use of dry off-gas cleaning systems instead of wet off-gas cleaning
systems; installation of waste glaze collection systems where practical; and
implementing closed-circuit water reuse systems. Water recycling for ceramic tile
manufacturing is typically 70–80 percent and 30 – 50 percent for sanitary ware
manufacturing.

8.2. Socio Economic Benefits

Ceramic industry has a wide national contribution socio economically and
quantitatively in ample ways. Among the contribution of this industry the majors
are:

Employment opportunities: Indeed, ceramic industry is known to be the labor

intensive one, So that it’s an important means of mitigating unemployment. Taking
68
this in to consideration the existing single firm of ceramic industry in Ethiopia also
absorbs currently around 167 employees.

GDP contribution: Ceramic industry is one of the manufacturing subsectors

currently which have got priority by the government. Although there is sole
ceramic factory existing in Ethiopia, its contribution to GDP is not easily
considered.

Forward and backward linkage: Ceramic industries have both backward and
forward linkages with different subsectors. This firm has backward linkage with
mining subsectors which supplies input for such industries and has strong linkage
with construction subsector which is highly demanding tiles for modern housing
construction.

Source of government revenue: The subsector has been the potential revenue
source for the government in the form of taxes, investment licenses and other
certification fee.

Import substitution: The establishment and flourishing of ceramic industries have

not only for supplying domestic demand but also an effect of troubleshooting
shortage foreign currency by promoting export and substituting import.

69
IX. FINANCIAL ANALYSIS

9.1. Summary of Investment Costs

The total investment cost of the project is estimated approximately at Birr 405.16
million. Of the total investment, 83.8% accounts for fixed investment, 11.8%
accounts for working capital and 6.3% for pre operating cost and interest.

Table 9.1: Summary of Investment Cost (Birr)

Sr. Description Investment (Birr)
No.
1 Land 500,000
2 Building and Construction 75,773,814
3 Main machineries and equipment’s 223,360,595
4 Vehicles and Earth moving machines 31,008,251
5 Auxiliary equipment and borehole 8,204,226
6 Office equipment & furniture 674,708
Sub-total 339,521,595
7 Pre-production Cost 3,000,000
8 Pre-production Interest 22,688,983
Sub-total 25,688,983
9 Working Capital 39,949,831
Sub-total 39,949,831
Grand Total 405,160,409

9.1.1. Pre-Production Costs

Preproduction costs comprise of all expenditures incurred by the project in relation

to establishment of the project prior to beginning of operation. It includes
construction design and other consultancy service costs, travel and accommodation
expenditures, and interest during the construction period. Interest during

70
construction is determined based on the implementation schedule and grace period.
The total cost pre-production cost is Birr 25,688,983, which include preproduction
expenses of Birr 3,000,000 and pre-production interest of Birr 22,688,983.

9.1.2. Working Capital

Working capital is an essential and vital component of investment in a

manufacturing industry since maintaining adequate level of raw materials that lasts
long enough until new orders are placed and materials are delivered is critical for
smooth operation of a factory. This is especially crucial to manufacturing
industries that depend on imported materials, as the process to obtain foreign
currency permits, placing orders and receiving deliveries takes a long time. Hence,
to ensure smooth and continuous operation, it is absolutely necessary to maintain
adequate levels of stock, for which provision of working capital is essential.
Likewise, it is absolutely necessary to provide for working in process and finished
goods inventories, account receivables that may arise due to credit sales and
operating expenses until the factory generates sufficient resources from internal
operations to meet the financial needs.

Accordingly, based on sound assumptions, the initial working capital requirement

of the factory is estimated at Birr 39.95 million in the first year of its operation.
The requirement increases with production capacity expansion in the subsequent
three years and stabilizes from the fourth year and thereon. However, the
incremental working capital requirement from the second year will be financed
from internally generated funds as can be noted from the cash flow statement
forecast (Annex IV). The detailed calculations and assumptions in terms of
minimum days of coverage are shown in (Annex I).

71
9.2. Components of Planned Investment Cost
Out of total investment cost of Birr 405,160,409, Birr 213,481,193 (52.69%) is
local component and the rest Birr 191,679,216 (47.31%) is foreign component.
During its implementation phases, the project requires foreign exchange to procure
the required machinery and equipment. Again in operational phase it requires
foreign exchange for importing machinery and vehicles as well as working capital.
Table below shows the breakdown of investment components.

Table 9.2: Local and Foreign Components of Planned Investment (birr)

Sr. Investment Item Local Foreign Total
No.
1 Land 500,000.00 500,000.00
2 Building and Construction 75,773,814 75,773,814
3 Main machineries and 16,049,871.54 207,310,723 223,360,595
equipment’s
4 Vehicles and Earth moving 29,294,000 1,714,251 31,008,251
machines
5 Auxiliary equipment and 8,204,226 8,204,226
borehole
6 Office equipment & furniture 674,708 - 674,708
Sub-Total 130,496,620 209,024,975 339,521,595
7 Working Capital 35,493,613 4,456,218 39,949,831
Sub-Total 35,493,613 4,456,218 39,949,831
8 Pre-production Cost 3,000,000 3,000,000
9 Pre-production Interest 22,688,983 - 22,688,983
Sub-Total 25,688,983 - 25,688,983
72
 Grand Total 191,679,216 213,481,193 405,160,409
Percentage 47.31% 52.69% 100%

9.3. Investment Financing Plan

The investment is planned to be financed from two sources: equity and bank loan
in the ratio of 30% and 70% respectively. The table below summarizes the total
investment by sources of financing.

Equity contribution is estimated at Birr 121.55 million (30%), and it is planned to

cover partial cost of building and construction, auxiliary equipment’s, vehicles,
preproduction costs and interest. Loan from lending bank is estimated at Birr
283.61 million (70%), and expected to cover the entire cost of machinery and
equipment’s, generator and cost of working capital.

73
Table 9.2: Source of Finance (Birr)

Sr. Description Bank Loan Company's Total Cost

No. (Birr) Equity (Birr)
Contributio
n
(Birr)
1 Land 500,000.00 500,000

2 Building and Construction 3,949,615 71,824,199 75,773,814

3 Main machineries and equipment’s 223,360,595 - 223,360,595
4 Vehicles and Earth moving machines 9,758,251 21,250,000 31,008,251
5 Auxiliary equipment and borehole 6,593,994.49 1,610,231.84 8,204,226
6 Office equipment & furniture 674,708.46 674,708
Sub-total 243,662,455 95,859,139 339,521,595
7 Pre-production Cost - 3,000,000.00 3,000,000
8 Pre-production Interest - 22,688,983 22,688,983
Sub-total - 25,688,983 25,688,983
9 Working Capital 39,949,831 39,949,831
Sub-total 39,949,831 - 39,949,831
Total 283,612,287 121,548,122 405,160,409
Percentage D/E Ratio 30% 70% 100%

74
9.4. Projected Financial Operation Results

9.4.1. Sales Revenues

The project is expected to generate revenues of Birr 307,233,000 million at

attainable capacity production at fourth year. Revenues at different capacity
utilization levels are presented below:

75
 Table 9.3: Annual Revenue at Attainable capacity

Product Dimension Weight Selling Annual Annual Annual Revenue

Type (kg/m2) Price Production Revenue at at Attainable
(Birr/ton) (kg) full Capacity Capacity (90%)
Wall tile 150x150x6 10.56 138 792,000.00 10,350,000 9,315,000
(Monoporosa 150x200x6 10.56 154 2,376,000.00 34,650,000 31,185,000
) 200x300x7 12.32 170 3,696,000.00 51,000,000 45,900,000
Floor tile 300x300x9 19.71 186 2,365,200.00 22,320,000 20,088,000
400x400x9 19.71 219 2,365,200.00 26,280,000 23,652,000
500x500x9 19.71 292 2,365,200.00 35,040,000 31,536,000
450x450x9 19.71 259 5,321,700.00 69,930,000 62,937,000
600x600x1 19.71 340 5,321,700.00 91,800,000 82,620,000
0
Total 24,603,000 341,370,000 307,233,000

Table 9.4: Annual Revenue at Capacity utilization rate (Birr)

Project Year Capacity Revenues (Birr)

Utilization
1 60% 204,822,000
2 70% 238,959,000
3 80% 273,096,000
4 and thereafter 90% 307,233,000

9.4.2. Production Costs

The total cost of raw materials such as Fieldspar, Plastic clay, Kaoline, Quartz,
Talc, frit at attainable production capacity is estimated at birr 38,118,032 /annum at

76
fourth year. Packing material cost i.e. corrugated box for tile at attainable
production capacity is estimated at birr 19,575,000 Birr/annum. Other operating
costs such as utilities, labor, repair and maintenance, and administrative overhead
are shown in detail in Annex II.

9.4.3. Projected Profit and Loss Statement

The projected profit and loss statement (presented in Annex III) shows that the
project will remain profitable over its lifetime. The projected annual net profits
show steady growth over the project period, from Birr 58.43 million in year 1 to
Birr 119.47 million in year 10. The average annual net profit turned out to be Birr
88.33 million.

9.4.4. Projected Cash Flow Statement

The cash flow plan depicts the project’s projected cash inflows and outflows. As
can be noted from the cash flow forecast in Annex IV, the project will remain with
cash surplus over its lifetime after meeting its internal and external commitments,
thereby standing at a sound liquidity position. The ending cash balance begins with
Birr 76.68 million surpluses and steadily builds up to Birr 763.42 million at the end
of the 10th year. The project can also meet its debt service obligations to lender
banks over 10 years.

9.4.5. Financial Internal Rate of Return (IRR) and Net Present Value (NPV)

The profitability of the investment was tested by applying the discounting

techniques as well (Annex VI). The calculations show that the investment yields
before and after tax internal rates of return (IRR) of 42% and 38%, respectively on
total operation. The Net Present Value calculated at a 15% discount rate comes up
to Birr 545.69 million after tax.
77
9.4.6. Uncertainties

There are uncertainties surrounding project operation in real life. These

uncertainties arise because of possible deviations from what is planned. Among
others, deviations can occur because of sales price decreases, operating cost
increases and investment cost increases. The sensitivity of the internal rate of
return to such uncertainties was tested by decreasing sales price by 10%, increasing
operating cost and investment cost by 10% one at a time (The detail is stated in
annex VII). The impact of these changes on the IRR - taking one change at a time
– is presented below.
Table 7.4: Sensitivity Analysis

Measure of Change Profitability IRR

Decrease in sales by 10% IRR (Before tax) 35%
IRR (After tax) 32%
Increase in operating cost by10% IRR (Before tax) 40%
IRR (After tax) 36%
Increase in investment cost by 10% IRR (Before tax) 38%
IRR (After tax) 34%

From the above analysis, the project's profitability appears to be robust

withstanding all adverse conditions. A 10% decrease in sales price results in an
after tax IRR of 32%, while a 10% increase in operating and investment cost
results in after tax IRR of 36% and 34%, respectively. Overall, the analysis depicts
that the project can withstand adverse effects and can remain profitable.

78
9.5. Assumption Used for Financial Analysis
1 Annual working days 300
2 Number of shifts 3
3 Number of working hours per shift 8
Production Capacity 5,000 M2/day

Production Capacity per annum 1,500,000

4. Capacity Determination at Full Capacity

product type Dimension Mix M2/day Weight product/m2 Annual Annual
(kg/m2) per annum production in prodn/ton
kg
Wall 150x150x6 5% 0.15 10.56 75,000 792,000.00 792.00
tile(Monoporosa 150x200x6 15% 0.45 10.56 225,000 2,376,000.00 2,376.00
) 200x300x7 20% 0.60 12.32 300,000 3,696,000.00 3,696.00
floor tile 300x300x9 8% 0.24 19.71 120,000 2,365,200.00 2,365.20
400x400x9 8% 0.24 19.71 120,000 2,365,200.00 2,365.20
500x500x9 8% 0.24 19.71 120,000 2,365,200.00 2,365.20
450x450x9 18% 0.54 19.71 270,000 5,321,700.00 5,321.70
600x600x1 18% 0.54 19.71 270,000 5,321,700.00 5,321.70
0
1,500,000 24,603,000 24,603

5. Revenue Determination at attainable capacity at fourth year

product type Dimension Weight Selling price Total revenue Total revenue at
(kg/m2) (Birr/ton) at full attainable
capacity capacity (90%)
Wall 150x150x6 10.56 138 10,350,000 9,315,000
tile(Monoporosa 150x200x6 10.56 154 34,650,000 31,185,000
) 200x300x7 12.32 170 51,000,000 45,900,000
floor tile 300x300x9 19.71 186 22,320,000 20,088,000
400x400x9 19.71 219 26,280,000 23,652,000
500x500x9 19.71 292 35,040,000 31,536,000
450x450x9 19.71 259 69,930,000 62,937,000
600x600x1 19.71 340 91,800,000 82,620,000
79
 0
Total 341,370,000 307,233,000

6. Cost
6.1. Input Requirement for the production of tile
Description Unit % Annual production Unit Cost/ Total Cost
requirement requirement/ton loss 5% ton (Birr)
(Birr)
Fieldspar kg 42% 10,333 516.66 876.89 9,514,189
plastic clay kg 29% 7,135 356.74 170.00 1,273,574
Kaoline kg 15% 3,690 184.52 1,598.33 6,193,485
Quartz kg 8% 1,968 98.41 978.17 2,021,537
Talc (magnesium kg 3% 738 36.90 7,130.00 5,525,711
silicate)
Sub total 24,528,496
frit kg 3% 738 36.90 23,000.00 17,824,874
Sub total 17,824,874
Total 100% 24,603 1,230.15 42,353,369

6.2. Packaging Material cost

Type of product One carton Unit of Price total carton

pack pc of measurement per kg requirement
product
Corrugated box for tile 44 pc 14.5 21,750,000

6.3. Energy Consumption

Fuel Type Consumption per ton of Total consumption Unit Cost Total Cost
Clinker (Ton) per annum (Ton) (Birr) (Birr)
Kerosene for killin 65 1,599,195 17 27,186,315

Total Fuel Cost per Annum 27,186,315

6.4. Other Expenses

6.4.1. Electricity Expense
Power consumption of the factory at full 14,400,000 KWH
capacity
The service charge is Birr 222 Per-month
80
Description Annual KWH Cost/Kwh Service Total Cost
Charge
Electricity 14,400,000 0.5770 2,664.00 8,311,464
Total 14,400,000 2,664.00 8,311,464

6.4.2. Other Overhead Costs

 Office supplies and spendable 0.2% of sales revenue
 Travelling and per dime 10%of annual wage and salary
 Promotional Expense 0.3% annual revenue
 Medical Expense 10% of salary
 Professional Expense (Legal and Audit Fee, consultancy) 100,000 per
annum
 Postal telephone telex etc 0.03% of annual revenue
 Uniform and Clothing 1000 per annum per employee

6.4.3. Fuel & lubricant cost

Sr. Types of Qty KM, Fuel Total Fuel Fuel Total Cost of
No. Vehicles/Machine HR/Year Consumption Requiremen cost Fuel
(Ltr/KM/HR) t per
liter
1 Iveco Cargo Truck 5 62,000 0.25 77,500 19.9 1,542,250
2 Hilux Pickup double 2 30,000 0.13 7,500 19.9 149,250
cabin
3 Hiace Minibus 1 30,000 0.13 3,750 19.9 74,625
4 Frieght truck 2 72,000 0.25 36,000 19.9 716,400
5 Bus 2 15,000 0.25 7,500 19.9 149,250
6 loader 1 1,500 22 33,000 19.9 656,700
7 Forklift 2 3,000 9 54,000 19.9 1,074,600

81
 Sub-total 4,363,075
Oil & lubricants 436,307.5
10% of fuel cost
Total Fuel, Oil & Lubricant Cost 4,799,382.5

6.4.4. Repair & Maintenance

Sr. No. Description Repair & Maintenance rate
1 Building 2%
2 Machinery & Equipment 5%
3 Auxiliary equipment’s 2%
4 Vehicle 5%
5 Furniture & equipment’s 2%
Total

6.4.5. Insurance 1% of Fixed Assets

6.4.6. Exchange Rate 1 Euro = 32.6724

82
X. ANNEX

83
 Annex I: Working Capital Requirement
Description Project Years
Coverage 1 2 3 4 5 6 7 8 9 10
Raw Material-Local 1months 1,226,425 1,430,829 1,635,233 3,176,503 3,176,503 3,176,503 3,176,503 3,176,503 3,176,503 3,176,503
Fieldspar 1months 475,709 554,994 634,279 713,564 713,564 713,564 713,564 713,564 713,564 713,564
Plastic clay 1months 63,679 74,292 84,905 95,518 95,518 95,518 95,518 95,518 95,518 95,518
Kaoline 1months 309,674 361,287 412,899 464,511 464,511 464,511 464,511 464,511 464,511 464,511
Quartz 1months 101,077 117,923 134,769 151,615 151,615 151,615 151,615 151,615 151,615 151,615
Talc (magnesium silicate) 1months 276,286 322,333 368,381 414,428 414,428 414,428 414,428 414,428 414,428 414,428
Raw Material-foreign-frit 4months 3,564,975 4,159,137 4,753,300 5,347,462 5,347,462 5,347,462 5,347,462 5,347,462 5,347,462 5,347,462
Packing Material 1 months 1,087,500 1,268,750 1,450,000 1,631,250 1,631,250 1,631,250 1,631,250 1,631,250 1,631,250 1,631,250
Energy consumption for firing 1 months 1,359,316 1,585,868 1,812,421 1,812,421 1,812,421 1,812,421 1,812,421 1,812,421 1,812,421 1,812,421
ceramic
Transportation cost(for raw 1 months 301,141 301,141 301,141 301,141 301,141 301,141 301,141 301,141 301,141 301,141
material)
Wages and Salaries 1 months 768,700 768,700 768,700 768,700 768,700 768,700 768,700 768,700 768,700 768,700
Travel and per diem 1 months 76,870 76,870 76,870 76,870 76,870 76,870 76,870 76,870 76,870 76,870
Medical expense 1 months 76,870 76,870 76,870 76,870 76,870 76,870 76,870 76,870 76,870 76,870
Stationary Expense 1months 34,137 39,827 45,516 45,516 45,516 45,516 45,516 45,516 45,516 45,516
Telephone and Fax Expense 1 months 5,121 5,974 6,827 6,827 6,827 6,827 6,827 6,827 6,827 6,827
- Professional Expense 1 months 8,333 8,333 8,333 8,333 8,333 8,333 8,333 8,333 8,333 8,333
Promotional Expense 1 months 51,206 59,740 68,274 68,274 68,274 68,274 68,274 68,274 68,274 68,274
Miscellaneous Expense(other) 1 months 5,121 5,974 6,827 68,274 68,274 68,274 68,274 68,274 68,274 68,274
Uniform and Clothing 1 months 13,917 13,917 13,917 13,917 13,917 13,917 13,917 13,917 13,917 13,917
Requirement
Utility Expense 1 months 415,573 484,835 554,098 554,098 554,098 554,098 554,098 554,098 554,098 554,098
Fuel, Oil and Lubricants 1 months 399,949 399,949 399,949 399,949 399,949 399,949 399,949 399,949 399,949 399,949
Insurance 12 months 3,390,216 3,390,216 3,390,216 3,390,216 3,390,216 3,390,216 3,390,216 3,390,216 3,390,216 3,390,216
Repair and maintenance 1 months 1,220,344 1,220,344 1,220,344 1,220,344 1,220,344 1,220,344 1,220,344 1,220,344 1,220,344 1,220,344
Work in Progress* 3Days 2,048,220 2,389,590 2,730,960 2,730,960 2,730,960 2,730,960 2,730,960 2,730,960 2,730,960 2,730,960
Finished Goods* 30 Days 20,482,20 23,895,90 27,309,60 27,309,60 27,309,60 27,309,60 27,309,60 27,309,60 27,309,60 27,309,60
0 0 0 0 0 0 0 0 0 0

84
Account receivable 5 Days 3,413,700 3,982,650 4,551,600 4,551,600 4,551,600 4,551,600 4,551,600 4,551,600 4,551,600 4,551,600
Sub-total 39,949,83 45,565,41 51,180,99 53,559,12 53,559,12 53,559,12 53,559,12 53,559,12 53,559,12 53,559,12
1 3 5 4 4 4 4 4 4 4
Increase in Working Capital 5,615,582 5,615,582 2,378,129 - - - - - -

85
Annex II: Operating Costs
Description Project Years
1 2 3 4 5 6 7 8 9 10
Raw Material-local 14,717,09 17,169,947 19,622,797 38,118,032 38,118,032 38,118,032 38,118,032 38,118,032 38,118,032 38,118,032
8
Fieldspar 5,708,513 6,659,932 7,611,351 8,562,770 8,562,770 8,562,770 8,562,770 8,562,770 8,562,770 8,562,770
Plastic clay 764,145 891,502 1,018,859 1,146,217 1,146,217 1,146,217 1,146,217 1,146,217 1,146,217 1,146,217
Kaoline 3,716,091 4,335,439 4,954,788 5,574,136 5,574,136 5,574,136 5,574,136 5,574,136 5,574,136 5,574,136
Quartz 1,212,922 1,415,076 1,617,230 1,819,383 1,819,383 1,819,383 1,819,383 1,819,383 1,819,383 1,819,383
Talc (magnesium silicate) 3,315,426 3,867,998 4,420,569 4,973,140 4,973,140 4,973,140 4,973,140 4,973,140 4,973,140 4,973,140
Raw Material-foreign - frit 10,694,92 12,477,411 14,259,899 16,042,386 16,042,386 16,042,386 16,042,386 16,042,386 16,042,386 16,042,386
4
Packing Material 13,050,00 15,225,000 17,400,000 19,575,000 19,575,000 19,575,000 19,575,000 19,575,000 19,575,000 19,575,000
0
Energy consumption for firing 16,311,78 19,030,421 21,749,052 21,749,052 21,749,052 21,749,052 21,749,052 21,749,052 21,749,052 21,749,052
ceramic 9
Transportation cost 3,613,689 3,613,689 3,613,689 3,613,689 3,613,689 3,613,689 3,613,689 3,613,689 3,613,689 3,613,689
Wages and Salaries 9,224,400 9,224,400 9,224,400 9,224,400 9,224,400 9,224,400 9,224,400 9,224,400 9,224,400 9,224,400
Travel and per diem 922,440 922,440 922,440 922,440 922,440 922,440 922,440 922,440 922,440 922,440
Medical expense 922,440 922,440 922,440 922,440 922,440 922,440 922,440 922,440 922,440 922,440
Stationary Expense 409,644 477,918 546,192 546,192 546,192 546,192 546,192 546,192 546,192 546,192
Telephone and Fax Expense 61,447 71,688 81,929 81,929 81,929 81,929 81,929 81,929 81,929 81,929
- Professional Expense(Legal, 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000
Audit, consultancy etc)
Promotional Expense 614,466 716,877 819,288 819,288 819,288 819,288 819,288 819,288 819,288 819,288
Miscellaneous Expense(other) 61,447 71,688 81,929 819,288 819,288 819,288 819,288 819,288 819,288 819,288
Uniform and Clothing Requirement 167,000 167,000 167,000 167,000 167,000 167,000 167,000 167,000 167,000 167,000
Utility Expense 4,986,878 5,818,025 6,649,171 6,649,171 6,649,171 6,649,171 6,649,171 6,649,171 6,649,171 6,649,171
Fuel, Oil and Lubricants 4,799,383 4,799,383 4,799,383 4,799,383 4,799,383 4,799,383 4,799,383 4,799,383 4,799,383 4,799,383
Insurance 3,390,216 3,390,216 3,390,216 3,390,216 3,390,216 3,390,216 3,390,216 3,390,216 3,390,216 3,390,216
Repair and maintenance 14,644,13 14,644,130 14,644,130 14,644,130 14,644,130 14,644,130 14,644,130 14,644,130 14,644,130 14,644,130
0
Total Operating Cost 98,691,38 108,842,67 118,993,95 142,184,03 142,184,03 142,184,03 142,184,03 142,184,03 142,184,03 142,184,03
86
9 1 3 6 6 6 6 6 6 6

87
Annex III: Projected Profit and Loss Statement

Description Project Years

1 2 3 4 5 6 7 8 9 10
Revenue 204,822,00 238,959,00 273,096,00 307,233,00 307,233,00 307,233,00 307,233,00 307,233,00 307,233,00 307,233,00
0 0 0 0 0 0 0
0 0 0
Total Operating Cost 68,070,987 73,721,151 79,371,314 100,778,90 100,778,90 100,778,90 100,778,90 100,778,90 100,778,90 100,778,90
9 9 9 9 9 9 9
Profit Before Depr, Interest 136,751,01 165,237,84 193,724,68 206,454,09 206,454,09 206,454,09 206,454,09 206,454,09 206,454,09 206,454,09
3 9 6 1 1 1 1 1 1 1
and tax
Depreciation and Amort. 35,783,192 35,783,192 35,783,192 35,783,192 35,783,192 35,783,192 35,783,192 35,783,192 35,783,192 35,783,192
Profit Before Interest and 100,967,82 129,454,65 157,941,49 170,670,89 170,670,89 170,670,89 170,670,89 170,670,89 170,670,89 170,670,89
0 7 4 9 9 9 9 9 9 9
tax
Interest Expense 42,541,843 42,541,843 35,451,536 28,361,229 21,270,921 14,180,614 7,090,307 -
Profit Before tax 58,425,977 86,912,814 122,489,95 142,309,67 149,399,97 156,490,28 163,580,59 170,670,89 170,670,89 170,670,89
8 0 8 5 2 9 9 9
Profit tax (30%) - - 42,692,901 44,819,993 46,947,085 49,074,178 51,201,270 51,201,270 51,201,270
Net Profit/Loss 58,425,977 86,912,814 122,489,95 99,616,769 104,579,98 109,543,19 114,506,41 119,469,62 119,469,62 119,469,62
8 4 9 4 9 9 9

88
 Annex IV: Projected Cash Flow Statement
Description Project Years
0 1 2 3 4 5 6 7 8 9 10
Cash Inflows
Owner's Equity 121,548,12
2
DBE Loan 283,612,28
7
Net Profit 58,425,97 86,912,814 122,489,95 99,616,769 104,579,98 109,543,19 114,506,41 119,469,62 119,469,62 119,469,62
7 8 4 9 4 9 9 9
Depreciation 35,783,19 35,783,192 35,783,192 35,783,192 35,783,192 35,783,192 35,783,192 35,783,192 35,783,192 35,783,192
2
Total Cash Inflows 405,160,40 94,209,17 122,696,00 158,273,15 135,399,96 140,363,17 145,326,39 150,289,60 155,252,82 155,252,82 155,252,82
9 0 6 0 1 6 2 7 2 2 2
Cash out Flows
Fixed assets 339,521,59
5
Working capital 39,949,831
Increase In working 5,615,582 5,615,582 6,702,149 - - - - - -
Capital
Pre-Production Cost 3,000,000
Pre-Production 22,688,983
Interest
Loan Repayment - 47,268,714 47,268,714 47,268,714 47,268,714 47,268,714 47,268,714 - -
Dividends 17,527,79 26,073,844 36,746,987 29,885,031 31,373,995 32,862,960 34,351,924 35,840,889 35,840,889 35,840,889
3
Replacement 31,008,251
Total Cash Outflows 405,160,40 17,527,79 78,958,141 89,631,284 83,855,894 109,650,96 80,131,674 81,620,639 35,840,889 35,840,889 35,840,889
9 3 1

89
 Net Cash Flow - 76,681,37 43,737,866 68,641,866 51,544,068 30,712,215 65,194,717 68,668,968 119,411,93 119,411,93 119,411,93
6 3 3 3
Cumulative Cash 76,681,37 120,419,24 189,061,10 240,605,17 271,317,39 336,512,10 405,181,07 524,593,00 644,004,94 763,416,87
6 2 9 6 2 9 7 9 2 5
Balance

Annex V: Projected Balance Sheet Statement

DESCRIPTION Y E A R S
0 1 2 3 4 5 6 7 8 9 10
ASSETS
CURRENT ASSETS
Cash 76,681,376 120,419,24 189,061,10 240,605,17 271,317,39 336,512,10 405,181,07 524,593,00 644,004,94 763,416,87
2 9 6 2 9 7 9 2 5
Inventory 39,949,831 39,949,831 45,565,413 51,180,995 57,883,144 57,883,144 57,883,144 57,883,144 57,883,144 57,883,144 57,883,144
Total Current Assets 39,949,831 116,631,20 165,984,65 240,242,10 298,488,32 329,200,53 394,395,25 463,064,22 582,476,15 701,888,08 821,300,01
8 5 4 0 6 3 1 4 6 9
FIXED ASSETS
Land 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000
Building and Construction 75,773,814 71,985,123 68,196,432 64,407,742 60,619,051 56,830,360 53,041,670 49,252,979 45,464,288 41,675,598 37,886,907
Main machineries 223,360,59 201,024,53 178,688,47 156,352,41 134,016,35 111,680,29 89,344,238 67,008,178 44,672,119 22,336,059 -
5 5 6 6 7 7
Vehicles 31,008,251 24,806,601 18,604,951 12,403,301 6,201,650 31,008,251 24,806,601 18,604,951 12,403,301 6,201,650 -
Auxiliary equipment & borehole 8,204,226 7,383,804 6,563,381 5,742,958 4,922,536 4,102,113 3,281,691 2,461,268 1,640,845 820,423 (0)
Office equipment & furniture 674,708 607,238 539,767 472,296 404,825 337,354 269,883 202,413 134,942 67,471 (0)
Sub-total 339,521,59 306,307,30 273,093,00 239,878,71 206,664,41 204,458,37 171,244,08 138,029,78 104,815,49 71,601,201 38,386,907
5 1 7 3 9 6 3 9 5
Pre-production Cost 3,000,000 2,700,000 2,400,000 2,100,000 1,800,000 1,500,000 1,200,000 900,000 600,000 300,000 -
Pre-production Interest 22,688,983 20,420,085 18,151,186 15,882,288 13,613,390 11,344,491 9,075,593 6,806,695 4,537,797 2,268,898 -
Sub-total 25,688,983 23,120,085 20,551,186 17,982,288 15,413,390 12,844,491 10,275,593 7,706,695 5,137,797 2,568,898 -
Total Assets 405,160,40 446,058,59 459,628,84 498,103,10 520,566,12 546,503,40 575,914,92 608,800,70 692,429,44 776,058,18 859,686,92
9 3 9 5 9 4 9 4 5 5 6
LIABILITIES & Capital
DBE long term Loan 283,612,28 283,612,28 236,343,57 189,074,85 141,806,14 94,537,429 47,268,714 - - - -
7 7 2 8 3

90
 Sub-total 283,612,28 283,612,28 236,343,57 189,074,85 141,806,14 94,537,429 47,268,714 - - - -
7 7 2 8 3
CAPITAL
Owner's Equity 121,548,12 121,548,12 121,548,12 121,548,12 121,548,12 121,548,12 121,548,12 121,548,12 121,548,12 121,548,12 121,548,12
2 2 2 2 2 2 2 2 2 2 2
Retained Earnings 40,898,184 101,737,15 187,480,12 257,211,86 330,417,85 407,098,09 487,252,58 570,881,32 654,510,06 738,138,80
4 5 3 2 2 2 2 3 3
Sub-total 121,548,12 162,446,30 223,285,27 309,028,24 378,759,98 451,965,97 528,646,21 608,800,70 692,429,44 776,058,18 859,686,92
2 7 7 7 6 5 4 4 5 5 6
Total Liabilities and Capital 405,160,40 446,058,59 459,628,84 498,103,10 520,566,12 546,503,40 575,914,92 608,800,70 692,429,44 776,058,18 859,686,92
9 3 9 5 9 4 9 4 5 5 6

91
 Annex VI: Calculation of Financial Internal Rate of Return
Year Revenue Working Fixed Total Initial Replac. Operating Total Income Total Net Benefit Net Benefit
Capital Asset Benefits Inv't. Costs Costs Tax Costs After Tax Before Tax
Recovery Recovery Excluding Including
Tax Tax
0 405,160,40 405,160,40 405,160,40 (405,160,40 (405,160,40
9 9 9 9) 9)
1 204,822,00 204,822,00 68,070,987 68,070,987 68,070,987 136,751,013 136,751,013
0 0
2 238,959,00 238,959,00 73,721,151 73,721,151 73,721,151 165,237,849 165,237,849
0 0
3 273,096,00 273,096,00 79,371,314 79,371,314 79,371,314 193,724,686 193,724,686
0 0
4 307,233,00 307,233,00 100,778,90 100,778,90 42,692,90 143,471,81 163,761,190 206,454,091
0 0 9 9 1 0
5 307,233,00 307,233,00 31,008,25 100,778,90 131,787,16 44,819,99 176,607,15 130,625,847 175,445,840
0 0 1 9 0 3 3
6 307,233,00 307,233,00 100,778,90 100,778,90 46,947,08 147,725,99 159,507,006 206,454,091
0 0 9 9 5 4
7 307,233,00 307,233,00 100,778,90 100,778,90 49,074,17 149,853,08 157,379,914 206,454,091
0 0 9 9 8 6
8 307,233,00 307,233,00 100,778,90 100,778,90 51,201,27 151,980,17 155,252,822 206,454,091
0 0 9 9 0 8
9 307,233,00 307,233,00 100,778,90 100,778,90 51,201,27 151,980,17 155,252,822 206,454,091
0 0 9 9 0 8
10 307,233,00 57,883,144 38,386,90 403,503,05 100,778,90 100,778,90 51,201,27 151,980,17 251,522,873 302,724,142
0 7 1 9 9 0 8

IRR before tax -- 42%

IRR after tax -- 38%
NPV @ 10% 545,697,10

92
4

93
 Annex VII: Sensitivity Analysis
If Revenue Decreases by 10%
Year Revenue Working Fixed Total Initial Replac. Operating Total Income Total Net Benefit Net Benefit
Capital Asset Benefits Inv't. Costs Costs Tax Costs After Tax Before Tax
Recovery Recovery Excluding Including
Tax Tax
0 405,160,40 405,160,40 405,160,40 (405,160,40 (405,160,40
9 9 9 9) 9)
1 184,339,80 184,339,80 68,070,987 68,070,987 68,070,987 116,268,813 116,268,813
0 0
2 215,063,10 215,063,10 73,721,151 73,721,151 73,721,151 141,341,949 141,341,949
0 0
3 245,786,40 245,786,40 79,371,314 79,371,314 79,371,314 166,415,086 166,415,086
0 0
4 276,509,70 276,509,70 100,778,90 100,778,90 33,475,91 134,254,82 142,254,880 175,730,791
0 0 9 9 1 0
5 276,509,70 276,509,70 31,008,25 100,778,90 131,787,16 35,603,00 167,390,16 109,119,537 144,722,540
0 0 1 9 0 3 3
6 276,509,70 276,509,70 100,778,90 100,778,90 37,730,09 138,509,00 138,000,696 175,730,791
0 0 9 9 5 4
7 276,509,70 276,509,70 100,778,90 100,778,90 39,857,18 140,636,09 135,873,604 175,730,791
0 0 9 9 8 6
8 276,509,70 276,509,70 100,778,90 100,778,90 41,984,28 142,763,18 133,746,512 175,730,791
0 0 9 9 0 8
9 276,509,70 276,509,70 100,778,90 100,778,90 41,984,28 142,763,18 133,746,512 175,730,791
0 0 9 9 0 8
10 276,509,70 57,883,14 38,386,90 372,779,75 100,778,90 100,778,90 41,984,28 142,763,18 230,016,563 272,000,842
0 4 7 1 9 9 0 8

IRR before tax -- 35%

IRR after tax -- 32%

94
95
If Operating Costs Increases by 10%
Year Revenue Working Fixed Total Initial Replac. Operating Total Income Total Net Benefit Net Benefit
Capital Asset Benefits Inv't. Costs Costs Tax Costs After Tax Before Tax
Recovery Recovery Excluding Including
Tax Tax
0 405,160,40 405,160,40 405,160,40 (405,160,40 (405,160,40
9 9 9 9) 9)
1 204,822,00 204,822,00 74,878,086 74,878,086 74,878,086 129,943,914 129,943,914
0 0
2 238,959,00 238,959,00 81,093,266 81,093,266 81,093,266 157,865,734 157,865,734
0 0
3 273,096,00 273,096,00 87,308,445 87,308,445 87,308,445 185,787,555 185,787,555
0 0
4 307,233,00 307,233,00 110,856,80 110,856,80 39,669,53 150,526,33 156,706,667 196,376,200
0 0 0 0 4 3
5 307,233,00 307,233,00 31,008,25 110,856,80 141,865,05 41,796,62 183,661,67 123,571,323 165,367,949
0 0 1 0 1 6 7
6 307,233,00 307,233,00 110,856,80 110,856,80 43,923,71 154,780,51 152,452,482 196,376,200
0 0 0 0 8 8
7 307,233,00 307,233,00 110,856,80 110,856,80 46,050,81 156,907,61 150,325,390 196,376,200
0 0 0 0 0 0
8 307,233,00 307,233,00 110,856,80 110,856,80 48,177,90 159,034,70 148,198,298 196,376,200
0 0 0 0 2 2
9 307,233,00 307,233,00 110,856,80 110,856,80 48,177,90 159,034,70 148,198,298 196,376,200
0 0 0 0 2 2
10 307,233,00 57,883,14 38,386,90 403,503,05 110,856,80 110,856,80 48,177,90 159,034,70 244,468,349 292,646,251
0 4 7 1 0 0 2 2

IRR before tax -- 40%

IRR after tax -- 36%

96
 If Investment Costs Increases by 10%
Year Revenue Working Fixed Total Initial Replac. Operating Total Income Total Net Benefit Net Benefit
Capital Asset Benefits Inv't. Costs Costs Tax Costs After Tax Before Tax
Recovery Recovery Excluding Including
Tax Tax
0 445,676,45 445,676,45 445,676,45 (445,676,45 (445,676,45
0 0 0 0) 0)
1 204,822,00 204,822,00 68,070,987 68,070,987 68,070,987 136,751,013 136,751,013
0 0
2 238,959,00 238,959,00 73,721,151 73,721,151 73,721,151 165,237,849 165,237,849
0 0
3 273,096,00 273,096,00 79,371,314 79,371,314 - 79,371,314 193,724,686 193,724,686
0 0
4 307,233,00 307,233,00 100,778,90 100,778,90 42,692,90 143,471,81 163,761,190 206,454,091
0 0 9 9 1 0
5 307,233,00 307,233,00 34,109,07 100,778,90 134,887,98 44,819,99 179,707,97 127,525,021 172,345,015
0 0 7 9 5 3 9
6 307,233,00 307,233,00 100,778,90 100,778,90 46,947,08 147,725,99 159,507,006 206,454,091
0 0 9 9 5 4
7 307,233,00 307,233,00 100,778,90 100,778,90 49,074,17 149,853,08 157,379,914 206,454,091
0 0 9 9 8 6
8 307,233,00 307,233,00 100,778,90 100,778,90 51,201,27 151,980,17 155,252,822 206,454,091
0 0 9 9 0 8
9 307,233,00 307,233,00 100,778,90 100,778,90 51,201,27 151,980,17 155,252,822 206,454,091
0 0 9 9 0 8
10 307,233,00 57,883,14 38,386,90 403,503,05 100,778,90 100,778,90 51,201,27 151,980,17 251,522,873 302,724,142
0 4 7 1 9 9 0 8
IRR before tax -- 38%
IRR after tax -- 34%

97
Annex VIII: Loan Repayment Schedule
DESCRIPTION Project Years
0 1 2 3 4 5 6 7
Loan 283,612,28
7
Requirement
Beginning 283,612,28 283,612,28 283,612,28 236,343,57 189,074,85 141,806,14 94,537,429 47,268,71
7 7 7 2 8 3 4
Balance
Interest to be 22,688,983 42,541,843 42,541,843 35,451,536 28,361,229 21,270,921 14,180,614 7,090,307
paid
Interest rate 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00%
Loan
Repayment
Interest 22,688,983 42,541,843 42,541,843 35,451,536 28,361,229 21,270,921 14,180,614 7,090,307
Principal 0 47,268,714 47,268,714 47,268,714 47,268,714 47,268,714 47,268,71
4
Total 42,541,843 89,810,557 82,720,250 75,629,943 68,539,636 61,449,329 54,359,02
2
Ending Balance 283,612,28 283,612,28 236,343,57 189,074,85 141,806,14 94,537,429 47,268,714 0
7 7 2 8 3
98