PROJECT PROPOSAL FOR THE ESTABLISHMENT OF

GYPSUM MANUFACTURING PLANT

PROJECT TO BE IMPLEMENTED IN NORTH SHOA ZONE

CHANCHO TOWN OF OROMIA REGION

SUBMITTED TO OROMIYA URBAN LAND DEVELOPMENT AND

MANAGEMENT AGENCY

PROMOTER: -MR. DARIYOSS TEKALIGN NIGUSSIE

Finfinne

August 2022
Contents
Executive Summary ........................................................................................................................................ 4

1. Introduction .................................................................................................................................................. 5

1.1 Background .................................................................................................................................................. 5

1.2 Profile of the Promoter ............................................................................................................................ 9

1.3 Purpose of the document ..................................................................................................................... 10

1.4 Project Justification ................................................................................................................................ 10

1.5 Objective of the Project ......................................................................................................................... 10

1.6 The Socio- Economic Significance of the Project ......................................................................... 10

1.7 Location and Premises Required ...................................................................................................... 12

1.7.1 Location ................................................................................................................................................... 12

1.7.2 Premises required and land use .................................................................................................... 12

2. Market study and plant capacity ......................................................................................................... 13

2.1. Market Study ............................................................................................................................................ 13

2.3. Projected Demand.................................................................................................................................. 19

2.4. Market Prospects ................................................................................................................................... 20

2.5. Market Share ............................................................................................................................................ 20

2.6. Marketing Strategy and promotion ................................................................................................. 20

2.7. Plant Capacity and production program ....................................................................................... 21

2.8. Pricing .................................................................................................................................................... 21

3. TECHNICAL STUDY ................................................................................................................................. 22

3.1. Product Description .............................................................................................................................. 22

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3.2 Raw Materials and Input ...................................................................................................................... 22

3.3. Utilities ....................................................................................................................................................... 23

3.4. Technology and Manufacturing Process ....................................................................................... 24

3.5 Machinery and Equipment Requirement ....................................................................................... 26

3.6. Engineering Building and Civil Works ........................................................................................... 27

3.7. Action (Implementations) plan ........................................................................................................ 28

4. Organization Structure and Management ....................................................................................... 29

4.1. Brief Functional Description .............................................................................................................. 29

4.1.1 General Manager .................................................................................................................................. 29

4.1.2 Administration and Finance Division .......................................................................................... 30

4.1.3 Production and Technical Services Division ............................................................................. 30

4.1.4 Commercial Division .......................................................................................................................... 30

4.2. Manpower Requirement ..................................................................................................................... 30

4.3. Training requirement ........................................................................................................................... 31

5. Financial Analysis ..................................................................................................................................... 32

5.1 Underlying Assumption ........................................................................................................................ 32

5.2. Total Initial Investment Cost ........................................................................................................ 33

5.2.1. Fixed Investment ............................................................................................................................ 33

5.2.2. Initial Working Capital ................................................................................................................. 35

5.2.3. Pre -Service Expense ..................................................................................................................... 35

5.3. Annual Salary Expense ......................................................................................................................... 35

5.5. Financial Analysis and Statements .................................................................................................. 36

5.5.1. Source of Fund ..................................................................................................................................... 36

5.5.2. Loan Repayment Schedule ................................................................................................... 36

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5.5.3. Depreciation Schedule ..................................................................................................................... 37

5.5.4. Balance Sheet ..................................................................................................................................... 37

5.5.5. Income/Loss Statement ................................................................................................................ 38

5.5.6. Cash Flow Statement .................................................................................................................... 39

5.6. Financial Evaluations ............................................................................................................................ 40

5.6.1. Profitability ........................................................................................................................................ 40

5.6.2 Financial Ratios ................................................................................................................................ 40

5.6.3 Break-even Analysis ...................................................................................................................... 40

5.6.4 Payback Period ................................................................................................................................. 41

5.6.5 Internal Rate of Return ................................................................................................................ 41

5.6.6 Net Present Value ............................................................................................................................ 41

6. Impact on Environment ........................................................................................................................ 42

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Executive Summary
Project Gypsum Manufacturing Plant

Project owner Mr. Dareyoss Tekaligne Nigussie

Type of Establishment Sole Proprietorship

Nationality Ethiopian

Project location North Shoa Zone Chancho Town Of Oromia Region

Premises required 10,000 M2

Investment capital and For implementing this project, 32,500,000 Eth Birr is
Financial sources required. From this 70% or 22,750,000 birr will be covered
by bank loan and 30% or 9,750,000 birr will be contributed
by the promoter of the project.

product mix gypsum plaster (gesso)

Production at full capacity Produces 15,000 tons of gypsum plaster (gesso) gypsum
plaster (gesso)

Marketing destination The envisaged factory is intended to sale 100% of its

products to the domestic market.

Employment opportunity The total manpower requirement of the project is estimated

created at about 70 employees Permanent workers (Skilled +
Unskilled) and 30 un skilled Temporary workers

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1. Introduction

1.1 Background
The government of the country has been excreting its maximum effort to expand
investment opportunities in the country by designing different policies and strategies that
will facilitate investment through attracting both domestic and foreign investors. Likewise,
the Oromia regional state government has been working day and night to make poverty
history by making its door open to investors both (domestic and foreign) to come and
invest in the region. Therefore, it is this many opportunities and cumulative experience
which makes the owner of the project promoter motivated to participate in the
manufacturing sector especially on Gypsum products.

Gypsum is a quarry material which in its various form has several and other uses. It is
widely used in construction industry (it is for instance one of the extender pigments in the
paint industry), agriculture (in treating soil) and other section (for making plaster of parts).
Gypsum (CaSO 4 2H 2 O) and anhydrite (CaSO 4), respectively, are the hydrated and
anhydrous forms of calcium sulphate. The term gypsum has several meanings covering the
mineral gypsum (CaSO 4 .2H 2 O) as well as its rock-forming equivalent gypsum rock. The
word gypsum is derived from the Greek word mean "chalk" or "plaster".

In compliance with the market oriented economic policy of Ethiopia, the parliament
declared that it is the continuing policy of the Federal Government in the national interest
to foster and encourage private enterprises in developing economically sound and stable
mineral mining.

Accordingly, the Federal Government’s Ministry of Mines and Energy is responsible to

administer and supervise all large scale mining operations including issuing prospecting,
exploration and mining licenses for foreign investors and to these in joint venture with
Ethiopians as per the reform issued in 1998 on the Mining proclamation following the
realization of previous shortcomings of earlier laws and policies.

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The reform clearly stipulated the responsibility of National Regional Governments to issue
licenses and administer all small scale mining operations owned by Ethiopians and
collecting all fees in addition to issue prospecting and exploration licenses for national
investors.

In June 1993 new Mining and Mining Income Tax Proclamations were issued having
considered knowledge-based experiences in some competitive countries and given the
following provisions

 Invite private investment in all kinds of mineral operations;

 Provides a prospecting license for one year;
 Provides an exploration license for an initial period of three years and renewed twice
for one year each;
 Provides a mining license for 20 years and renewed for 10 years unlimitedly;
 Guarantee the licensee’s right to sell all the minerals locally or abroad giving marketing
freedom;
 Provides for exemptions from custom duties and taxes on equipment, machinery,
vehicles and spare parts;
 Gives securities of tenure;
 Gives clear provisions on fiscal and other issues;
 Considering taxation on repatriation of profits and capitals, a licensee shall pay a 2-5%
royalty on ad Val Orem at production site, and a 35% income tax on taxable income.
Taxable income is computed by subtracting from gross income for any accounting year
all allowable revenue expenditure, a four years straight line depreciation, reinvestment
deduction and permitted loses; and
 The mining proclamation guarantees the opening and operation of a foreign currency
account in banks in Ethiopia, retention of portion of foreign currency earning and
remittances of profits, dividends, principal and interest on a foreign loan etc. out of
Ethiopia.

Of course this fiscal package is still subject to frequent reviews for maintaining a balance

6
between the objective of the government and investors as is evident by a series of
amendments of the 1993.

Between 1974 and 1991 private investments were not allowed in the mineral sector. The
government was fully responsible for the exploration and development of the sector,
before the advent of the new economic policy of Ethiopia. In compliance with the new
market economic policy of Ethiopia the parliament declares that it is continuing to update
the policy of the Federal Government in the national interest to foster and encourage
private enterprises in developing economically sound and stable mineral mining.

For a successful implementation of the policy, a number of steps have been taken aiming to
boost the confidence of the private sector following the government’s strong believe that
rapid mineral development can only be realized when the private sector is given full right
of operating managing and owning mineral enterprises. This is the underlined reason for
the government’s active response to the concern of the International mining Companies.
Accordingly it has restricted its role to basic mineral resources exploration, regulation and
promotion only;

 To avoid the fear of controlling a large tract of prospective land by state owned
companies, and

 To avoid the fear of seeable high risk due to unexpected unfair competition with
state owned enterprises.

In this connection a measure stick for such track record of the government’s commitment is
manifested by the privatized Lege Dembi Gold Mine, the only one government owned large
scale gold mining, and the Kenticha Tantalum Mine which is already in the pipeline for
privatization. This includes the reform of the mining law which is taking place since 1993
and many changes that have happened to justify the sincerity of the government.

Furthermore the commitment is much affirmed following the establishment of a fair and
clear cut mining legislation giving investors assurances of the fruits of their success. It
constitutes a fair setup of efficient and effective licensing and mineral right administration
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system, a fair set of environmental laws, rules to monitor and mitigate and reclamation
effects by mining operation, fair laws to regulate the safety and health of the work force
and securing of tenure. It also gives freedom to license holders with a number of incentives
including low royalty, exemption from custom duties and taxes on the equipment,
machineries vehicles, and spare parts necessary for mineral operations with a 10 years
provision to allow investors to carry forward losses.

Gypsum rock contains varying proportions of calcium sulphate dehydrated and minor
quantities of anhydrite, clay and carbonates depending on its level of purity. Other
contaminants include secondary quartz and soluble salts (Lorenz and Gwosdz, 2003). Pure
gypsum has a composition of 22.6% CaO, 46.5% SO 3 and 20.9% H 2 O (Carr, 1994). It is
formed by the hydration of anhydrite at or near surface, but usually passes into anhydrite
below 40-50 m, although this varies according to local geological conditions. In nature
gypsum occurs as beds or nodular masses up to a few meters thick and is the products of
the evaporation of seawater.

Most of the gypsum and anhydrite rocks on the earth are within evaporate series.
Evaporation generally produces an evaporate series reflecting the precipitation sequence
as: carbonate at the edge of the evaporation basin followed by a gypsum rock belt running
parallel to the edge separating the peripheral carbonates in the centre of the basin.

Gypsum rocks are usually white to grey- white, but can also be shades of red, brown and
yellow. Crystals are transparent to translucent. The simplest way to identify gypsum is
scratching by fingernail. It is the most common sulfate mineral with the Moho hardness
scale 2.

Gypsum is a common rock with thick and extensive evaporite beds in association with
sedimentary rocks. Rock salt (NaCl, MgCl 2 and KCl) and rock gypsum often occur together
in evaporitic successions (Bates, 1969) (Figure 3). Deposits are known to occur in strata
form as early as the Permian age. Gypsum is deposited in lake and sea water, as well as in
hot springs, from volcanic vapors and sulfate solutions in veins. Hydrothermal anhydrite in
veins is commonly hydrated to gypsum by groundwater. It is often associated with the
minerals halite and sulfur.
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Gypsum occurs in nature in different forms. The flattened and often twinned crystals and
transparent cleavable masses are called selenite. Selenite is the name for clear, transparent
gypsum sheets and crystals which can grow up to several square decimetres in size (Figure
4). Selenite is an alternate name for the mineral gypsum. The word Selenite comes from the
Greek “selenites”, meaning “moon stone” Gypsum occurs in nature in different forms. The
flattened and often twinned crystals and transparent cleavable masses are called selenite.
Selenite is the name for clear, transparent gypsum sheets and crystals which can grow up
to several square decimetres in size (Figure 4). Selenite is an alternate name for the
mineral gypsum. The word Selenite comes from the Greek “selenites”, meaning “moon
stone”

Gypsum may also occur as silky and fibrous, in which case it is commonly called satin spar.
A very fine-grained white or lightly- tinted variety of gypsum is called alabaster, which is
prized for ornamental work of various sorts (Figure 5). In arid areas, gypsum can occur in a
flower-like form, typically opaque with embedded sand grains called desert rose.

Gypsite is a weekly consolidated earthy mixture of gypsum and clay occurring in regions of
little rain and rapid evaporation.

The Rock gypsum also tends to be microcrystalline and powdery looking – it is much finer-
grained than typical rock salt deposits

Gypsum has long been of economic importance in the family of industrial minerals and
rocks (Carr, 1994). It is a relatively low priced mineral/rock and economically the most
important construction raw material. Gypsum has long been of economic importance in the
family of industrial minerals and rocks (Carr, 1994). It is a relatively low priced
mineral/rock and economically the most important construction raw material.

1.2 Profile of the Promoter

The promoter of the project Mr. Dariyoss Tekaligne Nigussie is an Ethiopian business
peron, currently engaged in the production of gypsum plaster (gesso) at small scale with in
the envisaged vicinity which will going to upgrade his investment at a higher level. The
promoter does have ample experience, accumulated diversified-skills in the area, and
9
adopted working with many people. Thus, these experiences primarily motivated the
promoter to develop the inception of this project idea.

1.3 Purpose of the document

The objective of the feasibility study is primarily to facilitate potential entrepreneurships in
project identification for investment. The project feasibility may form the basis of an
important investment decision. The document/study covers various aspects of project
concept development, start-up, production, marketing, and finance and business
management. The document also provides sect oral information, brief on Government
policies and international scenario, which have some bearing on the project itself. This
particular feasibility is regarding the establishment of gypsum manufacturing plant mainly
gypsum plaster (gesso) for domestic market.

1.4 Project Justification

Gypsum product obtains a relative advantage in its divers applicability and can enjoy a
diverse (numerously & segmented) market. The raw material quarry gypsum is widely
available in the region, particularly in the Gorges of Nile River and various mountainous
areas. It has not been exploited yet for use in different product manufacturing and there is
no single factory that produces Gypsum powder in the region. It is highly advantageous for
the region economic development to manufacture Gypsum powder and other industries
related to the product.

1.5 Objective of the Project

The main objective of this factory is to manufacture, cost effective, market oriented, client
based and quality gypsum plaster (gesso) products for local market and international
market.

1.6 The Socio- Economic Significance of the Project

The envisaged project deemed to contribute to the economic development of the
nation in general and regional in specific with following ways:

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1. Manufacturing of quality gypsum plaster (gesso) Projects

The project plan to produce quality based gypsum products mainly gypsum plaster (gesso)
at reasonable market by doing this the project wills benefits the consumers.

2. Source of Revenue

As public policy of any nation, the government collects different forms of taxes from
different business organization and individuals. Among the different forms of taxes,
business income taxes, VAT and payroll tax are collected from undertaking business
activities. Therefore, the project will serve as sources of revenue for both the region and
nation in general.

3. Employment opportunity

One of the problems that our country faced is unemployment. Therefore, the current
objective of the government is working on tackling the problem of unemployment
and fostering the development process either through creating self employment in other
organization. Hence, this project will hire 288 citizens both permanently and casually.

4. Benefit for the Local Community

As a corporate responsibility the company will engage in different development activities

on the surrounding areas. This will better worse the community and contribute for the
development of the nation

5. Stimulate the Local Economy

This factory has positive externality in the district that will encourage the economic
movement of local economy. There will be economic relationship and transactions among
different actors.

6. Technology Transfer

By manufacturing Gypsum products, the project will train and develop the capacity of the
technical staffs. By doing this, the company will add value in technology transfer for
the nation/region in this area.

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1.7 Location and Premises Required
1.7.1 Location
The envisioned project is located in Oromia regional state, North Shoa Chancho town,
which is around 25 kms far from the Addis Ababa. The main justifications behind the
selection of this location are:

 Strategically located near to one of the raw material source (gypsum potential)of the
nation (Abay Vally)
 Relatively advanced development in infrastructure (Power, Water, Telephone
internet, road etc.
 All road to the nearest market outlets
 Availability of huge trainable labor force

1.7.2 Premises required and land use

For the proposed set up of Gypsum products manufacturing plant, 10,000 square meters of
land required. This land' requirement includes space for the installation of plant and
machinery, management office and store for finished product and parking.

No Descriptions Required area in M2

1 Production hall 1000

2 Raw materials and inputs 800

3 Finished products store 690

4 Office and Showroom and Workers Canteen 400

5 Walk way and loading unloading area 500

6 Toilet /Bathroom/ 100

7 Guard house 10

8 Green area 500

9 Future expansion plan 6000

Total 10,000

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2. Market study and plant capacity

2.1. Market Study

Data and information on Gypsum product in Ethiopia is not well organized and it is hard to
get time series data. Hence, the study uses a scientific qualitative approach to study the
market nature for these products.

Demand for gypsum is closely linked to general economic activity due to its use in
construction, in plasterboard, plasters and cement. Overall, world consumption of gypsum
dropped 4% between 2006 and 2008, a total reduction of 8Mt, as a result of the global
financial crisis and associated recession. Plaster board and cement production are
expected to take at least 2-3 years to regain the 2006 peak levels, but full economic
recovery will see growth rates of between 4 and 7%py for cement and plasterboard
respectively. Global consumption of gypsum could reach over 300Mt by 2015, from 216Mt
in 2008.

Market for gypsum is being driven principally by the current growing demand of the raw
material in the construction sector. In Ethiopia, like other countries, there has been an
increased demand of cement, following the construction boom for the last five years. The
construction of big buildings: office towers, business buildings, residential complexes, ring
roads, and all kinds of roads everywhere in the country need basically cement and of
course, other products like stucco/ gesso for interior use in buildings.

Domestic production of gypsum in Ethiopia in 2002-2004 was 118 thousand metric tons
(USGS). About 425,683.00 m3 and 325,358.38 tons of gypsum were produced in the last 15
years valued at nearly 35,030,970.42 Birr. Cement factories are the major consumers of
gypsum. However, there is an increase in demand for gypsum powder, plaster board,
decorative plaster, gypsum sheets, gypsum tiles and plasters in the current construction
activity. These markets are likely to show significant growth due to the fact that big
building walls require plaster, wall board and decorative. For this reason Ethiopia
imported 741,538.00 Kg of gypsum powder and plaster from 2005 to 2008.

13
A large amount of gypsum are currently produced for cement and plaster manufacturing
industries in areas of Abay Gorge, Filiklik (Abay), Muger, Jema (Yogof), Dewele (Dire-Dawa)
and Adigudem and Hageresela (near Mekele). At present five international companies has
received exploration licensee in Jema Valley, Kersa,Yabeta, Lencha and Gara Boren, Fiche,
Urga- Ereri,Jeldu District and Adalye Babur Tabiya and Dewele Localities and hinile Zone
Except the last licensee area, which is located in Somali Regional State, all the rest are in
Oromiya National Regional

In Ethiopia, gypsum is used in the construction sector, in the manufacturing of building

products such as plaster, plasterboard and cement. At present there are both small scale
and large scale cement factories which use gypsum as a raw material for the production of
cement. Unlike the cement factories, which have their own quarries and use modern
mining equipment, co-operative miners use hand tools to dig blocks and supply pieces to
gesso manufacturer who has jaw crushers and mill in the vicinity of the quarry.

Commercially calcined gypsum, CaSO 4 , H 2 O is manufactured as hemihydrates product by

partial calcinations of gypsum heated at a temperature of 350°C, and it is commonly called
plaster of Paris. This product can be utilized for wall-board products, other plasters and
cement products.

Gypsum rock and anhydrite rock in unburned or quick form can be used for an
extraordinarily diverse range of applications. The use of gypsum rocks or anhydrite rocks
for the production of cement and construction materials harnesses the ability of the
gypsum mineral to dehydrate or semi- hydrate product to bind and solidify in the presence
of water.

Natural gypsum and anhydrite have been the preferred material for cement manufacturing.
Gypsum is blended with cement clinker and finely ground to produce Portland cement. An
average of 3-6% gypsum is added to the clinker to control the initial rate of reaction with
water and retard the setting time (Mengistu and Fentaw, 2003)

14
Gypsum used as binder in civil engineering, in mining, underground railway (tunneling),
road and dam construction.

As dry wall, in common building material, layers of gypsum plaster are pressed between
two thick sheets of paper. High- purity of natural gypsum is used to produce special
plasters, for use as plaster moulds in the pottery industry and for surgical and dental work.
Gypsum has a very low thermal conductivity and hence it is use in drywall as insulating
filler is high. Drywall of gypsum is used globally for finished construction in interior walls
and ceilings.

Drywall is commonly known as gypsum board, wallboard, plasterboard (USA, UK, Ireland,
Australia), Gibraltar board or gib (New Zealand – GIB), rock lath, Sheetrock (United States),
gyproc (Canada, Australia, UK), pladur (Spain), rigips (Germany and Central Europe), and
alçıpan or simply board in Turkey, (www.woodsgold.com/)

In the construction board or construction element gypsum is used as interior finishing, like
gypsum board and especial moldings. In compound construction boards/compound
15
construction elements as in interior finishing; gypsum is used as sound insulating
boards and fire-proof elements.

Gypsum is also used together with other raw material to decorate interior walls; binder
for interior finishing e.g. interior wall plaster, dry wall, screed for flooring.

Gypsum serves as decorative work and dimension stone for house building in the
absence of other hard rocks. Alabaster, type of gypsum, has been used for centuries for
carving into lamp base, bowls and similar objects (Bates, 1969). Buildings of this kind
have proven to be durable.

Gypsum has different special applications: in areas of waste as in disposal additive e.g.
dewatering and stabilization of sewage sludge, hazardous waste, radioactive or toxic

16
sewage; fillers for paper, paper coatings; for plastics, paints, protective anticorrosion
coatings, glue, adhesives, cosmetic products like foot creams, shampoos and many other
hair products (Figure 15). As carrier: for insecticide, pharmaceuticals and for all types
of fertilizers. Gypsum, as fertilizer is used for specific crops like, cotton, peanut and
legumes (Mengistu and Fentaw, 2003). In fertilizers/soil improver e.g. Lime nitrogen,
gypsum mixtures for ground stabilization and structural improvements and acidity
reduction. Gypsum to some extent gypsite and anhydrite are applied to the soil
conditioner and fertilizer. Materials for the chemical industry e.g. sulphur, sulphuric
acid, calcium, calcium carbide and calcium cyanamide.

In hospital gypsum plaster (gesso) is used as special dressing in supporting broken

limbs. Small quantities of high-purity gypsum are also used in confectionary, food, the
brewing industry, pharmaceuticals, in sugar beet refining, as cat litter and as oil
absorbent.

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2.2. Supply Analysis
Demand for calcinated gypsum in Ethiopia is being met from two sources: domestic
production and imports. The domestic producers fall into three categories:

1. Public Sector
2. Formal Private Sector, and
3. Informal Private Sector

The sole public sector of gypsum producer is Educational Materials and Distribution
Enterprise (EMPDE) which was established in 1978 E.C. with the purpose of manufacturing
and selling chalk to educational institutions in the country. Although the primary purpose
of its establishment was to produce writing chalk, EMPDE has also been producing and
marketing gypsum, ever since it was founded, as a co-product.

Presently, the maximum attainable capacity of EMPDE for gypsum production is 1,300 tons
per annum, while during years 1990 – 1996 E.C, production of gypsum by the Enterprise
varies from 314.3 tons in 1990 to 744.2 tons in 1996.

In estimating the current (1999) production level of EMPDE it is assumed that the last
three years in the data set (1994 – 1996) average annual production (585 tons)
approximates current production level of the enterprise.

Formally established private sector producers currently, are ADK, and Ehtio-gypsum
which produce about 1,200 tones of gypsum annually.

There are also small informal sector producers who do not have standard plant and
machinery but rather carry out the process of production using crude makeshift methods.
Such cottage producers number about 5, and the combined supply of calcinated gypsum
originating from the informal sector is estimated at 400 tons per annum.

Although the bulk of demand for calcinated gypsum is met through local production, some
amount is also imported for various purposes. The gypsum imported from overseas is
18
generally of a higher quality and fineness; and is mainly used for medical (bone casting),
ornamental and industrial purposes.

2.3. Projected Demand

The demand for gypsum, like many other construction materials, is a function of a number
of interrelated variables. These variables that are essential in determining the magnitude
and trend of the demand for gypsum are:

 The overall economic development level and growth trend of the country,
 The pattern and trend of the construction industry in general and the building
construction sector in particular,
 Expected technological change that affects the structure of the construction industry,
 Government policies and regulations that have impact on the future level and trend of
construction activities,
 Size of population and its growth rate Size of population and its growth rate

In view of trends in the above variables, it is not difficult to conclude that the demand for
construction materials, including gypsum, will grow in the future. Overall GDP of the
country had exhibited an average annual growth rate of 6.6% during the five years period
i.e., 1999/2000 - 2003/2004. This is adjusted to 7% and applied on the present effective
demand that was estimated earlier, as base year figure, in order to forecast future demand
of gypsum products.

Year Projected Demand (tons) Existing local supply(tons) Demand Gap(tons)

2011 2955 2185 770
2012 3161 2185 976
2013 3383 2185 1198
2014 3619 2185 1434
2015 3873 2185 1688
2016 4144 2185 1959
2017 4434 2185 2249
2018 4744 2185 2559
2019 5076 2185 2891
2020 5432 2185 3247

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2.4. Market Prospects
From the above market study there exists great market opportunities in the
manufacturing of gypsum products. Hence, the envisioned plant will be successful by
entering in to this market.

2.5. Market Share

The envisioned project will supply 100% of its product for domestic market.

2.6. Marketing Strategy and promotion

The factory will use the following promotional mix:

i. Website Development

The use of the internet is essential in providing information and access to the factories
gypsum products. A fully functioning site will be developed that will enable perspective
clients to see the company products and samples online.

ii. Advertising

Advertising is used primarily to attract new clients to build awareness and recognition to
the company products. There will be different advertisement packages to this company like

 Provide brochures and flyers,

 Periodic advertising in target market area through newspapers/Magazines

 Yellow pages example telephone directory

 Media advertisement

iii. Public Relations

Develop frequent contact to prospective target client is essential to promote, update and
remind the company products.

iv. Branding

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All documents and information placed into the public hands are to have a consistent look
and feel that highlights the best product quality and fair price of the company. The
branding should leave the impression of quality products.

The main marketing strategy of the factory is to produce best quality products and
maintain the customer satisfaction sustainably in terms of quality, durability and service
delivery.

2.7. Plant Capacity and production program

Considering the gradual growth of demand and the time required to develop the required
skill the rate of capacity utilization during the first, second and third year of production will
be 50%, 75% and 100% respectively. Full capacity utilization will be reached during
the third year of operation.

Description Year
1 2 3_10
Capacity utilization (%) 50 75 100

gypsum plaster (gesso) 11,250 15,000

7500
(tons)

2.8. Pricing
It would be important to examine the possible level of price based on the competitor’s
action. In this connection, the existing average prices of similar international company
were assessed for the benefit of comparison based on the average price of those products
in the international market the factory will decide the price for its products; i:e 300 birr per
quintal or 3000 birr per tons.

21
3. TECHNICAL STUDY

3.1. Product Description

Gypsum is hydrated calcium sulphate. It is used in interior finishing, partition wall, ceilings
and aquatic boards. Gypsum is found in the form of calcium sulphate and calcium sulphates
dehydrate. The calcium sulphate dehydrate becomes commercially useful substance by
calcining (i.e. driving out the chemically bonded water) by heating and then grinding it to
the required grain size (or fineness).

3.2 Raw Materials and Input

The Mesozoic sediments of Ethiopia chiefly comprise various types of industrial minerals
and rocks. The Abay Basin, the Mekele Outlier and the Ogaden Basin sedimentary rocks
are the major source of these deposits including gypsum.

The Abay Basin contains the Abay Formation, which consists of a 257 meter thick unit
of gypsum, a 196 meter thick of sandy limestone and calcareous sandstone; as well as a
138 meter thick of upper unit, asequence alternating shale and limestone (Tefera, et al.,
1996). The Formation is Middle Jurassic in age containing a total thickness of 580 meters.
The unit containing shale-gypsum sequence with interbeds of limestone is named as Goha
Tsion Formation (Amene, 1996). In Jema valley, the sequence consists of marl, partly
shale, with intercalation of massive and thick gypsum beds (Figure 18). There is white to
dull white gypsum with thickness up to 8.5m (Mamo et al, 1993).

The formation overlays the Adigrat sandstone and have overall thickness of 290m. The
thickness of individual bed of gypsum varies from few centimeters up to 3.5m.

The Goha Tsion Formation is sub-divided into three units based on their stratigraphic
position (Amene and Mojo, 1996). The lower unit composed of mudstone, sandstone, and
rare limestone with alternating beds of limestone, dolomite, shale and gypsum upward.
The unit is 35 meter thick. The middle unit is dominantly gypsum, about 200 meters thick,
with beds ranging from few centimeters up to 3.5meter. The gypsum is grey to white with
22
rarely interbeds of mudstone, dolomite and limestone

The upper unit is mainly shale, siltstone and limestone alternating with thin interbeds of
gypsum. The shale is grey, rarely greenish, sometimes pale yellow and thinly to thickly
bedded. The upper unit is mainly shale, siltstone and limestone alternating with thin
interbeds of gypsum. The shale is grey, rarely greenish, sometimes pale yellow and thinly
to thickly bedded

The Gypsum resources in Abay Gorge are located in Abay Gorge, along Gohatsion- Dejen
road. It comprises multiple beds of variable thickness and purity. The color varies from
dark grey, grey to light yellow with white impregnation. White and grey, clean bedded
gypsum with intercalations of limestone alternate with shale on the upper part, and rare
intercalations of shale at the top and bottom, are common.

The individual beds ranges from 0.50m to 3m. Some of the beds are thick and reach up to
50m. The beds are fractured with the major joint trending N35°W and N30°E dipping sub-
vertical to the east.

Almost all gypsum beds that occur along the road is worked by co-operative miners. The
individual beds are worked by low-tech, opencast methods, digging blocks by hand using
slage hammer and iron bar.

Open cast mining methods using mechanized quarry equipment are also used in some
parts of the deposit. At present there are two operating machine which probably supply
raw material for the cement factories.

The co-operative miners supply the raw material to the plaster factories. Some of them
have crusher and grounding machine in nearby village, Filiklik. Here pieces of gypsum
boulders are first crushed then ground to powder. The powder is packed into 13Kg suck
and transported to Addis Ababa.

3.3. Utilities
Electricity and water are the two major utilities required by the envisaged plant. Total
23
annual cost of major utility items at full operation capacity of the plant is Birr 281,300.00.
Details are shown in the table below:

Annual
Unit
Requirement Total
Cost(Birr)
price/K
S/N Utility (KWh/year) Remarks
Wh
350m/n *
Electric 150W/m/n *
1 63,000KWh 0.55 34,650
power 8hrs/day *
300days/year

20M3/day*300day/year
2 Water 5,000 M3 3.8 19,000
Fuel and
3 6,000lit 49 294,000 40lit/day*300day/year
oils
Total 347,650

3.4. Technology and Manufacturing Process

Gypsum powder production involves basically the process of preliminary crushing of
gypsum ore or quarry gypsum stone, pre baking, crushing (to prescribed size) screening
baking (calcening) milling and bagging. The product obtained is semi hydrated or hydrous
gypsum.

Step 1 - Plaster of Paris Manufacture

The ground gypsum is then charged into large steel kettles of ten tonnes capacity, which
are heated by gas burners and stirred internally by rotating paddles to prevent localized
overheating. As the contents of the kettle heat up, the escaping steam from the water of
crystallisation being driven off causes the gypsum to "boil" and calcination to occur:

CaSO 4 . 2H 2 O → CaSO 4 . ½H 2 O + 1½ H 2 O

During this reaction the temperature must be carefully controlled. Above the optimum

24
temperature range unwanted side reactions involving excessive water loss occur:

CaSO 4 .½H 2 O → CaSO 4 (trace H 2 O) + ½H 2 + ½O 2 at 175°C soluble anhydride

CaSO 4 .½H 2 O → CaSO 4 + ½H 2 O at 425°C Insoluble anhydride

Where there is inadequate stirring, hot spots can form in which quicklime is produced:

CaSO 4 → CaO + SO 3 extreme heat quicklime

With careful temperature control, the levels of both unwanted anhydrides can be kept well
below their respective permissible maximums of 5% and 2% and quicklime can be
completely eliminated.

When the required temperature is reached, the plaster is dropped into pits to cool it
rapidly to prevent any further calcination. It is then ground and stored in large silos for
further use.

Step 2 - Rehydration

Some of the plaster is sold as Plaster of Paris powder, but the majority is moulded on site. This
involves rehydrating it to gypsum in accordance with the following reaction:

CaSO 4 .½H 2 O + 1½H 2 O → CaSO 4 .2H 2 O

Plaster of Paris gypsum

This chemical reaction requires 18.3 parts of water per 100 parts of plaster by weight.
However, in practice 60 - 80 parts of water are used so that the plaster can easily be
poured into a mould before it sets.

Step 3 - Setting

As the plaster sets, the residual water is removed by heating in a drying oven for up to 60
minutes at temperatures of up to 250 o C, or by exposure to the wind in covered outdoor
racks. By the time drying is complete; all but 0.5% of the excess water has been removed.
The water leaves pores in the cast that account for more than 50% of the volume of an
25
average plaster, although this density can be altered by the use of certain additives.

The detailed chemistry of the setting process is complex, but it appears the hemihydrates
(CaSO 4 .½H 2 O) dissolves in the water and the less soluble dihydrate (CaSO 4 .2H 2 O) is
precipitated out: CaSO 4 .½H 2 O + 1½H 2 O → CaSO 4 .2H 2 O powder interlocking
crystalline mass. The setting reaction is characterized by an induction period during which
very little happens, and it is during this time that additives are mixed in and the mould is
filled.

3.5 Machinery and Equipment Requirement

The factory will use the following machineries equipments, inspection and testing
materials for the manufacturing of the envisioned gypsum products;

a. Crusher
Large rocks are crushed into small pieces. At some plants, the crushed rock
undergoes a surface drying process before going to the grinding mill.
b. Grinding Mill
The mill reduces small rocks to a very fine, chalk-like powder called land plaster.
c. Calcine System
The land plaster is heated in large kettles to remove most of the water from the
plaster.
d. Stucco Holding Tank
Calcined land plaster, called stucco, is fed from a holding bin to the mixer by a screw
conveyor.
e. Mixer
In the mixer, water is added back to the stucco to form slurry, and foam is added to
the slurry to make the wallboard more lightweight.
f. Forming Station
The board forming line starts with two large rolls of recycled paper or fiberglass
mats. The slurry is poured onto the bottom sheet and is immediately covered by the
facing sheet from the other roll. This “sandwich” passes through a pair of forming

26
 plates or rolls which determine the thickness of the board. The face paper or mat
wraps around the sides of the sandwich to enclose the edges of the board.
g. Board Line
The board travels down a long conveyor line in a single continuous piece. During
this trip, water rehydrates the stucco, causing it to harden.
h. Cut-off Knife
At the end of the line, a blade cuts the hardened board into various lengths.
i. Transfer Table
Here the cut lengths are turned face-side up to protect the face paper or mat, then
fed into the kiln.
j. Kiln
The board kiln completes the drying process, leaving the gypsum board virtually
moisture-free.
k. 12 Bundler and Stacker
The bundler “books” the gypsum board by putting two pieces together with the face
on the inside. It is trimmed to exact lengths and the pairs of boards are taped
together to further protect the board face. The bundles are stacked for transfer to
the warehouse for shipping to customers.

3.6. Engineering Building and Civil Works

As explained in part one, the plant will require a total land area of 5000 square meters for
workshop, Warehouse for both raw materials and finished goods, office and the rest for
waste accumulation, parking green area loading unloading and other utilities.

In general the buildings must be capable of being kept clean, provision should be made for
keeping the sewerages drained out properly, and room temperature is attained to keep
healthy environment. In most environments, equipment should be totally enclosed in a
light structure: where the climate is suitable. A concrete floor, which can be swept, is usual.

The loading and offloading areas together with incoming and outgoing roads are proposed
to be paved to ensure a clean environment around the project site. A chain-linked fence

27
fastened to concrete posts will encircle the site. Professional engineers design the project
construction and construction will be done under close supervision and collaboration

3.7. Action (Implementations) plan

Implementation of the project comprises acquiring (securing) land, site clearance,
construction and civil works, processing and securing debt financing, important ion
of machinery, installation of machinery, office furnishing, and utility installation and
commissioning. Totally one year will be scheduled for the implementation.

The Gant Chart below shows the implementation schedule of the project. The time allotted
for the project is presupposed considering there are no major incidences out of the scope of
the promoter.

year Activity Aug Sep Oct Nov Dec Jan Feb Mar Apr May June July

Securing land

Design preparation, approval

and construction permit

Utilities ( Electricity and Water )

Site clearance and building

construction
2022

Building construction

Machinery Importation

Machinery installation

Commissioning

Staff requirement and

orientation

28
4. Organization Structure and Management
The factory would be led by well-established organizational structure that would be staffed
by qualified and experienced professionals. It consist of one general manager, which will be
responsible to plan organize, Coordinate and supervise the overall activities of the factory,
and various functionally related sections under direct supervision of the manager namely,
plant manager, Administration, and finance commercial and production departments.
These departments have their own operational sections under them. The Managing director
of the plant plays the major leading roll of the plant at the apex level.

Considering the size and complexity level of the operation phase of the envisaged project, the
following organizational structure is designed to be suitable for economic, efficiency and
effectiveness.

General Manager

Administration Production and Technical Commercial Division

and finance Service Division
Division

4.1. Brief Functional Description

4.1.1 General Manager

The General Manager is responsible for planning, organizing, leading, Coordinating and
controlling the overall activities of the industry. Preparing and submitting the industries
budget to the General Assembly for approval, following- up of the day to day operation and
implementation the approved budget and work plans, developing an economic and efficient
working method periodic evaluations of the company's performance are some of the main
functions of the General Manager.

Recruitments and placing of management staff members and workers is basically expected

29
to be done by the General Manager in consultation with the General Assembly and
approved organizational structure (Staffing plan).

4.1.2 Administration and Finance Division

The Administration and Finance Division is responsible for planning, organizing,
coordinating controlling of the tasks of recruiting, training and development, performance
appraisals, keep records of the work force and other activities of the human resource
management on one part, and is also responsible for the planning, organizing, coordinating
and controlling of the financial and property movements and record keeping of the same
for the company on the other hand.

4.1.3 Production and Technical Services Division

Production and Technical Services Division is responsible for planning, organizing,
coordinating and controlling of the production process and plant machineries, equipment
and vehicles maintenance services.

The Production and Technical Services Division is also responsible for preparation of
technical specification for any technical items to be purchased and renders any other
technical services whenever required by any work unit of the company.

4.1.4 Commercial Division

The Commercial Division is responsible for planning, organizing, coordinating and
controlling of all commercial activities including marketing, sales and procurement of
inputs and services from abroad or local market which are needed for the smooth and
efficient operation.

4.2. Manpower Requirement

Science the sector is labor intensive, which participate a substantial number of labors in Ethiopia,
The total manpower requirement of the project is estimated at about 288 employees Permanent
workers 180 (Skilled 140 and Unskilled 40) Temporary workers 108 (Skilled 14 and Unskilled 94).

30
Table 7.1 Man power Requirement and annual salary

Monthly Annual
Description No
S/N salary salary
1 Factory Manager 1 10000 120,000
2 Executive Secretary 1 3000 36,000
3 Production and Tech Manager 1 8000 96,000
4 Quality Head 1 8000 96,000
5 Production supervisor 2 5000 120,000
7 Quality Control supervisor 2 5000 120,000
8 Mechanical maintenance 2 5000 120,000
9 supervisor
Electrical maintenance Supervisor 2 5000 120,000
10 Machine Operators & helpers 32 3000 1,152,000
11 Quality Inspectors 4 3000 144,000
12 Mechanic 2 6000 144,000
13 Electrician 2 4000 96,000
14 General service personnel 4 6000 288,000
15 Guard 4 2000 96,000
16 Driver 6 2000 144,000
17 Store Keepers 4 4000 192,000
Sub Total 70 3,084,000

4.3. Training requirement

On job training for operators and short term trainings for supervisors, technicians, and
designers is planned, with estimated cost of Birr 1000,000

31
5. Financial Analysis
5.1 Underlying Assumption
The financial analysis of the envisaged plant is based on the data provided in the preceding
chapters and the following assumptions.

Financial Assumptions

A. Construction and Finance

Construction period 12 months
Source of Finance 30% equity and 70% Loan from bank
Tax Holidays 5 years
Bank Interest rate 8.50%
Discount for cash flow 8.50%
Value of Land Birr 6.50/M2/year
Spare parts & Repair and Maintenance 5% of the fixed investment
B. Depreciation & Amortization
Building 5%
Machinery and Equipment 10%
Office Furniture 10%
Vehicles 20%
Pre-Production (Amortization) 20%
C. Working Capital(Minimum day of coverage)

Raw Material Local 30 days

Raw Material Foreign 120 days
Factories supplies in stock 30 days
Spare part in stock and Maintenance 60 days
Work in Progress 5 days
Finished Product 20 days
Account receivable 30 days
Cash in Hand 20 days
Accounts payable 30 days
32
5.2. Total Initial Investment Cost
The total amount of initial investment capital required to establish the envisaged factory
is estimated to be Br 32,550,000 and from this total investment cost 30% will be covered
by the promoter while the rest will be financed by bank.
Total Initial Investment Capital

SN Description Cost in birr

1 Land, Building & Construction 1,209,000

2 Machines & Equipment 15,000,000
3 Vehicles 7,641,000
4 Office Equipment 500,000
Total Fixed Investment Cost 24,350,000
5 Pre service Expense 200,000
6 Initial Working capital 4,192,100.00
7 Salary Expense at full capacity 3,807,900.00
Total 8,200,000
Total Initial Investment Capital 32,550,000

5.2.1. Fixed Investment

A. Land, Building & Construction

SN Description Total cost in Br.

1 Workshop 320,000
2 Warehouse 180,000
3 Finished product stores 80,000
4 Office Building 70,000
5 Waste Accumulation area 45,000
6 Green Area,Parking and Buffer Zone 82,000
7 Fence and others 50,000
8 Site Development 72,000
9 Design and Supervision 125,000
10 Land lease Initial Fee 185,000
Total 1,209,000
33
B. Machinery and Equipment

The machineries or the plants for these construction materials producing plants will
import from abroad. The cost of machinery and equipment for different kinds of product
intended to produce with all workshop accessories and the total machine cost is estimated
to be br. 15,000,000 based on the current exchange rate.
C. Vehicles

SN Description Qty Unit Price Total Price Remark

1 Dump Truck 1 2,7500,000 2,7500,000 Duty free

2 Pick Up 1 700,000 700,000 Duty free

3 Truck 1 2,100,000 2,100,000 Duty free

4 Bus 1 2,091,000 2,091,000 Duty free

Total 7,641,000

D. Office Equipment

SN Description Qty Unit cost In Br. Total cost in Br.

1 Managerial chair with tables 6 15,000 90000

2 Secretarial chairs with table 1 8000 8000
3 Office Chairs with tables 10 15000 150000
4 Computer with printer 6 15000 90000
5 Shelf 4 3000 12000
7 Telephone machine set 3 2000 6000
8 Filing Cabinets 4 2000 8000
9 Assembly chair and table 91,000
10 Decoration(Carpet & Curtain) 54,000
Total 500,000

34
5.2.2. Initial Working Capital
The initial working capital is estimated to be Br. 8,200,000.00
5.2.3. Pre -Service Expense
SN Description Cost in br.
1 Project proposal 20,000
2 Environmental impact Assessment 40,000
3 Staff Capacity Building 135,000
4 Licensing fee and others 5000
Total 200,000
5.3. Annual Salary Expense
SN Description No Qualification Monthly Annual
1 Factory Manager 1 BA in Business Management Salary in Br.
10000 Salary
120,000in
2 Executive Secretary 1 BSC in industrial Engineering 3000 Br.36,000
3 Production and Tech 1 BSC in Production Technology 8000 96,000
Manager
4 Quality Head 1 Diploma In Secretarial Science 8000 96,000
5 Production 2 Degree in Social Science 5000 120,000
7 supervisor
Quality Control 2 BA in HRM 5000 120,000
8 supervisor
Mechanical 2 BA in Economics/Statistics 5000 120,000
9 maintenance
Electrical 2 BA in management 5000 120,000
supervisor
maintenance
10 Machine Operators & 32 Diploma in Chemistry/Chemical 3000 1,152,000
Supervisor
helpers Engineer
11 Quality Inspectors 4 10+2 in general Mechanic. 3000 144,000
12 Mechanic 2 10+2 in general Mechanic 6000 144,000
13 Electrician 2 10 completed 4000 96,000
14 General service 4 BA in Marketing management 6000 288,000
15 personnel
Guard 4 Diploma in Pur. & Supplies 2000 96,000
16 Driver 6 management
BSC in Computer Science 2000 144,000
17 Store Keepers 4 BA in Management 4000 192,000
Total 70 3,084,000

35
5.4. Other Operating Expenses

SN Description Annual Cost in Br. Assumption Used

1 Property Insurance 1,217,500.00 5% of the fixed cost
2 Audit & legal fee 18,000.00 1500per month
3 Uniforms 13,300.00 70*190br
4 Advertisement & Promotion 400,000.00 % of Sales
5 Telephone, fax and postal 10,800.00 900 per month
6 Cleaning goods supplies . 12,000.00 1000 per month
7 Maintenance & Repair 600,000.00 Estimated Lump sum
8 Stationery and other office supplies 8,400.00 700 per month
9 Electricity 50,250.00 0.45*150,000W per year
10 Water 40,000.00 2*2000 m3 per year
11 Fuel 294,000.00 6500 lit*20 per year
12 Oil and lubricant 6,200.00 10% of fuel cost
13 Miscellaneous Expense 60,000.00 5000 br month
Total 2,730,450.00

5.5. Financial Analysis and Statements

5.5.1. Source of Fund
SN Description % share Amount(in birr)
1 Owners Share 30 9,765,000
2 Bank loan 70 22,825,530
Total 100 32,550,000

5.5.2. Loan Repayment Schedule

Total
Principal Interest Remaining
Year Annual
payment (10%) Balance
payment
0 - - 0 22,825,530
1 2,282,553 2,282,553 4,565,106 20,542,977
2 2,282,553 2,054,298 10,108,000 18,260,424
3 2,282,553 1,826,042 9,576,000 15,977,871
4 2,282,553 1,597,787 9,044,000 13,695,318
5 2,282,553 1,369,532 8,512,000 11,412,765
6 2,282,553 1,141,277 7,980,000 9,130,212
7 2,282,553 913,021 7,448,000 6,847,659

36
 8 2,282,553 684,766 6,916,000 4,565,106
9 2,282,553 456,511 6,384,000 2,282,553
10 2,282,553 228,255 5,852,000 0

5.5.3. Depreciation Schedule

Original Value In Depreciation Depreciation
SN Description
Birr rate in % Per year
1 Land, Building & 1,209,000 5 60,450.00
2 Construction
Machines & Equipments 15,000,000 10 1,500,000.00
3 Vehicles 7,641,000 10 764,100..00
4 Office Equipment 500,000 20 100,000.00
Total 24,350,000 2,424,550.00

5.5.4. Balance Sheet

Asset
Current Asset Value in Br.
Cash 4,007,900.00
Initial inventory of raw materials and inputs 4,192,100.00
Total Current Asset
Fixed Asset -,
Land, Building & Construction 1,209,000
Machines & Equipments 15,000,000
Vehicles 7,641,000
Office Equipment 500,000
Total fixed Asset 24,350,000
Total Asset 32,550,000
Liability
Account payable 22,825,530
Owners Equity Capital 9,765,000
Total liability & Owners' Equity 32,550,000

37
5.5.5. Income/Loss Statement
Revenue Year 1 Year 2 Year 3-10
Sales Revenue 22,500,000 33,750,000 2 45,000,000

Purchase of Raw Material 7,400,000 11,137,500 3 14,850,000

0
Gross profit 15,100,000 22,612,500 5 30,150,000
,
Expenses 1
Salary Expense 3,084,000.00 3,392,400 0 3,731,640
,
0
Other Operating Expenses 2,730,450.00 3,046,320 0 3,807,900
Pre-operating Expense 92,000.00 0 0 0
0
Deprecation Building 60,450.00 60,450.00 1 , 60,450.00
0
Deprecation Machineries 1,500,000.00 1,500,000.00 1
1 0 1,500,000.00
Deprecation Vehicles 764,100..00 764,100..00 2 , 764,100..00
1
,0
Deprecation office Equip 100,000.00 100,000.00 ,5 0 100,000.00
,5 0
Interest Expense 2,282,553 2,282,553 2 0 2,282,553
2
Lease payment 253,000 253,000 0 253,000
0
6
0
0
Total Expense 10,102,453 10,634,723 1
,5 11,917,400
8
,
Profit Before Tax 4,997,547 11,777,777 2
3
,,
4 18,232,600
0
,0
8
2
Tax(35% ) 1,749,141 4,192,222 1
0 6,381,410
,9
4
0
3
Net Profit 3,248,406 7,585,555 0 11,851,190
1
0
0
3
0
7
8
2
,
2
8
,4
9
0
6
1
0
0
0

38
5.5.6. Cash Flow Statement

Year Year 0 Year 1 Year 2 Year 3-10

Equity Capital 9765000
Loan principal 22825530
Sale 0 22500000 33,750,000 45,000,000
Total cash in flow 32590530 22500000 33,750,000 45,000,000
Cash payment
Purchase of raw materials 0 7400000 11137500 14850000
Salary expense 0 3084000 3392400 3731640
Pre operating expense 92000 0 0 0
Investment 32498530 0 0 0
Other Operating cost 0 1047172.5 1023160 1903500
loan repayment 0 4340000 2170000 3363500
Lease payment 0 253000 253000 253000
Tax payment 0 1,749,141 4,192,222 6,381,410
Total payment 32590530 17,873,314 22,168,282 30,483,050
Cash surplus/Deficit 0 4,626,687 11,581,718 14,516,950
Cumulative Cash flow 0 4,626,687 16,208,405 30,725,355

39
5.6. Financial Evaluations
5.6.1. Profitability

Based on the projected profit and loss statement the project will generate a profit
beginning from the first year of operation and increase on wards throughout its operation
life. Annual net profit after tax will grow from Birr 4.548 million to Birr 14.483 million
during the life of the project. Moreover, at the end of the project life the accumulated
cash flow amounts to Birr 77.23 million.

5.6.2 Financial Ratios

In financial analysis financial ratios and efficiency ratios are used as an index or yard stick
for evaluating the financial position of a firm. It is also an indicator for the strength and
weakness of the firm or a project. Some of these ratios calculated for the first year of the
project life are:

Return on sales = Net income/Revenue = 3,248,406/22,500,000= 0.144 (14.4%)

Return on equity = Net profit/Equity = 3,248,406/9,765,000 = 0.33 (33%)

Return on investment = Net profit/Total Investment = 3,248,406/22,825,530 = 0.14 (14%)

These financial ratios for all years of the operation life of the project are found to be
satisfactory and hence indicate that it is profitable and viable.

5.6.3 Break-even Analysis

The break-even analysis establishes a relationship between operation costs and revenues.
It indicates the level at which costs and revenue are in equilibrium. To this end, the break-
even point of the project including cost of finance when it starts to operate at full capacity
(year 3) is estimated by using income statement projection.

BEP = 27.74% (BEP in percentage)

40
5.6.4 Payback Period

The payback period is defined as the period required recovering the original investment
outlay through the accumulated net cash flows earned by the project. Accordingly, based on
the projected cash flow it is estimated that the project’s initial investment will be fully
recovered within 3 years.

5.6.5 Internal Rate of Return

The internal rate of return (IRR) is the annualized effective compounded return rate that
can be earned on the invested capital, i.e., the yield on the investment. Put another way, the
internal rate of return for an investment is the discount rate that makes the net present
value of the investment's income stream total to zero. It is an indicator of the efficiency or
quality of an investment. A project is a good investment proposition if its IRR is greater
than the rate of return that could be earned by alternate investments or putting the money
in a bank account. Accordingly, the IRR of this project is computed to be 28.71 % indicating
the viability of the project.

5.6.6 Net Present Value

Net present value (NPV) is defined as the total present (discounted) value of a time series
of cash flows. NPV aggregates cash flows that occur during different periods during the life
of a project in to a common measuring unit i.e. present value. It is a standard method
for using the time value of money to appraise long-term projects. NPV is an indicator of
how much value an investment or project adds to the capital invested. In principal a
project is accepted if the NPV is non-negative. Accordingly, the net present value of the
project at 8.5% discount rate is found to be Birr 26.37 million which is acceptable.

41
6. Impact on Environment
The production of plaster and plaster board puts very little pressure on the environment.
The final product is non-toxic and wastage and unwanted by-products from the process are
minimal.

The only current issues of concern are dust and CO 2 emissions. The dust emissions are
kept to an extremely low level by the use of dust collectors throughout the plant, but CO 2
emissions are much more difficult to control. CO 2 production during gas combustion is
difficult to avoid, but the factory is endeavoring to keep CO 2 emissions at 1990 levels.

42