This document profiles the establishment of an aerosol insecticide production plant in Ethiopia. It estimates the current and projected demand for aerosol insecticides in the country and region. The plant would have an initial capacity of 1.35 million cans per year, increasing to 1.8 million cans at full capacity. Total investment is estimated at 22.45 million Birr, including 1.28 million for machinery. The plant is projected to employ 30 people and be financially viable with an IRR of 43% and NPV of 13.81 million Birr.
3. Table of Contents
1. Executive Summary................................................................................ 1
2. Product Description and Application................................................... 1
3. Market Study, Plant Capacity and Production Program................... 2
3.1 Market Study....................................................................................................... 2
3.1.1 Present Demand and Supply....................................................................... 2
3.1.2 Projected Demand....................................................................................... 2
3.1.3 Pricing and Distribution.............................................................................. 3
3.2 Plant Capacity..................................................................................................... 3
3.3 Production Program ............................................................................................ 4
4. Raw Materials and Utilities................................................................... 4
4.1 Availability and Source of Raw Materials.......................................................... 4
4.2 Annual Requirement and Cost of Raw Materials and Utilities........................... 4
5. Location and Site .................................................................................... 6
6. Technology and Engineering................................................................. 6
6.1 Production Process.............................................................................................. 6
6.2 Machinery and Equipment.................................................................................. 7
6.3 Civil Engineering Cost........................................................................................ 7
7. Human Resource and Training Requirement ..................................... 8
7.1 Human Resource................................................................................................. 8
7.2 Training Requirement ......................................................................................... 8
8. Financial Analysis................................................................................... 9
8.1 Underlying Assumption...................................................................................... 9
8.2 Investment......................................................................................................... 10
8.3 Production Costs............................................................................................... 11
8.4 Financial Evaluation ......................................................................................... 11
9. Economic and Social Benefit and Justification.................................. 12
ANNEXES ................................................................................................... 14
4. 1
1. Executive Summary
This profile envisages the establishment of a plant for the production of 1.8 million cans of
aerosol insecticide per year.
The present countrywide demand for aerosol insecticide is estimated at 5,741,692 aerosol cans
per annum. The regional demand is estimated to be 2,039,439. The annual future countrywide
demand is expected to grow from 5,741,692 cans in the year 2015 to 8,172,218 cans in the year
2024. During the same period, the annual regional demand will grow from 2,039,439 to
2,902,757 cans.
The total investment requirement is estimated at Birr 22.45 million out of which Birr 1,288,132
is for machinery and equipment.
The plant will create employment opportunities for 30 persons.
The project is financially viable with an internal rate of return (IRR) of 43% and a net present
value (NPV) of Birr 13.81 million at 18 % annual discounted rate.
2. Product Description and Application
Aerosol insecticides are those which are bottled under pressure inside sprayer cans. They consist
of toxic elements finely distributed in gases or liquids under high pressure. Aerosols exhibit self-
dispersing, pressurized, self propelling characteristics.
Aerosol insecticides are mainly used to destroy mosquitoes, flies and cockroaches from
residences, bars, hotels and offices.
5. 2
3. Market Study, Plant Capacity and Production Program
3.1 Market Study
3.1.1 Present Demand and Supply
In the absence of comprehensive data on import and domestic production of aerosol, a household
approach is used to estimate the present demand for aerosol throughout the country. There are an
estimated 211 million urban household in country. If we assume a third of these households
consumes six cans per year, the present countrywide demand is 5,741,692 cans. Deducting an
annual local supply of approximately 500,000, the demand gap is 5,241,692 cans. If we analyze
the current demand in ANRS using the same methodology, the current regional demand will
stand at 2,039,439 can; however, the market for aerosol shall not be confined in region.
Although it is not included in the analysis, it is quite plausible to assume that there is some
demand from rural residents as well.
3.1.2 Projected Demand
The demand projection is based on the assumption used in the above section and an average of
4% annual growth of urban population. Table 1 illustrates that the current countrywide annual
demand for aerosol stands at about 5.7 million cans and it is projected to rise to 8 million in the
year 2024. This shows that there is sufficient demand for the product but the marketing should
not be confined to on the region alone.
6. 3
Table 1: Projected Demand
Year
Country Wide ANRS
No.
Household
Annual
Demand
(pcs/cans)
No.
Household
Annual
Demand
(pcs/cans)
2015 2899844 5,741,692 679813 2,039,439
2016 3015838 5,971,360 707006 2,121,017
2017 3136472 6,210,214 735285 2,205,857
2018 3261931 6,458,623 764697 2,294,091
2019 3392408 67,16,967 795285 2,385,855
2020 3528104 6,985,646 827097 2,481,289
2021 3669229 7,265,072 860181 2,580,541
2022 3815998 7,555,675 894588 2,683,762
2023 3968638 7,857,902 930371 2,791,113
2024 4127383 8,172,218 967586 2,902,757
3.1.3 Pricing and Distribution
The unit current retail price for aerosol varies from Birr 44 to 77 depending on the quality of the
product. There is strong competition from far-east Asian countries. Thus, it is suggested to enter
into the market aiming at lowest exiting retail price to the consumer keeping, at same time, its
high quality. Therefore, it is proposed that the new product be sold at Birr 33 to the whole
sellers, accounting the difference as profit margin to the distributors and retailers.
The product can be distributed through existing channels of department stores, supermarkets and
whole sellers throughout the country.
3.2 Plant Capacity
It is assumed that construction will take two years and production will be commenced in the year
2010. At full capacity, the envisaged plant will have a capacity to produce 4.6 million aerosol
cans by operating two shifts per day for 275 working days per year, deducting holidays and other
stoppages.
7. 4
3.3 Production Program
The plant would start production by utilizing 75% (i.e., 1,350,000 cans - below the regional
demand) 85% (1,530,000 cans), 95% (1,710,000 cans) of its capacity during the first, second,
third year of its operation, respectively. Starting from the fourth year, it will produce at full
capacity – 1.8 million cans. The cautious gradual increase in capacity is suggested taking into
accounts that the plant may face challenges to penetrate the countrywide demand and thus
regional demand is given priority; and also the product may face strong competition with
imported product and thus time is required for fine adjustments.
4. Raw Materials and Utilities
4.1 Availability and Source of Raw Materials
Most of the imports are available at the domestic market. However, due to possible deficiency on
the domestic raw material supply, it is suggested that about 60% of the total volume be imported
from counties of far-east Asia.
4.2 Annual Requirement and Cost of Raw Materials and Utilities
The types, quantities and costs of the row materials are shown in Table
Table 2: Required Raw Materials at Full Capacity
.No. Row Material Qty Unit
Price
Local Foreign Total
Insecticide (active)
ingredient
7.2 ton
7,184,800 10,777,200 17,962,000
Propellant 24 ton 5,645,200 8,467,800 14,113,000
Aromatic essence 18 ton 3,079,200 4,618,800 7,698,000
Cans (pcs) 1,800,000 pcs 92,37,600 9,237,600
Total 25,146,800 23,863,800 49,010,600
Alternative Technology:
The followings are some of the many alternatives technologies based on the inputs used. .
Insecticides fall into two types; inorganic and organic. Organic molecules always contain carbon
and inorganic don't.
8. 5
The inorganic insecticides in main use are:
Silica (SiO2); this acts as a dessicant and strips off the waxy coating off the cuticle of
the insect thus causing suffocation. This is sometimes referred to as diatomaceous
earth or kieselguhr and is made up of the frustules of diatoms (Bacillariophyceae),
this material also has a tremendous surface area which explains why it is a good
absorbent. These are unicellular algae characterised by the silicified cell made by two
halves. (Silicified meaning infiltration or replacement of organic tissues or of other
minerals such as calcite by silica).
Boric Acid (H3BO3); also known as Boracic Acid and is used for incorporating into
baits for ant control.
The organic insecticides are split up into the following main groups:
Organophosphorous compounds (OP); these are compounds made up of an organic
molecule to which has been added Phosphorous.
Organochlorine compounds (OC); these are compounds made up of an organic
molecule with the addition of chlorine. The downside to these types of insecticide is
that they are very persistent. Some studies have shown that when Lindane has been
used it is still active after a number of years. As a consequence these compounds are
largely banned as they threaten the environment.
Carbamates(C); These are effective against a wide range of pests. Moderately residual
and effective at higher temperatures, but broken down if alkalinity is high.
Pyrethrum is a natural insecticide obtained from the flower heads of tropical
chrysanthemum and has excellent knockdown properties at low concentrations. The
downside to using natural pyrethrum is that it is very expensive. Another natural
insecticide is Rotenone which is obtained from the Derris tree, useful as a contact
insecticide.
9. 6
Pyrethrins/Synthetic Pyrethroids(SP); These fall into two categories; those that are
photostable and those that are not photostable and chemically stable. These products
are sometimes mixed with another compound such as piperonyl butoxide to give a
synergic effect enabling high residuality and good knockdown. I am covering one of
the best known, which is Permethrin.
The annual electricity energy consumption of the plant is estimated to be 25,000 kwh which will
cost Birr 13,750. The annual water consumption of the plant is estimated to be 1000m3
costing
Birr 2,650. The total utilities cost is estimated at Birr 16,400.
5. Location and Site
Bahir Dar and Combolcha are optional candidates to host this plant. It is believed that both cities
do have sufficient infrastructure to accommodate this plant.
6. Technology and Engineering
6.1 Production Process
The production process to be employed in the envisaged plant involves the preparation of the
insecticide spray and bottling (can filling).
The insecticide raw material is blended with synergist and other ingredients such as aromatic
essence to a given formulation. The blend is then filtered to remove any impurities.
Alternatively, ready blended aerosol concentrate can be bought in and diluted. The can should be
inspected on receipt and later air blast cleaned before the filling operation.
The product filler and crimper/gaster and mounted on an operating bench which has an integral
extraction system. At this level of production, the cans are fed manually into the enclosures of
both machines. It is also possible to employ automatic enclosure systems, which produce 12-15
cans a minute. The insecticide solution is pumped from the storage tank to the filling machine
10. 7
where the cans are filled. They are then passed to the crimper/gaster where they are filled with
the propellant and sealed tight by fitting an inner stopper and cap.
The propellant is filtered before being pumped into the filler machine fitted with gas detection
equipment. Finally the caps are mounted on the cans which are then packed in carton boxes for
dispatch after inspection.
The technical data and information are compiled form UNIDO document “How to Start
Manufacturing Industries Vol. III & I.
6.2 Machinery and Equipment
The list of required machineries and equipments and their prices is depicted in Table 3.
Table 3: Machinery and Equipments
Qty. Price (Birr)
Item Description Unit Total
1 Blending tanks 4 46188 184,752
2 Filling machine 1 603010 603,010
3 Compressors & pumps 4 76980 307,920
4 Conveyors control
equipment
- 192,450
Total 1,288,132
Supplier Address:
Company Name: Shouda Machinery & Equipments Co., Ltd.
Company Address: Rm. 1305, Section B, No. 9120 Humin Rd., Xuhui
District, Shanghai, China
City/Town: Shanghai
Province/State: Shanghai
Country/Region: China
Zip/Postal Code: 200235
6.3 Civil Engineering Cost
A total area of 1500m2
is required to set up the plant out of which 500m2
would be net built up
area. The estimated cost of cost of land lease is Birr 90,000, while that of the construction is Birr
2.6 million.
11. 8
7. Human Resource and Training Requirement
7.1 Human Resource
The plant will create jobs for 30 people. The detail is shown in Table 4.
Table 4: Human Resource Requirement
Job Title No.
Salary/Wage (Birr)
Monthly Annual
1 General Manager 1 8,981 107,772
2 Secretary 1 2,053 24,634
3 Administration and Finance Head 1 3,849 46,188
4 Commercial Division Head 1 3,849 46,188
5 Production Head 1 5,132 61,584
6 Technical Head 1 5,132 61,584
7 Operators and laborers 12 2,566 369,504
8 Mechanics and electricians 4 2,566 123,168
9 Casher 1 2,053 24,634
10 Driver 1 1,540 18,475
11 Messenger, Cleaner, Guard 6 770 55,426
Total 30 38,490 939,156
Employment Benefits 20% of Annual
Salary 187,831
1,126,987
7.2 Training Requirement
Intensive training before commencement and various periodic on job-trainings should be carried
out. . The average annual cost of training is estimated to be Birr 128,300; the amount is included
in the working capital.
12. 9
8. Financial Analysis
8.1 Underlying Assumption
The financial analysis of this plant is based on the data provided in the preceding chapters and
the following assumptions.
A. Construction and Finance
Box 1: Construction and Finance
Construction period 2 years
Source of finance 40% equity and 60% loan
Tax holidays 2 years
Bank interest rate 12%
Discount for cash flow 18%
Value of land Based on lease rate of ANRS
Spare Parts, Repair & Maintenance 3% of fixed investment
B. Depreciation
Box 2: Depreciation
Building 5%
Machinery and equipment 10%
Office furniture 10%
Vehicles 20%
Pre-production (amortization) 20%
13. 10
C. Working Capital (Minimum Days of Coverage)
Box 3: Working Capital
Raw Material-Local 30 days
Raw Material-Foreign 120 days
Factory Supplies in Stock 30 days
Spare Parts in Stock and Maintenance 30 days
Work in Progress 10 days
Finished Products 15 days
Accounts Receivable 30 days
Cash in Hand 30 days
Accounts Payable 30 days
8.2 Investment
The Total Initial Investment including working capital at full capacity is estimated at Birr 8.75
million of which Birr 502,000 is for plant machinery and equipments. The detail is shown in
Table 5.
Table 5: Total Initial Investment & Working Capital at Full Capacity
Item Cost
Land 4,500.00
Building and civil works 2,566,000.00
Office equipment 192,450.00
Vehicles 641,500.00
Plant machinery & equipment 1,288,132.00
Total Fixed Investment 4,692,582.00
Pre production capital expenditure* 234,981.45
Total Initial Investment 4,927,563.45
Working capital at full capacity 17,508,983.61
Total 22,436,547.06
*Pre-production capital expenditure includes - all expenses for pre-investment
studies, consultancy fee during construction and expenses for company‘s
stablishment, project administration expenses, commission expenses, preproduction
marketing and interest expenses during construction.
14. 11
8.3 Production Costs
The total production cost at full capacity is estimated at Birr 21 million. The details are shown at
Table 6.
Table 6: Total Production Cost at Full Capacity
Total Production Cost at Full Capacity
Items Cost
1. Raw materials 19,100,000.00
2. Utilities 16,400.00
3. Wages and Salaries 439,200.00
4. Spares and Maintenance 54,945.00
Factory costs 19,610,545.00
5. Depreciation 176,015.00
6. Financial costs 1,237,542.45
Total Production Cost 21,024,102.45
8.4 Financial Evaluation
I. Profitability
The income statement (Annex 4) shows that the proposed project generates profit starting from
the first year of operation. Undiscounted annual profit starts at about Birr 3.3 million in first year
and reaches about Birr 6.3 million in the eight year of the project life. Gross Profit to Sales ratio
starts at 7.41% and reaches 15.04% at the eight year. Return on Equity starts at 37.18% and
reaches 70.40%. The total profit earned during the whole ten years of operation amounts to about
Birr 56.2 million. These indicators prove that the project is profitable.
15. 12
II. Breakeven Analysis
The breakeven analysis shows that the Total Revenue equals the Total Cost at 9.7% of capacity
which is achieved at the first year of operation.
III. Payback Period
The project pays back its initial investment during the second year of operation.
IV. Simple Rate of Return
The simple interest rate is 28.7%
V. Internal Rate of Return and Net Present Value
The Internal Rate of Return is 42.6% and the Net Present Value at 18% discount rate per annum
is Birr 13,808,891 (See Annex 3).
VI. Sensitivity Analysis
Sensitivity analysis is conducted in two respects: sensitivity to revenue and row material costs. A
10% decrease in sales revenue reduces the total revenue by about 77% - from Birr 56.2 million to
Birr 12.95 million; and the IRR reduces to 36%. This shows that the product is highly sensitive
to sales revenue.
On the other hand increase in input costs have relatively less adverse impact on profit. If, for
instance, input costs increase by 10% the total revenue reduces by about 65% - from Birr 56.2
million to Birr 19.7 million; and the IRR is not affected by much.
9. Economic and Social Benefit and Justification
Based on the foregoing presentation and analysis, we can learn that the proposed project
possesses wide range of benefits that complement the financial feasibility obtained earlier. In
general the envisaged project promotes the socio-economic goals and objectives stated in the
strategic plan of the Amhara National Regional State. These benefits are listed as follows
16. 13
A. Profit Generation
The project is found to be financially viable and earns a total profit of Birr 56.2 million within
the project life. Such a result is attractive for a business undertaking whose initial investment is
only Birr 22.5 million.
B. Tax Revenue
In the project life under consideration, the government will collect about Birr 20.2 million from
corporate tax payment alone (i.e. excluding income tax from employees, sales tax and VAT).
C. Import Substitution and Foreign Exchange Saving
The project has strong import substitution effect. During ten years of operation, this plant will
save an equivalent of Birr 561.95 million foreign currency, which otherwise would have been
needed to import aerosols from elsewhere.
D. Employment and Income Generation
The proposed project is expected to create employment opportunity to 30 citizens of the region.
E. Diversification and InterSectoral linkage
The proposed project helps to diversify ANRS’ and Ethiopian economy. It contributes to
industrialization of the economy of the region as well as the county as a whole. It has a potential
to strengthen the linkage between the manufacturing and the trade sectors.
F. Public health
It complements to the on-going efforts to enhance the public health, especially the fight against
malaria.
