I.

Executive Summary

Ethiopia is endowed with diverse agro-climatic zones that are suitable for beekeeping. However, the benefit the country gets from honey and beeswax export is insignificant compared to the huge potential it has for earning foreign exchange as well as generating income to many smallholder beekeepers and other actors in the subsector. Honey is traditionally a very precious product and plays an important role in generating cash income for farmers. The company establishes for the processing of honey with a capacity of 90 tons per annum. The present demand for the proposed product in Ethiopia is estimated at 4,340 tons per annum. The demand is expected to reach at 11,257 by the year 2021. The plant will create employment opportunities for 19 persons. The total investment requirement is estimated at about Birr 6.1million, out of which Birr 3 million is for plant and machinery, 1.5 million for building and civil works. The project is financially viable with an internal rate of return (IRR) of 30 % and a net present value (NPV) of birr 7,199,355 birr discounted at 10%.

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Brief information about the project Name of the Licensee: . Nahom honey processing company License Type: medium scale honey production License Area: Tigray regional state, Mekele city Total area of the project 600 meter square (20x30) Annual Aggregate Production: ..81 tons Project Life: .10 years Fixed Capital Expenditure: ..... 5,900,000 birr Annual Operational Cost: ... 3,455,523 birr Pre-production Cost: 200,000 birr Depreciation Period: ..10 years for vehicles & 20 years for building Salvage Value: .....5% of Fixed Capital Expenditures Total Sales Revenue for the first year: 6,066,900 birr Income Tax 35% of the profit Net Cumulative Profit, 10 years 18,699,524 birr Pay Back Period ... 4 years Net Present Value .... 7,199,355 birr Financial Internal Rate of Return ... 30 % Economic Internal rate of return 62%

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II. Socio Economic and Climatic Condition

Ethiopia is the largest country in East Africa. As a landlocked country, Ethiopia shares boundaries with Eritrea to the north, Kenya to the south, Somalia and Djibouti to the east and Sudan to the west. The majority of the population (85 percent) is rural and engaged in agricultural production. Tigray State is located in the northern part of Ethiopia, with a population of 4.5 million. 80 percent of the population is lived in rural areas and 20 percent is lived in urban areas. Tigray is one of the 11th Regional States of the Federal Democratic Republic of Ethiopia and situated in the Northern part of the country. The Region has an area of 50,000 Km Square divided in to seven zones, Southern, south-eastern, Mekelle, Eastern, Central, South-Western and Western zones, and sub divided in to 46 woredas/districts. The region has also a total population of 4.5 million. Mekelle is the sixth largest city in Ethiopia and the capital of Tigray State. Mekelle enjoys a mild highland climate with an average temperature of 25C. The rainy season in the Mekelle is from June to September, while the dry season is from October to May. The average annual rainfall is approximately 579mm. The total population in the city of Mekelle is estimated at 215,546. The annual population growth rate is approximately 2.6 percent

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1. Introduction 1.1 Background of the Study In Ethiopia, honey is traditionally a very precious product and plays an important role in generating cash income for farmers. It serves as raw material in the production of traditional alcoholic beverage, Tej. It is also widely used in different traditional medicament and ritual ceremonies. There are an estimated 10 million bee colonies in Ethiopia out of which about 7.5 million are confined in hives and the remaining exist in the forest and crevices. Ethiopia, having the highest number of bee colonies and surplus honey sources of flora, is the leading producer of honey and beeswax in Africa. On a world level, Ethiopia is fourth in beeswax and 9th in honey production. Honey and beeswax also play a big role in the economic, cultural and religious life of the people. The annual production of Ethiopian honey is estimated at 45,000 tons per annum and that of beeswax 3600 tons per annum. (MORAD, Dec. 2008) With regard to good opportunity to investment the project will be implemented in Mekele town. Mekeles annual population growth rate is approximately 2.6 percent per annum. People migrate to Mekele for better opportunities like, job, health and education. Tigray honey is considered to be of superior quality, and it has a moderate climate due to its highland position, which is favorable for honey production. The Mekelle region has a large bee population (about 37 thousand bee colonies; 20 percent of the Tigray total). Tigray honey has a special aroma that would provide a competitive advantage in niche markets

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1.2 The Owner Name of the project; . Maerey honey Processing Company Manager (would be); w/t Addisababa worku Address; Mekele city administration, Kebele. 18, H.No, 832 Business; ..Honey processing company Form Of organization; Private limited company Registration; on progress Business license; on progress Investment permit; .. by Ethiopian investment Authority on first of May 2011 Status of project; . New 1.3 Objectives of the Company; To maximize profit To increase market share To produce quality of honey To create job opportunities and enable communities improve their income. To increase the owners capital 1.4 Brief information about the Owners w/t Addisababa worku and W/ro zewditu hagos solely owns the business. Both of the entrepreneurs have an age old experience in the business and can always avail them self on fulltime basis to properly run the business. W/rt Addisababa worku is the manager of the company, she has enrolled at Addis Ababa University; she gets her first degree in marketing management . W/rt Addisababa as manager of the company; she has a well experienced and has experienced in managing private business. w/ro zewditu hagos has a BA degree in Accounting from Addis Ababa University. She has enrolled at the Addis Ababa University he gets her first Degree. Both W/rt Addisababa and w/ro zewditu hagos are well known in their respective field of specialization in their vicinity.

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1.5 Brief on the project The project will be located in Mekele city Kebele 18 in the vicinity commonly called Adishindihun The project area has suitable infrastructure such as access for transportation, and it is assumed that necessary utilities like electric power, water, telephone and accessible road are there. The raw materials like crude honey and other inputs for the production process are readily available in the Mekele region market. 1.6 Credit relation The company has no credit commitment with Banks and other financial institutions until this date of report. Recognizing the importance of having its own building and premises, the honey processing company has negotiated and deals to finance the acquisitions from bank loan. 2. Security available for loan purpose A, Plant building to be constructed & machinery ..3 million birr B, Business mortgage... 3.1 million birr Total Birr 6.1 million birr 3, Technical Assessment 3.1 Location of the Project The honey processing company is situated at Mekele city administration, Kebele 18 in vicinity called Adishindihun. According to the resource potential study of the region, the raw material is identified in most parts of the Tigray region. The honey producers of the region especially the eastern, southern and south eastern zones are well suited for the production of quality honey. The Tigray region is nationally considered high quality producer of honey (white & butter colour) when compared to other Regions of our country, and also based on the availability of
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raw material (crude honey). Mekele region Produces 20% of the Tigray region honey production. According to the availability of infrastructure, based on the utility and market availability Mekele town is selected and recommended to be the location of the company (project). 3.2 Project Layout The plant requires a total area of 600 meter square (20x30) of land out of which 300 meter square is built-up area which includes Processing area, raw material stock area, offices etc and the remaining will be parking and other areas. This building has 8 classes which are used for production process, store house, offices and other purpose. 3.3, Machinery, Equipment, Furniture and Fixtures Maerey honey processing company will fully equip with the standard that it can serve and facilitate for production process. Major machineries and equipments would be installed in the appropriate rooms. The machinery and equipment required by the project will be procured from foreign sources. Fixture, furniture and other necessary office equipments like; Liquefier, Filter press, Evaporator, Vacuum pump, Storage/settling tank, Water circulation pump, Pre heating tank, Processing tank etc will also be fulfilled. 3.4. Office Equipment and Material Supplies The company would supply processed packed honey and wax for beneficiaries. The company would also facilitate uniforms masks, gloves and other necessary materials, for the operational workers per need. Raw materials like crude honey and chemicals are sufficiently available on time for the purpose of facilitating the production. 3.5 Other Utilities Electricity, water and telephone are already available in the vicinity and will be easily installed to the project. The raw materials (inputs) like crude honey and other inputs are available in the city market.

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3.6 Production Description Honey consists essentially of different sugars, predominantly glucose and fructose. Besides, honey contains protein, amino acids, enzymes, organic acids, mineral substances etc. The colour of honey varies from nearly colorless to dark brown. The flavor and aroma vary but are usually derived from its plant origin. In Ethiopia, honey is used almost everywhere for the preparation of the favorite national drink called Tej and also for food in the form of bread spread or as sweetener in home baking and medication. 3.7 Production Process and Engineering 3.7.1, Production Process Honey contains pollen, dust and air bubbles, which tend to include granulation
0

(crystallization). Heating the honey to 45 C to dissolve the crystals present in honey can retard the granulation. Filtration then removes part of pollen, foreign particles and wax.
0

To prevent fermentation and to destroy yeasts, honey is heated to a temperature of 65 C -70

0

C for specified time. Proper temperature and control and heating time is a most important factor in honey processing activity. (Profile of honey Processing Project 2007) The Process of Honey is Divided in to three Steps Filtration to remove wax, foreign particles after heating honey to 45 C . It may be
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noted that heating up to 45 C (below the melting point of bee wax) is required to decrease the viscosity of honey. Honey is then heated to 60 C -65 C for 10 to 15 min and passed in to a falling film evaporator. Vacuum is simultaneously applied to boil the water in honey at a lower temperature so that moisture is separated which can be collected separately. This procedure also helps in destroying yeasts. Cooling the honey to atmospheric temperature and storing in closed vessel for 24-48 hours is the next step. Storing honey for period of 24-28 hours is necessary to allow air bubbles to go out. Honey is then packed and sealed immediately.
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3.7.2, Engineering A. Machinery and Equipment The machinery and equipment required by the project will be procured from foreign sources. The total cost of machinery and equipment is estimated to be Birr 3,000,000. The plant needs two vehicles (one pick-up and one minibus) for transportation of raw materials, finished products and for office activities. The total cost of the vehicles is estimated at Birr 1,000,000. B. Plant Capacity and Production Program Plant Capacity; According to the market study, the demand of honey in the year 2012 will be 4,774 tones, whereas this demand will grow to 11,257 Tones by the year 2017. The envisaged plant will have an annual production capacity of 90 tones of honey will be installed. Production capacity is based on a schedule of 300 working days per annum. Production Program; The project is assumed to start operation at 70% of its rated capacity, which reaches 90% of the capacity production, will be attained in the fourth year and thereafter. 4. MARKET STUDY 4.1 General (States Of Other Countries in Producing Honey) Ethiopia is 1st in Africa and 9th globally in terms of production of honey. It has also the highest number of bee colonies and surplus honey sources of flora. Likewise, Ethiopia stands 1st in Africa and 4th in the world in beeswax production. Currently, Ethiopia produces 45,000 tons of honey annually. The country also produces 3,000 tons of beeswax annually that generated only 1.5 million dollar. Over the 97% of the total honey produced is marketed, of which 85% goes to the preparation of local drink Tej. (Ministry of rural & agricultural development (MORAD), Dec. 2010) Ethiopian honey and other bee products have competitive advantage over other countrys products in the following sense. Ethiopia has a diverse ecology and this makes it suitable to produce diverse honey plants in different flowering seasons. This, in turn, contributes in the

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production of fresh honey throughout the year. The honey ranges from dark blue to extra white, which can meet the demands and preferences of different buyers. Its scope for diversification is also phenomenal. One can produce bee products such as table honey, honey for Tej, beeswax, pollen, royal jelly, and cream honey. The company will buy a total of 63 tons of honey from local honey producers starting from year 1, and increasing to 81 tons in subsequent year. In the Mekele region the production of honey estimates about 400 ton and from the eastern and southern zones their production estimates about 780 tones (Bureau of rural and agricultural development 2010). In Tigray region there is only one honey processing company. The annual production of the region Estimated about 2000 tones; i.e 20 % the countries total production (MOARD,

2009), so there is no shortage of supply in that region. The honey will be processed using internationally accepted modern processing and packing equipment all of the processed honey will be bottled and labeled for sale in local markets of the country. Pro-Poor Potential; - According to information secured from MOARD over 1.5 million households in the rural community are involved in beekeeping. In other words, 1 out of 10 farmers in Ethiopia are involved in beekeeping which would make promoting the Honey and other bee products. Records from (MOARD2009 show that, currently, household income from honey production is estimated at US 66 million/annum. Productivity of beehives; The average yield of the traditional beehive was 12.6 kg in 2008 It has increased slightly to 13 kg in 2009 and increased 15 kg in 2010. It was not possible to compute the productivity of transitional beehive owing to the presence of only one transitional beehive. The productivity of modern beehive has increased from 30 kg in 2008 to 30.5 kg in 2010. Socio economic aspects; The main socio-economic benefits the company is going to generate:

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 Livelihoods and food security of the area via being source of income/market for the surrounding farmers and generation of employment, Enhancing the productivity of apicultural production in the region by way of technology transfer, Contributing to the regions income by way of taxes and other payments, Generates profit for the owner of the company Avails employment opportunities to about 19 employees 4.2. Demand Analysis for honey for honey at national level To estimate the current effective demand of natural honey for human consumption the export potential and the local consumption estimated through per capita has been added. If we take the existing average price of honey globally which is 9 USD - 10USD/kg and if Ethiopia could produce its potential which is 500,000 ton per annum (according to MOARD documents), this would mean that the country has the potential to generate 1.25 - 1.5 billion USD that would make all the more rational to select the Honey and other bee products for promotion and development in Ethiopia. And, if we take beeswax the country has the potential to produce 50,000 tons (according to MOARD documents) and could generate 225 million USD if we compute it using the current average global price of honey; i.e. 4500 USD/ton. This would clearly mean that the beekeepers will have the significant part of the slice of the pie in terms of increasing household income for the poor farmer. Demand for processed honey is influenced by population growth, income, and the export potential. Population is growing at a rate of 3% and GDP in the past five years has increased by 10%. Table 4.2 Projected Demands for Honey in Ton at National Level Year 2012 2013 2014
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Quantity 4,774 5,251 5,777

2015 2016 2017 2018 2019 2020 2021

6.354 6,990 7,688 8,457 9,303 10,233 11,257

The demand projection shows that a number of plants can be established in various parts of our country up to absorb the market. At Regional level Mekeles annual population growth rate is approximately 2.6 percent per annum. People migrate to Mekele for better opportunities like, job, health and education. Tigray honey is considered to be of superior quality, and it has a moderate climate due to its highland position, which is favorable for honey production. The Mekelle region has a large bee population (about 37 thousand bee colonies; 20 percent of the Tigray total). Tigray honey has a special aroma that would provide a competitive advantage in niche markets. This means the region have an opportunity to invest in honey processing company. According to the countries average production of processed honey, currently the region has the ability to produce processed honey about 2000 tons per annum with increasing 10% annually. Still now the region has only one honey processing company which is called DIMA honey processing private limited company with the capacity of producing 120 tons/year.

4.3. Supply Analysis The past five years some enterprises have been active to introduce table honey to Super markets in Addis Ababa and other regional states. The average price of the processed honey was birr 98/k.g. But currently the average price increases to 130 birr per kilo gram.

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In the past five years Productivity of traditional honeybees is very low and only an average of 8-10 kg of honey could be cropped per hive per year. However, in areas where improved technology and box hives have been introduced, an average of 25 30 kg/hive/harvest has been recorded. According to CSA (2009), House Hold Income, Consumption and Expenditure survey, the per capital consumption of processed honey is about 60 grams. This indicates a national consumption of about 4,340 tons. The past progress of processed honey production in Ethiopia According to ministry of trade and industry, there are only 25 honey producer companies In Ethiopia, and only 1 company in Tigray. T the annual productivity in average increases 8% annually.

Table 4.1 Number honey processing companies and their volume of production (20072010) Year 2007 2008 2009 2010 Number of companies 23 24 25 25 Their volume of Production 3587 3873 4208 4300

Source, Ministry of Trade and Industry (MTI) 2010 Export experience of processed honey in Ethiopia The price of honey in Ethiopia is increasingly becoming less competitive with that of the international price, especially when compared with those of China, and some Latin American countries. In the last four years Ethiopia exports an average amount of 321 tons/year.

Table 6: Export of Honey and value generated (2006-2009)

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Year Quantity 2006 250 (Tons) 2007 280 2008 312 2009 442 Average 321 Source: MOARD 2010 Projected supply for the next 10 Years

Value in birr 7,500,000 8,960,000 10,606,000 14,832,000 10,474,000

Supply for honey currently estimates about 4730 tons/year, then according to MOARD, 2010 production honey processing increases by 10% annually. Table 4.2 Projected supply of honey in ton Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 4.4 Market Prospect From the above tables, it can be deducted that there is a growing demand and supply gap national level for honey processing company. Hence there is a room and an urgent need to open a honey processing company expected to produce 81 tons of honey per year. Thinking of the minimum situation, the number of honey processing companies (production capacity needed Quantity 4350 4,823 5,360 5,949 6,950 7,660 8,360 8,960 9,980 11,213

Table 4.4 Demand & Supply Gap for Honey Processing Companies
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Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Demand 4350 4,823 5,360 5,949 6,950 7,660 8,360 8960 9980 11,213

Supply 4,774 5,251 5,777 6,354 6,990 7,688 8,457 9,303 10,233 11,257

Gap 424 428 417 405 40 28 97 343 253 44

According to the projection, the number of honey processing company in the country for the coming 10 consecutive years cannot satisfying the need of consumers. In general, besides the favorable situation to the existing honey processing company, the market prospect for honey processing is still wide open for new investors. But the question is that demand is one thing and purchasing power of the consumers is the other which is the most important factor to maximize profit. Hence accessing market would be important in this regard. 4.5 Price Determination It would important to examine the possible level of price based on the purchasing power of the consumers and competitors action. The price of honey varies according to its colour, purity and season. The price of processed table honey at supermarkets in Ethiopia varies from Supermarket to supermarket. In this connection, the existing prices of similar hospitals are assessed for the benefit of comparison. The price level DIMA, Beza, Tadele and Tesfu honey processing companies are presented here;

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Table 4.5 price comparison Name of the company Dima Beza Tadele Tesfu Total average price Average price /kg 130 120 125 110 125/kg

Marketing Strategies Grading, labeling, quality packaging and advertising will be key elements of the marketing strategy. The company also wants to have an innovative approach of marketing by displaying its quality products at the market. And the price of processed honey will be set at 100 birr/kg in order to be competent. 4.6 Capacity Utilization The capacity utilization is predictably assumed, in the first year, it is forecasted to be 70% of the full capacity and then increased by 10% each year until it reaches 95% of attainable capacity. 5. Organization, Management and Manpower 5.1. Organization and Management The organizational structure should be in a way that the company able to achieve its objectives as well as to the satisfaction of standard requirement. Te project will have the following main functional units: The major functions of the units in the organizational structure are presented in the next sections. The detailed job descriptions, qualifications shall be worked of out during implementation of the project Under the company there will be 3 departments;

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The Administrative staff, which deals in general the company shall undertake planning, coordination, and control of the overall activities of the project. The Technical staffs will hold responsibilities of running Operations and technique Assistant: this unit has responsible for the technical activities, purchasing and collection and processing and logistics operations. The Finance department is responsible for overall accounting and financial management of the company. 5.2, Man Power Maerey s honey processing PLC is in the category of medium scale manufacturing industry known in the ministry of trade and industry (TAI) at high standard. Therefore, (TAI) criteria have been taken to plan man power requirement of the company. Technical workers are categorized in their area of study (specialties) and assumed to be 6 in number. Administrative staff are considered as supportive personnel and expected to be 8, finance staff is also assumed to be 5.Therefore, the total number of workers is assumed to be about 19 persons. In general the organizational and manpower arrangement is expected to provide good working atmosphere in the companys day to day activities.

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5.3 Organizational Structure of the company

General Manager

Secretary

6. Financial Analyses

Technical staff

Finance staff

Administration staff

The financial analysis of the honey processing project is based on the data presented in the previous sections and the following assumptions:-

Construction period Source of finance

6 month 51 % equity 49 % loan

Bank interest Discount cash flow Accounts receivable 30 days

10% 10% 30 days

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6.1 Investment Costs and Sources of Finance TABLE 6.1 Investment Costs and Sources of Finance Total Cost No. 2 3 4 5 Cost Items Building and Civil Work Plant Machinery and Equipment Office Furniture and Equipment Vehicle 1,500,000 3,000,000 200,000 1,000,000 5,700,000 200,000 215,900 6,115,900 Own contribution Amount 1,500,000 200,000 1,000,000 2,700,000 200,000 215,900 3,115,900 % 50 100 100 47.36 100 100 51 Bank loan Amount 1,500,000 1,500,000 3,000,000 3,000,000 % 100 50 52.63 49

Total initial fixed investment 6 7 Pre-production Expenditure Working Capital

Total Investment cost

6.2 Results of Financial Forecasts Profitability The projected income statement revels that the project is profitable all throughout its life. The annual net profit of about birr 932,556 in the first year will steadily increase through time and reaches about birr 2,893,231 in year 10.

Financial Position A project balance sheet of the corporation with bank additional financing shows quite good financial position. The net worth, birr 1,032,556 at the end of first year will increase to about birr 16,724,543 at the end of project years.

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Liquidity The cash flow projection indicates an overall liquidity of the project. The cumulative cash balance at the end of the project years would be about birr 18,699,524.

Financial internal rate of return and net present value This indicator measures the power of the project to generate return by comparing the result either with opportunity cost of capital or the bank interest rate. The projected discount cash flow has resulted in 30 % FIRR and the net present value at 10% discount rate is Birr 7,199,355 million. This result indicates a very attractive rate of return and implies the capacity of the business to accommodate any adverse situation.

Payback Period The investment cost and income statement projection are used to project the pay-back period. The projects initial investment will be fully recovered within 4 years.

IRR Sensitivity Analysis The sensitivity analysis shows what will happen to the profitability of a project when there are changes in the most sensitive parameters that have an influence on the results of the project. Hence, it also shows the risks of the investments that have to be done. The factors that will cause the highest risks for the profitability of the project are: Reduction in Sales, Increase in Cost of Production and increase in Investment cost. The sensitivity analysis carried out with the effect of these three parameters on the NPV and the FIRR of the project is shown below. (1) Reduction in sales: a 5% reduction in sales will make FIRR 25% a10% reduction in sales will make FIRR 16% (2) Increase in operating costs: a 10% increase in production costs the FIRR becomes 26% a 20% increase in production costs the FIRR becomes 21% (3) Increase in investment cost: a10% increase in investment costs the IRR becomes 28% a20% increase in investment costs the IRR becomes 25%
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7. Risk Analysis Based on the type of businesses and the request facility, the following risks are identified and the corresponding mitigates are given here under. The risks were drawn from the universally accepted lending policies.

7.1 Characteristics (Personal Risk) This is the most important risk, which should be seriously considered. As to this company, the owner and the manager have sufficient years of work experience in both government and private organizations. 7.2. Business Risk The fate of the business, which is the company production generally found to be dependable. The demand-supply analysis exhibits the need of the production of the company. Generally, competitors and their pricing will have a direct effect on the potential of firms trade opportunities. However, According to the overall demand of honey processing companies in Tigray, the effect of competitors in the sector would not be an immediate alarming threat for the coming few years. 7.3 Collateral Risk Collateral risk is the second way out in case of any failure in loan repayment. In this regard, the company building and the machineries and the business as a whole are dependable securities. The debt to register able collateral (building) ratio is found to be above 1:2 excluding machineries equipments, other fixed assets and the business mortgage part. Therefore, there is little risk regarding collateral. 7.4. Construction Risk The construction work of the honey processing company building will be made by phase with the owner supervision. Hence, there is no as such serious risk related to construction work.
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All the identified risks which are related to the university accepted lending policies, are to the acceptable level that keeps the lenders interest in a safe position. In addition, the quality of the assets of the company is dependable and the projected financial reports imply a good leverage condition that the company will have a capacity to pay the principal and interest without any problem.

8. Summary, Conclusion Maerey honey processing PLC is a business organization at medium scale processing

industry level. It is located in Tigray region in Mekele city, Kebele 18. It is registered with a capital of birr 6.1 million The owners of the company are W/rt Addisababa worku and w/ro Zewditu Hagos. W/rt Addisababa worku is the manager of the company. She is well experienced and capable of running the company without any problem. The owners the company contributed 3.1 million birr. Now they intended to construct through external financing. They have agreed to borrow birr 3 million. The project area has suitable infrastructure such as access for transportation, and it is assumed that necessary utilities like electric power, water, telephone and accessible road are there. The raw materials like crude honey and other inputs for the production process are readily available in the Mekele region market. According to the resource potential study of the region, the raw material is identified in most parts of the Tigray region. The Tigray region is nationally considered high quality producer of honey (white & butter colour) when compared to other Regions of our country, and also based on the availability of raw material (crude honey). The company would supply processed packed honey and wax for beneficiaries. Raw materials like crude honey and chemicals are sufficiently available on time for the purpose of facilitating the production. One of the Social benefits of the project is creates job opportunities. The planed manpower of the project amounts to 19.these will create jobs that will contribute to the reducing of
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alarming unemployment growth rate in the country. The employees will benefit from salaries and wages, while the project owner and Gov.ts shall gain revenue from the project. Cross cutting issues: The project has given high emphasis for the HIV/ADIS, Gender issues mainstreams. The project gives attention for to protecting the diseases and creates the awareness of gender mainstreaming by giving the chance to discuss monthly within the employees.

The company establishes for the processing of honey with a capacity of 90 tons per annum. The present demand for the proposed product in Ethiopia is estimated at 4,340 tons per annum. The demand is expected to reach at 11,257 by the year 2020. The plant will create employment opportunities for 19 persons. The total investment requirement is estimated at about Birr 6.1million, out of which Birr 3 million is for plant and machinery, 1.5 million for building and civil works. The projected income statement reveals that the annual profit that the annual profit will increase from birr 932,556 in 2005 E.C to birr 2,893,231 at the end in year 2014E.C. The average net income will be 1,888,952.The net worth will be about birr 717,556 at the end of 2005 E.C and reaches birr 18,584,524 at the end of projected years. The cash flow for financial planning indicates that the project will not face any liquidity problem. The project is financially viable with financial internal rate of return (FIRR) of 30 % & its benefit cost ratio is1.298. Moreover, the sensitivity analysis for financial analysis exhibited that the business will be safe to the Extent of more than 20 % decrease of sales or 20 % increase in fixed assets or operating costs. The initial investment can safely be recovered until the end of 4th year. In general, the projected financial results justify the acceptance of the intended business. The project economic analysis shows that it has a great contribution in generating national income. The Economic internal rate of return (EIRR) is 62% & its present value is birr

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18,129,023. the benefit cost ratio is 1.589.This shows high contribution to the national economy besides its financial viability. The economic impact of project in terms of the main socio-economic benefits that company is going to generate Livelihoods and food security of the area via being source of income/market for the surrounding farmers and generation of employment, enhancing the productivity of honey production in the region ,can be considered as elements of contribution as a whole. Loan Needed Based on the overall assessments of the project, the medium processing industry requires a loan of birr 3,000,000 from external sources to half cover for the machineries and fully cover the building construction that would be located in Tigray region in Mekele city, Kebele 18. As the detail assessment results shows the Loan will be settled without any problem. Terms of Loan Disbursement: The loan is proposed to be transferred to the account of the company in three phases (installment). Loan repayment A, principal repayment The principal amount of birr 3,000,000 shall be repaid in 60 equal monthly installments. B, interest payment: 10 % of the loan per annum on the outstanding balance is payable on monthly basis together with the principal repayment amount. C, other bank charges: 0.5 % of the loan per annum outstanding balance payable on monthly basis. D, Grace period: 1 year from the date of loan disbursement.

9. Assumptions Employed in the Project Financial Analysis 9.1 Operating Costs Salaries . 266,640

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Repair and maintenance 2 % of the fixed assets No. Cost Items Value in birr Repair and maintenance

1 2 3 4

Building and Civil Work Plant Machinery and Equipment Furniture and fixture Vehicles

1,500,000 3,000,000 200,000 1,000,000 5,700,000

30,0000 60,000 4,000 20,000 114,000

Total fixed Investment cost

UTILITIES: Electric power and water are the two basic utilities required by the plant. When the plant operates at full capacity, it will require 18,025 kWh of electric power and 10,500 litter
3

Furnace oil. Likewise, the plant is expected to consume 180 m of water per annum.

Estimated annual Utility cost Annual No. Description Measure Consumptio n 1 2 3 4 Total Electric power Water Communication Furnace oil Liter 10,500 6.5 kWh
3

Cost Unit cost 1 18,025 10,800 6,000 68,250 103,075 Total cost

18,025 1,800

Fuel and lubricant 450 liters x12x21113,400 birr Supplies 10,000 birr Insurance
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1% of the fixed investment 57,000 birr and

2 % of the salaries of the employees . 4,848 birr Uniform and Gowns 100 birr guards x 300 = 1200 birr Annual Depreciation Straight Line Method No. Cost Items Original values Depreciation Depreciated rate 1 2 3 4 5 Building and Civil Work Plant Machinery and Equipment Office Furniture and fixture Vehicle Pre-production Expenditure 1,500,000 3,000,000 200,000 1,000,000 200,000 5,900,000 5 5 10 20 20 value per year 75,000 150,000 20,000 50,000 40,000 385,000 10 gowns x 100 = and 4 uniforms for two

Total Investment cost

Interest rate .. 10% the loan Sales tax 15% Corporate tax . 35% of net income Miscellaneous expenses 6,000 9 .2 Capacity Utilization Production is assumed to be commence at 70 % of installed capacity and increased by 10 % each year until it reaches the assumed attainable capacity, 90 %

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9.3. Revenue No. Types of goods sold Income at 100 % 1 2 Processed honey Wax Total 8,100,000 567,000 8,667,000 Income at 70 % 5,670,000 396,900 6,066,900 Income at 80% 6,480,000 453,600 6,933,600 Income at 90 % 7,290,000 510,300 7,800,300

9.4 Disbursement At the time of building construction starts = birr 1,500,000 At the purchasing period of the fixed assets = birr 1,500,000 3,000,000 Equity contribution: . Birr 3,115,900 Repayment is assumed to begin a year later as it began Grace period would be one year after first disbursement. Number of repayments 60 equal monthly repayments. Initial working capital 1 month salaries 22, 220 Raw material and inputs 176,610 Supplies .. 830 Utilities5,690 Fuel and lubricant .9,450 Uniforms and gowns.. 1,100 Total. 215,900

Man power requirement The proposed project will require 16 employees of whom 10 are direct production workers and 6 are administrative workers. The annual labour cost of the project is estimated to be
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266,640 Birr. The list of employees together with the corresponding salary cost is presented in Table 9.1.10 Technical, Administrative accounting and finance staffs salaries Salary ( Birr) No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Position Plant manager Personnel Chemist Secretary Purchaser Sales man Casher Quality controller Accountant Operator-mechanics Production workers Guards Cleaner Drivers Sub Total Workers benefit (10% of Basic 19 salary) Grand total 22,220 266,640 No. of persons 1 1 1 1 2 1 1 1 1 1 3 2 1 2 Monthly 2500 1200 1500 1000 2*1000 800 1000 1200 1400 1400 3*1000 2*400 400 2*1000 20,200 2,020 Annual 30,000 14,400 18,000 12,000 24,000 9,600 12,000 14,400 16,800 16,800 36,000 9,600 4,800 24,000 242,400 24,240

Machinery, office equipments, furniture and medical equipment

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A. Machinery & Office Equipments

No. 1 2 3 4 5 6 7 8 9 10 11 12 13

Description Liquefier Filter press Falling film Evaporator Vacuum pump Storage/settling tank Water circulation pump Pre heating tank Processing tank Cooling tank/condenser Moisture condensing tank Honey circulation SS gear pump Insulation (Optional) Control panel, Level indicators, pressure gauges, temperature gauges, SS pipes and fittings.

14

Computers and printers

B, furniture and Fixture No. 1 2 Description Furniture Chairs and table tables

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C, Annual raw material and input requirement

No.

Description

Unit of measure

Qty

Unit Cost in Birr

Total Cost in Birr

1 2 4 5 8 10 Total

Crude honey Sanitary chemicals Glass jars Plastic containers Cartons Labels

kg kg pc pc pc pc 2,344,400

45,000 1,200 63,000 50 4,340 45,000

50 9 1 200 5 0.1

2,250,000 10,800 63,000 10,000 21,700 4,500

D. Building and Civil Works The plant requires a total of 600 m2 area of land out of which 300 m2 is built-up area which includes Processing area, raw material stock area, offices etc. The total cost of construction is estimated to be Birr 1,452,000. The total cost, for a period of 80 years with cost of Birr 1 per
2

m , is estimated at Birr 48,000. The total investment cost for land, building and civil works is estimated at Birr 1,500,000.

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10. Annexes for financial and economic analysis 10.1 Financial analysis projections

Description/year Total fixed investment costs Total pre production expenditures Increase in net working capital Total investment costs 10.1.1 Total investment costs

2 0 0

3 0 0

4 0 0

5 0 0

6 0 0

7 0 0

8 0 0

9 0 0

10 0 0

5,700,000 0 200,000 0 0

215,900 21,590 23,749 26,124 28,736 31,610 34,771 38,248 42,073 46,280

5,900,000 215,900 21,590 23,749 26,124 28,736 31,610 34,771 38,248 42,073 46,280

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10.1.2 Operating costs projection Description/year Salary and wages Cost of Goods sold Supplies Repair and maintenance Utilities Fuel and lubricant Insurance Gowns and uniforms Miscellaneous Depreciation Financial costs Package costs Total operating costs 103,075 113,400 61,848 2,200 6,000 385,000 300,000 110,000 3,455,523 113,383 124,740 61,848 2,420 6,300 385,000 240,000 121,000 124,721 137,214 61,848 2,662 6,615 385,000 180,000 133,100 137,193 150,935 61,848 2,928 6,946 385,000 120,000 146,410 150,912 166,029 61,848 3,221 7,293 385,000 60,000 161,051 150,912 166,029 61,848 3,221 7,293 345,000 0 161,051 150,912 166,029 61,848 3,221 7,293 345,000 0 161,051 150,912 166,029 61,848 3,221 7,293 345,000 0 161,051 150,912 166,029 61,848 3,221 7,293 345,000 0 161,051 150,912 166,029 61,848 3,221 7,293 345,000 0 161,051 1 266,640 2,250,000 10,000 114,000 2 293,304 3 322,634 4 354,898 5 390,388 6 409,907 7 430,402 8 451,922 9 474,519 10 498,245

2,475,000 2,722,500 2,994,750 11,000 125,400 12,100 137,940 13,310 151,734

3,294,225 3,623,648 3,986,012 14,641 166,907 16,105 166,907 17,716 166,907

4,384,613 4,823,075 5,305,382 19,487 166,907 21,436 166,907 23,579 166,907

3,666,091 3,903,700 4,171,054

4,471,128 4,702,014 5,065,989

5,466,362 5,906,772 6,391,223

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10.1.3 Revenue projection Description/Year 1 6,066,90 Gross Revenue 0 2 6,933,6 00 1,040,0 Less Sales Tax (15%) 910,035 5,156,86 Net Revenue 5 40 5,893,5 60 3 4 5 6 7 8 9 10 10,975, 805 1,646,3 71 9,329,4 35

7,800,3 8,190,3 8,599,8 9,029,8 9,481,3 9,955,3 10,453, 00 15 31 22 13 79 148

1,170,0 1,228,5 1,289,9 1,354,4 1,422,1 1,493,3 1,567,9 45 47 75 73 97 07 72

6,630,2 6,961,7 7,309,8 7,675,3 8,059,1 8,462,0 8,885,1 55 68 56 49 16 72 76

10.1.4 Cash flow for financial planning

Description/Year 0 Total cash inflow Inflow funds Inflow operation salvage value Total cash outflow Increased in fixed assets Increased in current assets Operating costs Income corporate tax financial costs loan repayment Surplus Cumulative cash balance 6,115,900 5,900,000 215,900 215,900 3,037,163 502,146 300,000 600,000 717,556 717,556 21,590 3,334,395 676,958 240,000 600,000 1,042,208 1,759,764 23,749 3,661,334 841,372 180,000 600,000 1,347,549 3,107,312 26,124 4,020,952 852,536 120,000 600,000 1,368,280 4,475,592 28,736 4,416,515 856,919 60,000 600,000 1,376,422 5,852,014 31,610 4,437,498 1,012,498 0 600,000 1,625,353 7,477,367 34,771 4,459,604 1,139,079 0 600,000 1,860,433 9,337,800 38,248 4,482,896 1,271,962 0 600,000 2,107,215 11,445,015 42,073 4,507,440 1,411,457 0 600,000 2,366,278 13,811,293 46,280 4,533,310 1,557,894 0 600,000 2,638,231 16,449,524 4,655,209 4,872,943 5,306,455 5,619,612 5,962,170 6,081,606 6,233,454 6,393,106 6,560,970 6,737,484 6,115,900 6,115,900 1 5,372,765 215,900 5,156,865 2 5,915,150 21,590 5,893,560 3 6,654,004 23,749 6,630,255 4 6,987,892 26,124 6,961,768 5 7,338,592 28,736 7,309,856 6 7,706,959 31,610 7,675,349 7 8,093,887 34,771 8,059,116 8 8,500,320 38,248 8,462,072 9 8,927,249 42,073 8,885,176 10 9,375,715 46,280 9,329,435

Scrap 11 2,250,000

2,250,000 0

2,250,000 18,699,524

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10.1.5 Income Statement Projection

Description/Year Revenue Less Operating costs Operational margin In % of Revenue Financial Cost Gross Profit from Operation In % of Revenue Income (Corporate Tax) Net Profit Net worth In % of Revenue Ratios (%): Net Profit to equity Net profit to Net Worth 130 64 44 31 24 22 20 18 17 16 30 31 36 34 34 40 42 45 48 50 502,146 932,556 717,556 18 676,958 1,257,208 1,974,764 21 841,372 1,562,549 3,537,312 24 852,536 1,583,280 5,120,592 23 856,919 1,591,422 6,712,014 22 1,012,498 1,880,353 8,592,367 24 1,139,079 2,115,433 10,707,800 26 1,271,962 2,362,215 13,070,015 28 1,411,457 2,621,278 15,691,293 30 1,557,894 2,893,231 18,584,524 31 1,434,702 28 1,934,166 33 2,403,921 36 2,435,816 35 2,448,341 33 2,892,851 38 3,254,512 40 3,634,177 43 4,032,735 45 4,451,125 48 1,734,702 34 300,000 2,174,166 37 240,000 2,583,921 39 180,000 2,555,816 37 120,000 2,508,341 34 60,000 2,892,851 38 0 3,254,512 40 0 3,634,177 43 0 4,032,735 45 0 4,451,125 48 0 3,422,163 3,719,395 4,046,334 4,405,952 4,801,515 4,782,498 4,804,604 4,827,896 4,852,440 4,878,310 1 5,156,865 2 5,893,560 3 6,630,255 4 6,961,768 5 7,309,856 6 7,675,349 7 8,059,116 8 8,462,072 9 8,885,176 10 9,329,435

Net Profit + Interest to Investment 20 24 28 28 27 30 34 37 41 45

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10.1.6 Cash Flow Projection for Discounting

Description/Year Total cash inflow Inflow operation salvage value Total cash outflow Increased in fixed assets Increased in net work capital Operating costs Income (corporate) tax Net Cash Flow cumulative net cash flow Net Present Value At 10% 7,199,355 6,115,900 4,714,244 2,853,627 -749,827 1,312,329 3,320,015 5,513,758 7,939,421 10,608,387 13,532,593 16,724,543 18,974,543 0 6,115,900 502,146 1,401,656 676,958 1,860,618 841,372 2,103,800 852,536 2,062,156 856,919 2,007,686 1,012,498 2,193,743 1,139,079 2,425,663 1,271,962 2,668,967 1,411,457 2,924,206 1,557,894 3,191,951 0 2,250,000 0 3,037,163 6,115,900 0 215,900 21,590 3,334,395 23,749 3,661,334 26,124 4,020,952 28,736 4,416,515 31,610 4,437,498 34,771 4,459,604 38,248 4,482,896 42,073 4,507,440 46,280 4,533,310 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 6,115,900 1 5,156,865 5,156,865 0 3,755,209 2 5,893,560 5,893,560 0 4,032,943 3 6,630,255 6,630,255 0 4,526,455 4 6,961,768 6,961,768 0 4,899,612 5 7,309,856 7,309,856 0 5,302,170 6 7,675,349 7,675,349 0 5,481,606 7 8,059,116 8,059,116 0 5,633,454 8 8,462,072 8,462,072 0 5,793,106 9 8,885,176 8,885,176 0 5,960,970 10 9,329,435 9,329,435 0 6,137,484 Scrap 11 2,250,000 0 2,250,000 0

Internal Rate Of return

Pay Back Period

30%
4 years

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10.1.7 Sensitive analysis Description Sales Decreased by 5% IRR 25 16

Sales Decreased by 10% Operating Costs increased by 10 % Operating Costs increased by 20% Fixed Assets Increased by 10 % Fixed Assets Increased by 20 %

26

21

28 25

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10.2 Economic analysis

10.2.1 Initial investment costs Description Building and Civil Work Plant Machinery and Equipment Office Furniture and Equipment Vehicle Total fixed investment costs Pre-production Expenditure Working Capital Salaries For skilled labour 20,900 0.810 16,929 financial costs 1,500,000 3,000,000 200,000 1,000,000 5,700,000 200,000 1.000 Conversion factor 0.610 1.019 1.000 0.824 economic price 915,000 3,057,000 200,000 824,000 4,996,000 200,000

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For unskilled labour Raw material and inputs Supplies Utilities Fuel oil Fuel and lubricant Uniforms and gowns Total working capital Grand total investment costs

1,320 176,610 830 1,897 3,793 9,450 1,100 215,900 6,115,900

0.390 1.000 0.880 1.430 0.866 1.050 0.698

515 176,610 730 2,713 3,285 9,923 768 211,472 5,407,472

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10.2.2 Operating Costs Conversion Description Salaries For skilled labour For unskilled labour Cost of Goods sold(crude honey) Supplies Repair and maintenance Utility Fuel oil Fuel and lubricant Uniform and Gowns Miscellaneous Sanitary Chemicals Plastic & Glass jars Plastic Containers Cartons Labels Total operating costs 250,800 15,840 2,250,000 10,000 114,000 34,825 68,250 113,400 2,200 6,000 10,800 63,000 10,000 21,700 4,500 2,975,315 0.810 0.390 1.00 1.00 1.000 1.430 0.866 1.050 0.698 1.000 0.88 0.863 0.863 0.883 0.883 203,148 6,178 2,250,00 10,000 114,000 49,800 59,105 119,070 1,536 6,000 9,504 54,369 8,630 19,161 3,974 2,914,473 Financial costs factor economic price

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10.2.3 Revenue projection

Types of goods sold Processed honey and bee wax

10.2.4 Operating cost projection Salaries For skilled labour For unskilled labour Cost of Goods sold Supplies Repair and maintenance Utility Fuel oil Fuel and lubricant Uniform and Gowns
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10

6,066,900 6,673,590 7,340,949

8,075,044 8,478,796.10 8,902,735.90 9,347,872.69 9,815,266.33 10,306,029.65 10,821,331.13

1 203,148 6,178

2 223,463 6,796

3 245,809 7,475

4 270,390 8,223 2,994,750 10,000 151,734 60,258 78,669 158,482 2,042

5 283,909 8,634 3,144,488 10,500 159,321 63,271 82,602 166,406 2,144

6 298,105 9,066 3,301,712 11,025 167,287 66,434 86,732 174,727 2,251

7 313,010 9,519 3,466,797 11,576 175,651 69,756 91,069 183,463 2,364

8 328,661 9,995 3,640,137 12,155 184,434 73,244 95,622 192,636 2,482

9 345,094 10,495

10 362,348 11,019

2,250,000 2,475,000 2,722,500 10,000 114,000 49,800 59,105 119,070 1,534 10,000 125,400 49,800 65,016 130,977 1,687 10,000 137,940 54,780 71,517 144,075 1,856

3,822,144 4,013,251 12,763 193,655 76,906 100,403 202,268 2,606 13,401 203,338 80,751 105,424 212,381 2,736

Miscellaneous Sanitary chemicals Plastic & glass jars Plastic containers Cartons Labels Total operating costs

6,000 9,504 54,369 8,630 19,161 3,974

6,600 10,454 59,806 9,493 21,077 4,371

7,260 11,500 65,786 10,442 23,185 4,809

7,986 12,650 72,365 11,487 25,503 5,289 3,869,828

8,385 13,282 75,983 12,061 26,778 5,554 4,063,319

8,805 13,946 79,783 12,664 28,117 5,832 4,266,485

9,245 14,644 83,772 13,297 29,523 6,123 4,479,809

9,707 15,376 87,960 13,962 30,999 6,429 4,703,800

10,192 16,145 92,358 14,660 32,549 6,751

10,702 16,952 96,976 15,393 34,177 7,088

2,914,473 3,199,940 3,518,934

4,938,990 5,185,939

10.2.5 Cash Flow Projection for Discounting Description/Ye ar Total cash inflow Inflow operation Salvage value 0 0 0 0 1 2 3 4 5 8,478,796 6 8,902,73 6 8,478,796 8,902,73 6 0 0 7 9,347,8 73 9,347,8 73 0 8 9,815,2 66 9,815,2 66 0 9 10,306,0 30 10,306,0 30 0 10 10,821, 331 10,821, 331 0 2,250,0 00 Total cash outflow
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11 2,250,0 00

6,066,90 6,673,5 7,340,9 8,075,0 0 90 49 44

6,066,90 6,673,5 7,340,9 8,075,0 0 0 90 0 49 0 44 0

5,407,472

3,125,94 3,497,3 3,847,1 4,231,8 5 68 04 15

4,267,080

4,480,43 4

4,704,4 56

4,939,6 78

5,186,66 2

5,445,9 96

Increased in fixed assets Increased in net working capital Operating costs

5,407,472

211,472

291,44 7

320,59 2

352,65 1

193,958

203,656

213,839

224,531

235,757

247,54 5

2,914,47 3,205,9 3,526,5 3,879,1 3 20 12 64

4,073,122

4,276,77 8

4,490,6 17 4,643,4 17 21,324, 214

4,715,1 48 4,875,5 88 26,199, 802

4,950,90 5 5,119,36 7 31,319,1 69

5,185,9 39 5,375,3 36 36,694, 505 2,250,0 00 38,944, 505

Net Cash Flow

(5,407,472) 2,940,95 3,176,2 3,493,8 3,843,2 5 22 709,70 5 45 29

4,211,716

4,422,30 2

cumulative net cash flow Net Present Value At 10% Internal Rate Of return Pay Back Period

(5,407,472)

(2,466,5 17) 18,129,0 23 62%

4,203,5 8,046,7 50 79

12,258,49 5

16,680,7 97

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