162.

PROFILE ON SWITCHES, PLUGS, SOCKETS,

AND LAMP SHADES

162-2

TABLE OF CONTENTS
PAGE
I.

SUMMARY

162-3

II.

PRODUCT DESCRIPTION & APPLICATION

162-3

III.

MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY
B. PLANT CAPACITY & PRODUCTION PROGRAMME

162-4
162-4
162-6

IV.

MATERIALS AND INPUTS

A. RAW MATERIALS
B. UTILITIES

162-7
162-7
162-7

V.

TECHNOLOGY & ENGINEERING

162-8

A. TECHNOLOGY
B. ENGINEERING

162-8
162-9

VI.

MANPOWER & TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT
B. TRAINING REQUIREMENT

162-13
176-13
176-14

VII.

FINANCIAL ANLYSIS
A. TOTAL INITIAL INVESTMENT COST
B. PRODUCTION COST
C. FINANCIAL EVALUATION
D. ECONOMIC BENEFITS

162-14
162-14
162-15
162-16
162-18

162-3

I.

SUMMARY

This profile envisages the establishment of a plant for the production of switches, plugs,
sockets and lamp shed with a capacity of 3 million pieces per annum. Switches, plugs,
sockets and lamp shed are electrical devices used to connect electrical operated equipments
to electrical power.
The raw materials required are plastics, metal sheeting, nickel dip, zinc dip, degreasing
mixture and cleaning chemicals which have to be imported.
The present demand for the proposed product is estimated at 802 tonnes per annum. The
demand is expected to reach at 2,021 tonnes by the year 2020.
The total investment requirement is estimated at Birr 24.83 million, out of which Birr
18.75 million is required for plant and machinery. The plant will create employment
opportunities for 75 persons.
The project is financially viable with an internal rate of return (IRR) of 27.56 % and a net
present value (NPV) of Birr 23.22 million, discounted at 8.5%.

The project creates forward linkage with the construction sector. The establishment of
such factory will have a foreign exchange saving effect to the country by substituting the
current imports.
II.

PRODUCT DESCRIPTION AND APPLICATION

Switches, plugs, sockets and lamp shed are electrical devices used to connect electrical
operated equipments to electrical power. After electrical wiring system installation is
performed there should be outlets for different electrical equipments and appliances. These
outlets should transfer the electric power to the equipments safely with simple plugging.

162-4
Plugs and sockets cover the electrical wires from direct contact and give slots and
protruding for easy connection.
III.

MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Past Supply and Present Demand

Switches, plugs, sockets and lamp sheds are electrical devices used to connect electrical
operated equipments to electrical power in buildings. As there is no local manufacturer of
the products, the demand for switches, plugs, sockets and lamp sheds is supplied through
import. The amount of imports during the period 2000 -2006 is shown in Table 3.1.
Table 3.1
IMPORT OF SWITCHES, PLUGS, SOCKETS AND LAMP SHEDS (TONNES)
Year
2000
2001
2002
2003
2004
2005
2006

Import
146
213
221
631
609
601
854

Source; External Trade Statistics.

As can be seen from the Table 3.1, import of switches, plugs, sockets and lamp sheds
shows a substantial growth. During the period under reference, imports of the products has
increased from 146 tonnes in 2000 to 854 tonnes in year 2006 registering an annual
average growth rate of 45.36%.

162-5
To estimate the present (2008) effective demand for the products the average of the most
recent three years ( 2004 2006) is assumed to reflect the effective demand for year 2006.
Moreover, the average growth rate ( 8%) achieved by the end user of the products i.e. the
construction sector during the past five years is used. Accordingly, taking the average
import of 2004 2006 as a base and applying 8% growth rate the present effective demand
for the products is estimated at 802 tonnes.
2.

Projected Demand

The demand for switches, plugs, sockets and lamp sheds is directly related with the growth
in the construction sector which in turn depends on the overall economic development of
the country. Therefore, demand is projected using the annual average growth rate achieved
by the construction sector in the past few years, i.e., 8%. Projected demand is presented in
Table 3.2.
Table 3.2
PROJECTED DEMAND FOR THE PRODUCTS (TONNES)

Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
3.

Projected Demand
867
936
1011
1092
1179
1273
1375
1485
1604
1733
1871
2021

Pricing and Distribution

The sales price of switches, plugs, sockets and lamp shed varies according to capacity and
design. For the purpose of financial analyses an average price of Birr 5 per pieces is

162-6
adopted. The products can be distributed through the existing building material shops or by
establishing own distribution centers at strategic locations.
B.

PLANT CAPACITY PRODUCTION PROGRAMME

1.

Plant capacity

The market study dictates higher capacity plant but considering the minimum economies of
scale and the capital requirement, the annual production capacity of the project is
scheduled to be 3,000,000 pieces of aforementioned electrical items, based on three shifts a
day and 300 working days a year.
2.

Production programme

The production programme is indicated in Table 3.3. At the initial stage of production, the
project may require some years to penetrate the market. Therefore, in the first and second
year of production the capacity utilization rate will be 75% and 90%, respectively. In the
third year and thereafter, full capacity utilization shall be attained.
Table 3.3
PRODUCTION PROGRAMME
Production Year
Product
Electrical items (000 pcs)
Capacity utilization rate (%)

IV.

MATERIALS AND INPUTS

A.

RAW MATERIALS

2,250
75

2,700
90

3-15
3,000
100

162-7
The basic raw material for the manufacture of the electrical items mentioned is
thermosetting plastic and electroplated metal. Minor ingredients are nickel dip, zinc dip,
degreasing mixtures and cleaning chemicals. All the raw materials for the production of the
stated electrical items are imported. The quantities of various materials used depend on the
particular product mix and the methods used. The total annual cost of raw materials and
inputs is estimated at Birr 4.2855million, and it is indicated in Table. 4.1.

Table 4.1
RAW MATERIALS REQUIREMENT AND COST
Sr.
No.
1
2
3
4
5
6

B.

Raw Material
Plastics
Metal sheeting
Nickel dip
Zinc dip
Degreasing mixture
Cleaning chemicals
Total

Qty.
90 tonnes
3 tonnes
1500 lt
1500 lt
7,200 lt
7,000 lt

Cost (000 Birr)

FC
LC
Total
945
405
1350
52.5
22.5
75
339.15
145.35
484.5
478.8
205.2
684
630
270
900
554.4
237.6
792
2,999.85 1,285.65 4,285.5

UTILITIES

The annual utilities requirement and its cost is indicated in Table 4.2. Electricity and water
are major utilities of the project. The total annual cost of utilities is estimated at Birr
468,212.

Table 4.2
ANNUAL UTILITIES REQUIREMENT AND COST

162-8
Sr.
No.
1.
2.

Utility
Electricity (kWh)
Water ( m3)
Total

Qty

Cost (000 Birr)

920,000
10,000

e.

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Production Process

435,712
32,500
468,212

The basic raw materials are stored according to type in the material store, whence they are
taken to the machining shop by hand or machine powered materials handling equipment.
The manufacturing process is made up of the machining stage, the galvanizing and
molding stage, the assembly stage and the injection molding stage.
In the machining stage, the metal parts are prepared by punching, lathing, and spring
machines for further processing in the galvanizing stage, whence the semi finished
products pass to the assembly stage.
In the assembly stage, the semi finished products are put together to become finished
switches, sockets, plugs and lamp shed.
After assembly, the finished products are taken to the packing section. From there, they are
either delivered straight to the customers or stored in final storage.
The chemical treatment like Galvanizing is conducted in a closed bath so that no waste is
generated. The only waste to be generated from the project is solid wastes of different type
of metals and plastics that will be sorted and sold to respective recycling plants. So the
plant will not have an adverse impact on environment
.
2.

Source of Technology

162-9

Bldg.No.2,OfficeNo.424,EmaarBusinessParkSheikhZayidRoad
POBox:61379,Dubai,UAE
Tel:+971-4-3689525/26/28
Fax:+971-4-3689527
Email:bdm@insmachinery.com
Website : www.insmachinery.com
B.

ENGINEERING

1.

Machinery and Equipment

The list of machinery and equipment is indicated in Table 5.1. The total cost of machinery
is estimated to be Birr 18,750,000, of which Birr 15,937,500 in required foreign currency.

Table 5.1
MACHINERY AND EQUIPMENT REQUIREMENT AND COST

162-10
Sr.
No.

Description

1.

Hydraulic press

2.
3.
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23

Trimming machine
Automatic eccentric press
Tiltable eccentric press
Tiltable eccentric press
Plate shearing device
Scouring barrel
Bench drill
Bench tap
Pedestal grinder
Bench lathe
Plane grinder
Tempering furnace
Mounting table
Vise bench
Tool locker
Frame stand for storage
Carriage
Mobile storage boxes
Frame stand for sheet
Electroplating device
Air compressor
Injection moulding
machine
Milling machine
Grand Total

24

2.

Cost (Birr)
Qty.
4
4
2
2
1
1
1
7
6
2
1
1
1
10
5
4
20
10
850
8
1
1
2
1

LC

FC

TC

309,375
168,750
196,875
112,500
84,375
56,250
14,062
84,375
112,500
28,125
168,750
84,375
196,875
112,500
28,125
28,125
14,062
28,125
28,125
56,250
225,000
84,375

1,753,125
956,250
1,115,625
637,500
478,125
318,750
79,687
478,125
637,500
159,375
956,250
478,125
1,115,625
637,500
159,375
159,375
79,687
159,375
159,375
318,750
1,275,000
478,125

2,062,500
1,125,000
1,312,500
750,000
562,500
375,000
93,750
562,500
750,000
187,500
1,125,000
562,500
1,312,500
750,000
187,500
187,500
93,750
187,500
187,500
375,000
1,500,000
562,500

281,250
309,375
2,812,500

1,593,750
1,753,125
15,937,500

1,875,000
2,062,500
18,750,000

Land, Building and Civil Works

The envisaged plant requires total land area of 1000 m2. Of this, built-up area will be 500
m2. A building occupying an area of 500m 2 that comprises underground, ground and first
floor is built for the purpose of raw and finished material store, production hall and office
respectively. At the rate of Birr 2300 per m2, the cost of building construction is estimated
at Birr 1.15 million.
According to the Federal Legislation on the Lease Holding of Urban Land (Proclamation
No 272/2002) in principle, urban land permit by lease is on auction or negotiation basis,
however, the time and condition of applying the proclamation shall be determined by the
concerned regional or city government depending on the level of development.

162-11

The legislation has also set the maximum on lease period and the payment of lease prices.
The lease period ranges from 99 years for education, cultural research health, sport,
NGO , religious and residential area to 80 years for industry and 70 years for trade while
the lease payment period ranges from 10 years to 60 years based on the towns grade and
type of investment.
Moreover, advance payment of lease based on the type of investment ranges from 5% to
10%.The lease price is payable after the grace period annually. For those that pay the entire
amount of the lease will receive 0.5% discount from the total lease value and those that pay
in installments will be charged interest based on the prevailing interest rate of banks.
Moreover, based on the type of investment, two to seven years grace period shall also be
provided.
However, the Federal Legislation on the Lease Holding of Urban Land apart from setting
the maximum has conferred on regional and city governments the power to issue
regulations on the exact terms based on the development level of each region.
In Addis Ababa the Citys Land Administration and Development Authority is directly
responsible in dealing with matters concerning land.

However, regarding

the

manufacturing sector, industrial zone preparation is one of the strategic intervention

measures adopted by the City Administration for the promotion of the sector and all
manufacturing projects are assumed to be located in the developed industrial zones.
Regarding land allocation of industrial zones if the land requirement of the project is blow
5000 m2 the land lease request is evaluated and decided upon by the Industrial Zone
Development and Coordination Committee of the Citys Investment Authority. However, if
the land request is above 5,000 m 2 the request is evaluated by the Citys Investment
Authority and passed with recommendation to the Land Development and Administration
Authority for decision, while the lease price is the same for both cases.

162-12
The land lease price in the industrial zones varies from one place to the other. For example,
a land was allocated with a lease price of Birr 284 /m 2 in Akakai-Kalti and Birr 341/ m 2 in
Lebu and recently the citys Investment Agency has proposed a lease price of Birr 346 per
m2 for all industrial zones.
Accordingly, in order to estimate the land lease cost of the project profiles it is assumed
that all manufacturing projects will be located in the industrial zones. Therefore, for this
profile which is a manufacturing project, a land lease rate of Birr 346 per m2 is adopted.
On the other hand, some of the investment incentives arranged by the Addis Ababa City
Administration on lease payment for industrial projects are granting longer grace period
and extending the lease payment period. The criterions are creation of job opportunity,
foreign exchange saving, investment capital and land utilization tendency, etc.
Accordingly, Table 5.2 shows incentives for lease payment.
Table 5.2
INCENTIVES FOR LEASE PAYMENT OF INDUSTRIAL PROJECTS

Scored Point
Above 75%
From 50 - 75%
From 25 - 49%

Grace
Period
5 Years
5 Years
4 Years

Payment
Completion
Period
30 Years
28 Years
25 Years

Down
Payment
10%
10%
10%

For the purpose of this project profile the average, i.e., five years grace period, 28 years
payment completion period and 10% down payment is used. The period of lease for
industry is 60 years .
Accordingly, the total lease cost, for a period of 60 years with cost of Birr 346 per m 2, is
estimated at Birr 20.76 million of which 10% or Birr 2,076,000 will be paid in advance.
The remaining Birr 18.68 million will be paid in equal installments with in 28 years, i.e.,
Birr 667,286 annually.
VI.

MANPOWER AND TRAINING REQUIREMENT

162-13

A.

MANPOWER REQUIREMENT

The list of manpower and annual labour cost is indicated in Table 6.1. The total annual
labour cost is estimated at Birr 834,952.5.
Table 6.1
MANPOWER REQUIREMENT AND LABOUR COST
Sr.
No.
1.
2.
3.
4
5
6.
7.
8
9
10.
11.
12.
13.
14.
15.
16.
17.
18.

Description
Plant Manager
Secretary
Commercial Unit Head
Personnel
Time keepers
Sales Officers
Stores keeper
Accountant
Accounting Clerk
Cashier
Production Head
Shift Formen
Mechanic
Electrician
Operators
Labourers
Drivers
Guards
Sub-Total
Benefit (25% of BS)
Total

No.
Req.
1
3
1
1
3
2
2
2
2
1
1
3
3
3
15
25
3
4
75
-

Monthly Salary
(Birr)
4,000
2,700
3,500
2,500
2,700
5,000
1,600
5,000
1,800
800
3,000
6,000
2,700
2,700
13,500
8,750
1,500
1,400

Annual
Salary (Birr)
48,000
32,400
42,000
30,000
32,400
60,000
19,200
60,000
21,600
9,600
36,000
72,000
32,400
32,400
162
105,000
18,000
16,800
667,962
166,990
834,952,5

162-14
B.

TRAINING REQUIREMENT

On-the-Job training shall be carried out during plant erection and commissioning by the
experts of machinery supplier. The total cost of training is estimated at Birr 60,000.

VII.

FINANCIAL ANALYSIS

The financial analysis of the switches, plugs, sockets and lamp shed project is based on the
data presented in the previous chapters and the following assumptions:Construction period

1 year

Source of finance

30 % equity
70 % loan

Tax holidays

3 years

Bank interest

8.5%

Discount cash flow

8.5%

Accounts receivable

30 days

Raw material local

30 days

Raw material foreign

90 days

Work in progress

1 days

Finished products

30 days

Cash in hand

5 days

Accounts payable

30 days

Repair and maintenance

5% of machinery cost

A.

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 24.83
million, of which 64 per cent will be required in foreign currency. The major breakdown of
the total initial investment cost is shown in Table 7.1.

162-15
Table 7.1
INITIAL INVESTMENT COST ( 000 Birr)
Sr.
No.

Cost Items

Foreign
Cost

Total
Cost

Land lease value

2,076.00

2,076.00

Building and Civil Work

1,150.00

1,150.00

Plant Machinery and Equipment

Office Furniture and Equipment

Vehicle

Pre-production Expenditure*

Working Capital
Total Investment cost

Local
Cost

15,937.50

18,750.00

2,812.5
100.00

100.00

450.00

450.00

1,526.21

1,526.21

781.86

781.86

8,896.57 15,937.50

24,834.07

N.B Pre-production expenditure includes interest during construction ( Birr 1.37

million, training ( Birr 60 thousand) and Birr 100 thousand costs of registration,
licensing and formation of the company including legal fees, commissioning expenses,
etc.

B.

PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 9.68
million (see Table 7.2).

The raw material cost accounts for 44.24 per cent of the

production cost. The other major components of the production cost are depreciation,
financial cost and repair and maintenance which account for 21.29%, 11.33% and 9.68%
respectively. The remaining 13.45 % is the share of labour direct, utility, labour overhead
and other administration cost.

162-16

Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)
Items
Raw Material and Inputs

Cost

4,285.50
468.21

44.24
4.83

937.50
400.78

9.68
4.14

166.99
267.18

1.72
2.76

Total Operating Costs

Depreciation

6,526.16
2,062.50

67.37

Cost of Finance

1,097.93

11.33

9,686.59

100

Utilities
Maintenance and repair
Labour direct
Labour overheads
Administration Costs
Land lease cost

21.29

Total Production Cost

C.

FINANCIAL EVALUATION

1.

Profitability

Based on the projected profit and loss statement, the project will generate a profit through
out its operation life. Annual net profit after tax will grow from Birr 2.82 million to Birr
5.13 million during the life of the project. Moreover, at the end of the project life the
accumulated cash flow amounts to Birr 45.69 million.
2.

Ratios

In financial analysis financial ratios and efficiency ratios are used as an index or yardstick
for evaluating the financial position of a firm. It is also an indicator for the strength and
weakness of the firm or a project. Using the year-end balance sheet figures and other
relevant data, the most important ratios such as return on sales which is computed by
dividing net income by revenue, return on assets ( operating income divided by assets),

162-17
return on equity ( net profit divided by equity) and return on total investment ( net profit
plus interest divided by total investment) has been carried out over the period of the
project life and all the results are found to be satisfactory.
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 breakeven 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.
BE =

Fixed Cost

24 %

Sales Variable Cost

4.

Payback Period

The pay back period, also called pay off period is defined as the period required to
recover 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 projects
initial investment will be fully recovered within 4 years.
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 27.56 % indicating the
viability of the project.

162-18
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 of time
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
23.22 million which is acceptable.

D.

ECONOMIC BENEFITS

The project can create employment for 75 persons. In addition to supply of the domestic
needs, the project will generate Birr 11.49 million in terms of tax revenue.

The

establishment of such factory will have a foreign exchange saving effect to the country by
substituting the current imports. The project creates forward linkage with the construction
sector.