ALEMAYEHU DESALEGN MAIZE FLOUR

TO BE ESTABLISHED IN WELENCHITY TWON BOSET WEREDA

OWNER ALEMAYEHU DESALEGN

ADDRESS

AUGUST, 2022

WELENCHITY, BOSET
Table of Contents
1. EXECUTIVE SUMMERY ............................................................................................................. 1
2. INTRODUCTION ` ........................................................................................................................ 2
2.1. General Background ................................................................................................................ 2
2.2. Owner Background ................................................................................................................. 3
2.3. The Owner Profile ................................................................................................................... 3
2.4. Project Description .................................................................................................................. 3
3. BUSINESS OPPORTUNITY TO ENGAGE IN CORN FLOUR PRODUCTION .......................... 4
4. MARKETING .................................................................................................................................... 5
4.1. Input market analysis............................................................................................................... 5
4.2. Domestic Maize Flour Market ............................................................................................... 11
4.3. Product Distribution Mechanism ........................................................................................... 15
5. ORGANIZATIONAL STRUCTURE ............................................................................................ 17
5.1. Number of human resource requirement ................................................................................ 18
6. TECHNOLOGY AND PRODUCTION CAPACITY AND LOCATION ...................................... 20
6.1. Technology ........................................................................................................................... 20
6.2. Production Capacity of the Machine ...................................................................................... 28
6.3. Location Of the Project.......................................................................................................... 28
7. FINANACIAL PART ................................................................................................................... 29
7.1. The cost of project ................................................................................................................. 29
7.2. Machinery Cost ..................................................................................................................... 29
7.3. Working Capital .................................................................................................................... 30
7.4. General Project Cost .............................................................................................................. 32
7.5. Revenue of the project ........................................................................................................... 32
7.6. Gain and Loss Statement ....................................................................................................... 32
7.7. Expected cash follow the project ........................................................................................... 34
7.8. Debt payment ........................................................................................................................ 35
7.9. Analysis of business financing decisions tools ....................................................................... 35
7.3. Social andEconomic advantage of the business .......................................................................... 36
8. CONCLUSION AND RECOMMENDATION.............................................................................. 38
8.2. Conclusion ................................................................................................................................. 38

i
1. EXECUTIVE SUMMERY

Project Name Alemayehu Desalegn Maize Flour factory

Project Owner Alemayehu Desalegn

Nationality Ethiopian

Project Location Oromia

Project type Agro-Processing

Premise required

Total Project Cost for 120T corn mill 31M.

Working Capital Required 10.5M

Employment Opportunity 21 employment opportunity

Benefit of establishing the project in the area Many and different benefits

1
2. INTRODUCTION `
2.1. General Background

Food security in Ethiopia, and elsewhere in Africa, is a major Socio-political issue. Its economic
wellbeing is also dependent on the success of its agriculture. Ethiopia has long suffered from food
shortages and economic underdevelopment even though it is endowed with a wide range of crop
and agro ecological diversity. Maize, teff), sorghum, wheat, and barley among cereals and enset
among roots and tubers provide the main calorie requirements in the Ethiopian diet.

Crop productivity and production remained low and variable in the 90s for the most part but there
have been clear signs of changeover the past decade.Maize flour production is a sect in the agro-
processing sub-sector. Traditional or village level maize processing are tedious and time
consuming. Introducing appropriate technologies at community and household level will help to
reduce this drudgery. Alternatively, industrial production of maize flour could alleviate this
problem and eventually promote its utilization.

Although maize is known to make differenttypes of snack foods worldwide, in Ethiopia its
application limited too few number of snack food formulations. The industrial utilization of maize
in Ethiopia is focused on production of flours and weaning foods. Processing of enriched and
commercial products like instant baby foods, breakfast cereals, bread improvers, and extruded
snack also stimulate demand/utilization for corn flour. Increased production of maize grain drove
the market price to a reasonable level and corn became more affordable for rural communities and
poor urban consumers compared to other cereals.

Millers used corn both separately as well as in mixed flour with other more expensive cereals like
teff and wheat. Poultry producers are also demanding more corn compared to other cereals. Due to
increasing contemporary demand for maize flour the owner of this project has determined to
engage in the sector.

2
2.2.Owner Background

 Name Of the project: Alemayehu Desalegn Corn Flour Factory

 Physical address:- Boset Wereda, Welenchity town

 Cellphone Address:-0911-251-706

 Email:-

 House Number

 Project type:- maize Flour factory

2.3.The Owner Profile

The owner of this project is Mr. Alemayehu Desalegn. He is the resident of Oromia regional state,
Boset Woreda, Welenchity town. He is married man living there for long time. His business profile
is a full of success in the businesses he has engaged in so far and running currently. The business
man has a dream to grow to food processing industry by starting from production of maize/corn
flour in short run and wheat and other food processing factory in the future.

2.4. Project Description

The envisaged project is a project which is planned to set maize flour producing plant. Using
traditionally processed maize flour is common in Africa starting many years ago. As technology is
advancing now a day corn has started to be processed industrially. Maize flour is used to make
breads, muffins, doughnuts, pancake mixes, infant foods, biscuits, wafers, breakfast cereals and
breading, and as filler, blinder and carrier in meat products.

The project is going to establish in Welenchity town. The owner plan to get corn milling machine
from machinery leasing institution operating in the county. The Owner make himself ready to
prepare all required premise, Buildings, power, water and project running cost. This project
consume Maize grain as raw material and outputs maize flour and some percent of byproducts
which can be used for different of purpose.

3
3. BUSINESS OPPORTUNITY TO ENGAGE IN CORN FLOUR PRODUCTION

3.1.Key Success factors

 Government incentives

Ethiopian government is increasing it support to boast agriculture, agro-processing industry and

others which greatly contributes in lowering food insecurity in the county. Recently, it has giving
different incentives for investors who participate in such industry including importation of
machineries on duty free bases, giving investment land without any bureaucracy, availing credit
and tax holidays.

 Availability labor force

Labor is required in most industries. The project need labor force all skilled and unskilled. Skilled
lobar is required to run the project operation skillfully. Such operation includes machine operating,
machine programing, and administration of human resource and financial activity of the project.
Unskilled lobar is required for project activities like loading and unloading of product and raw
materials and etc. the area constitutes these entire lobar requirement.

 Availability of Technology

Maize was mostly used for food purpose using traditional processing/milling mechanism in
Ethiopia or may be small millings. But the sector is experiencing production of maize at industry
level. Modern maize milling machinery are available all over the world and possible to import it.
Therefore it is advantageous to produce maize flour at industry level than traditionalways due to
availably of modern technology.

 Fast Growing Demand

The contemporary demand for maize flour high due to corn flour multipurpose food usage. The
product is demanded to produce foods like breads, muffins, doughnuts, pancake mixes, infant
foods, biscuits, wafers, breakfast cereals and breading, and as filler, blinder and carrier in meat
products.

4
4. MARKETING
4.1.Input market analysis

4.1.1. Global maize production, consumption and trade

Maize has played an increasing and diverse role in Global agro-food systems. Global maize
production has surged in the past few decades, propelled by rising demand and a combination of
technological advances, yield increases and area expansion. Maize is already the leading cereal in
terms of production volume and is set to become the most widely grown and traded crop in the
coming decade. It is a versatile multi-purpose crop, primarily used as a feed globally, but also is
important as a food crop, especially in sub-Saharan Africa and Latin America, besides other non-
food uses.
The global maize area (for dry grain) amounts to 197M ha, including substantive areas in sub-
Saharan Africa (SSA), Asia and Latin America (FAOStat, 2021). It is an established and important
human food crop in a number of countries, especially in SSA, Latin America, and a few countries
in Asia, where maize consumed as human food contributes over 20% of food calories
(Shiferawet_al., 2011). Compared to wheat and rice, maize is a more versatile multi-purpose crop.
In the developed economies it is primarily used as a livestock feed crop with a varied role as an
industrial and energy crop. With economic development (including income growth and
urbanization), the consumption of animal source foods is accelerating and propelling the demand
of maize as feed, Asia being a prime example (Erenstein, 2021). Maize thereby plays a diverse and
dynamic role in global Agri-food systems and food/nutrition
.

4.1.2. Trends in global maize production

Maize for dry grain is annually cultivated on an estimated 197M ha of land globally, making it the
second most widely grown crop in the world after wheat. In comparison, wheat was annually
cultivated on 216M ha and rice on 165M ha. In terms of dry grain annual production, maize’s
1,137 million tons (M t) globally is markedly higher (+ 50%) than both rice and wheat. The
divergence reflects the substantially higher maize grain yields (5.8 tons/ha), mostly linked to
widespread hybrid cultivation and complementing input use. Over the last quarter century, maize
production more than doubled (+ 118%) supported by both substantive yield increases (+ 50%)
Global cerealproduction statistics (annualaverages, for dry grain only)Source: FAOStat (2021).

5
Table 4.1 Global production trend of maize

It quit big difference between corn and cereals in terms of productivity or yield per hectare. For
instance, the average production yield from year 2017 to 2019 is 5.8Mt which higher than other
listed crops.

World Maize Production share

Figure 4.1. World maize production share

6
As indicated in the above figure, the leading producers of corn is America which produces 36.1%
of world maize yield followed by Asia, Africa, Europe at percentage share of 34.1%, 20.9% and
8.9% respectively as indicated by FAO Estat,2021 annual report.

4.1.3. Trend in Global Maize Consumption

Maize is a versatile multipurpose crop. At the global level, maize (dry grain) is primarily used as
feed (56% of production), a fifth for non-food uses, and 13% for food (Table 4.2). At face value
these use categories underestimate the contribution of maize to human food/nutrition. The reported
food use only encompasses the direct pathway of consuming dry maize grain in food products
(processed or unprocessed). Much of the maize grain used as feed is used to derive animal-sourced
foods and thereby provides an indirect consumption pathway. For instance, 3kg of human-edible
feed (primarily maize grain and soy) potentially produces 1kg Table 4.2 Maize utilization, by
region, average 2014–18 Source: FAOStat (2021)

7
Maize is processed and consumed in varies ways greatly from country to country, with
maize flour and meal being two of the most popular products. The actual human consumption of
these cereals is somewhat lower than the estimated figures because of waste, use in nonfood
products, and because milling removes some of the outer layers, or bran, which is generally used
as animal feed. As with all cereals, most micronutrients are concentrated in the outer layers of the
maize grain; thus, removing these layers in the milling process results in the loss of most vitamins
and minerals.

Consumption can be better estimated by adjusting the values of cereal crops used for food and
human food sources by considering the extraction rate (i.e., the proportion of flour or meal
produced from the whole-grain cereal). In most countries, the extraction rate for maize varies from
60% to 100% depending on the product. The changes in nutritional profile (ash, fat, and fiber
content) at the lower extraction rates will be less than those observed at the higher extraction
levels, as in the case of wheat.

8
Maize contains about 72% starch, 10% protein, and 4% fat, supplying an energy density of
365 Kcal/100 g, as compared to rice and wheat, but has lower protein content. Maize provides
many of the B vitamins and essential minerals along with fiber, estimated maize consumption in
grams per person per day in countries where maize is considered an important food source (i.e.,
above 50 g/person/day) were corrected for an average 80% extraction rate. It is clear that maize is
a staple in the African region where the consumption ranges from 52 to 328 g/person/day and the
region of the Americas where the highest consumption was267 g/person/day in Mexico. The
results may vary according to the extraction rate, which varies in each country by type of flour
milled as well as by the maize type used. No consumption above 50 g/person/day was estimated in
the Western Pacific Region (FAO estat 202)

4.1.4. Global Maize Flour Production and Trade

Maize Flour is the most traded product whole over the work with a total trade of $571M in 2020.
Between 2019 and 2020 the global export of maize flour is grew by 13.1%in 2020 the top
exporters of maize were Mexico ($138M), Unite State ($62M), Brazil ($52.4M), Italy ($37.6M)
and Salvador ($35.5M)
County Name Export Year Export amount in USD

Mexico 2019-2020 138M

Unite State 2019-2020 62M

Brazil 2019-2020 52.4M

Italy 2019-2020 37.6M

Salvador 2019-2020 35.5M

www.tridge.com
The trend of maize flour exportedindicates that there are some changes in terms of rank. For
instance South Africa and Uganda were the African county listed out in the rank of 2-6 top
exporter of Maize flour between years 2016-2018. However, these counties rank was overtaken by
emerging countries in export of maize flour in recent years. These counties include Italy, Brazil
and Salvador.

9
4.1.5. World Maize Flour Import

Country importing year Amount in USD

Unite States Of America 2019-2020 135M
Spain 2019-2020 23M
Canada 2019-2020 20.5M
Venezuela 2019-2020 19.6M
Honduras 2019-2020 18.1M
www.tridge.com

The top five world importer of maize flour America with import Value of USD 135M followed by
Spain (USD 23), Canada (USD 20.5), Venezuela (USD 19.6M) and Honduras (USD M).

10
4.2.Domestic Maize Flour Market

Maize is known to Ethiopia for the last 500 years. It grows in all parts of the country. Over 17
million quintals of maize are produced annually from about a million hectares of land since 1985.
Maize is the second important commodity crop exceeded by teff in area coverage. Major
producing regions are Southern, Western, South-Western and the highlands of Hararge in the East.
Almost all maize is consumed as human food. Maize is first in production and yield per unit area.
In the last 30 years maize hectare has increased steadily, while the corresponding area for other
cereals has declined.

Open-pollinated Varietal development of maize in the country has been rather slow and existing
varieties are mainly from introduced sources. Maize is an important crop for overall food security.
Maize is also used for making local beverages. A small quantity of the grain produced is currently
used in livestock and poultry feed, and this is expected to increase with the development of the
livestock and poultry enterprises in the country. Moreover, the crop has potential uses for
industrial purposes, serving as a starch, a sweetener for soft drinks, an input for ethanol fuel
production and oil extraction, etc. Ethiopia is already a significant maize producer in Africa, and
this role could be further enhanced. Currently, Ethiopia is the fourth largest maize producing
country in Africa, and first in the East African region (FAO, 2012). It is also significant that
Ethiopia produces non-genetically modified (GMO) white maize, the preferred type of maize in
neighboring markets. This strategy envisions exports markets being a significant part of the
demand sink for Ethiopian maize.

In the past century, maize has gained increasing importance as a major food source within Africa.
As one of the most important grains in the world, maize serves as basic raw material for the
production of starch, oil and protein, alcoholic beverages, and food sweeteners. In Ethiopia, until
recently, maize is considered as a food crop mainly produced and consumed by rural households.
Nowadays, however, maize has become an important cash crop as urbanization accelerated and the
urban population diversified consumption to other cereals including maize. For these reason it has
been demanded for four major sources of maize grain in the country. These include, households,
food aid programs, processing industries and the export market. From these HH demand remain
the largest demand sinks for maize grain followed by food aid programs.

11
 4.2.1. Demand analysis

Local demand for maize flour is expected to increase by about 2,5%, mainly due to the increase in
its multipurpose demand. The demand includes animal feed and human consumption. Due to the
increase in production, it is to be expected that maize imports will be kept minimal except that of
foods made from maize flour like baby foods. However, for this study purpose only the demand of
maize flour for food purpose is assumed due to insignificant number of animal feed.

Note; 38 and 11Kg per month is rural and urban household consumption who has 5 members in
each house hold so to calculate consumption per person is 38/5 and 11/5 which is 7.6kg and 2.2 kg
per/month in each person

Yearly Yearly
Urban
Rural Urban Rural Consumption Consumption Total Yearly
Population
number of number of Population Demand of Demand of Demand for
Year Consumptio
pop pop Consumption Rural Urban maize flour/
n 11/kg per
38kg/ month Population/Q population/ Quintal
month
uintal Quintal

2021 89,606,114 17,290,276 681,006,466 38,038,609 81,720,776 4,564,633 86,285,409

2022 91,998,597 17,751,927 699,189,339 39,054,240 83,902,720 4,686,508 88,589,229
2023 94,454,959 18,225,903 717,857,694 40,096,988 86,142,923 4,811,638 90,954,561
2024 96,976,907 18,712,535 737,024,495 41,167,577 88,442,939 4,940,109 93,383,048
2025 99,566,190 19,212,160 756,703,049 42,266,752 90,804,365 5,072,010 95,876,376
2026 102,224,608 19,725,124 776,907,020 43,395,274 93,228,842 5,207,432 98,436,275
2027 104,954,005 20,251,785 797,650,438 44,553,928 95,718,052 5,346,471 101,064,524
2028 107,756,276 20,792,508 818,947,704 45,743,518 98,273,724 5,489,222 103,762,946
2029 110,633,369 21,347,668 840,813,608 46,964,870 100,897,633 5,635,784 106,533,417
2030 113,587,280 21,917,651 863,263,332 48,218,832 103,591,599 5,786,259 109,377,859
Ethiopian Institute of Agricultural Research (EIAR,) 2014
The yearly demand for maize flour seems untouched yet as indicated in the table. The demand is
huge that need more investment in maize flour product to narrow the demand gap of the grain
flour.

12
4.2.2. Supply

In Ethiopia the production of maize at industry level is at its infantry stage. Yet there are some few
numbers of producers of maize flour in Ethiopia which produces certain amount of maize flour
yearly. However, this company produces very few number of kg yearly as compared to the
demand. known existing operational maize flour factories in the country which are engaged
processed and marketing of different types of products like Flour, Grit, Germ and soon. As it has
been mentioned, the volume of domestic production of maize flour and related products in our
country, at industrial level, is found to be insufficient. In this future supply estimation in addition
to actual producers certain amount is hold to see the precaution comes from new joiners. The
following assumption is considered in estimating future supply.

The existing manufactures are utilizing their 70% capacity

Their capacity to increase up to 90% in the coming two years

Production from New joiners is assumed 20% of the existing production

Existing project operating days 260

Expected production by newly

Local Production in Total Local Supply/
year joining millers 20% the actual
Quintal Quintal
production
2021 9,152,000 1,830,400 10,982,400
2022 10,067,200 2,013,440 12,080,640
2023 10,067,20 2,013,440 12,080,640
2024 10,067,200 2,013,440 12,080,640
2025 10,067,200 2,013,440 12,080,640
2026 10,067,200 2,013,440 12,080,640
2027 10,067,200 2,013,440 12,080,640
2028 10,067,200 2,013,440 12,080,640
2029 10,067,200 2,013,440 12,080,640
2030 10,067,200 2,013,440 12,080,640

EMA (Ethiopian Millers Association)

13
4.2.3. Import of Maize Flour in Ethiopia in quantity/tons

Import of maize flour is common is experienced since many decades. The imported maize flour is
mainly used for infant food like FAFA due to its quality. The main products imported include
maize flour, maize starch, and maize seed. In the following table, estimated import of maize flour
is demonstrated by using raw data received from Ethiopian Custom Authority.

Year Maize Flour Import in Ton Maize Flour Import in quintal

2021 438.22 43,821.65
2022 455.92 45,592.04
2023 474.34 47,433.96
2024 493.50 49,350.29
2025 513.44 51,344.04
2026 534.18 53,418.34
2027 555.76 55,576.45
2028 578.22 57,821.73
2029 601.58 60,157.73
2030 625.88 62,588.10

Ethiopian Custom Authority

Local Expected production Yearly total

Maize Flour
Year Production in by newly joining Supply of Maize
Import in quintal
quintal millers flour in quintal
2021 10,982,400 1,830,400 43,821.65 12,856,621.65
2022 12,080,640 2,013,440 45,592.04 14,139,672.04
2023 12,080,640 2,013,440 47,433.96 14,141,513.96
2024 12,080,640 2,013,440 49,350.29 14,143,430.29
2025 12,080,640 2,013,440 51,344.04 14,145,424.04
2026 12,080,640 2,013,440 53,418.34 14,147,498.34
2027 12,080,640 2,013,440 55,576.45 14,149,656.45
2028 12,080,640 2,013,440 57,821.73 14,151,901.73
2029 12,080,640 2,013,440 60,157.73 14,154,237.73
2030 12,080,640 2,013,440 62,588.10 14,156,668.10

Table 4.6 Estimated future demand for maize flour, actual production and estimated import maize
flour

14
 Total Yearly Demand for Yearly total Supply of
Year Market Gap
maize flour/ quintal Maize flour in quintal

2021 86,285,409.14 12,856,621.65 73,428,787.49

2022 88,589,229.56 14,139,672.04 74,449,557.52

2023 90,954,561.99 14,141,513.96 76,813,048.03

2024 93,383,048.80 14,143,430.29 79,239,618.51

2025 95,876,376.20 14,145,424.04 81,730,952.16

2026 98,436,275.45 14,147,498.34 84,288,777.10

2027 101,064,524.00 14,149,656.45 86,914,867.56

2028 103,762,946.79 14,151,901.73 89,611,045.06

2029 106,533,417.47 14,154,237.73 92,379,179.74

2030 109,377,859.72 14,156,668.10 95,221,191.61

The market gap of maize flour is still very high and the above estimate show it will increase in the
coming 10 years. Therefore, investing this sector is useful as county level and for investors as well.

The number shows the market gap of the flour maize grow from 73.4m quintal in 2021 to 95.2m
quintal in 2030. So far, many investors in the country prefer to invest in wheat flour production.
There are many wheat flour companies which have from small to large production capacity. Wheat
flour sector market seems matured now. Now the big attention of investors is changing to maize
flour production as its usage in versatile product is increasing. The country has also high potential
of producing corn.

4.3. Product Distribution Mechanism

A marketing channel consists of the people, organizations, and activities necessary to transfer the
ownership of goods from the point of production to the point of consumption. It is the way
products get to the end-user, the consumer; and is also known as a distribution channel. A
marketing channel is a useful tool for management, and is crucial to creating an effective and well-
planned marketing strategy.

15
Another less known form of the marketing channel is the Dual Distribution channel. This channel
is a less traditional form that allows the manufacturer or wholesaler to reach the end-user by using
more than one distribution channel. The producer can simultaneously reach the consumer through
a direct market, such as a website, or sell to another company or retailer that will reach the
consumer through another channel, i.e., a store. An example of this type of channel would
be franchising.

4.3.1. Roles of marketing channel in marketing strategies

 Links producers to buyers.

 Influences the firm's pricing strategy.
 Affecting product strategy through branding, policies, willingness to stock.
 Customizes profits, install, maintain, offer credit, etc.
The project will use the following market channel as way to reach it customers

Figure 4..1. product distribution mechanism

4.3.2. Price

Until recent years maize is the cheapest product in Ethiopia. As the experience to use it for
different purpose increase and different industry use it emerges the price has been increasing. In
fact, the price of maize is lower yet comparing to other cereals and grain in the county. As our
survey indicates, the price of maize varies from 2200-2400 Ethiopian Currency in different parts of
our country and whereas the price of maize flour ranges from 2800-3800 Ethiopian currency in
different part of our country.

16
5. ORGANIZATIONAL STRUCTURE

An organizational structure is simply the pattern or network of division of the roles and
responsibilities. Thus, which person has to perform which task is what the organizational structure
explains. Such a structure also depicts the hierarchy in which members of an organization rank
themselves.

 Roles of Top Manager

A top-level manager is responsible for creating and implementing organizational plans and
policies and is a professional who is at the executive level. They work as a negotiator between the
top-level and lower-level managers. These professionals can work to guide the overall direction of
an organization.

 Roles of Adviser of Top Manager

Business advisors are responsible for planning and executing business strategies to improve
efficiency in the operational and financial management of businesses. They prepare budgets,
advice on projects and marketing, and perform risk analysis. They may work at businesses or as
independent business advisors.

17
 Role Of Production Head

As a working for the head of production, he/she will be involved with the planning, coordination
and control of manufacturing processes. She/he has to make sure goods and services are produced
efficiently and that the correct amount is produced at the right cost and level of quality. He /she
also may be involved with product design and purchasing.

 The Role of Administration Head

Administrative managers oversee the work of other administrative and clerical staff while also
providing such duties themselves. Administrative managers help organize schedules, manage
payroll and personnel databases, create reports, and offer other clerical duties. This role also
requires a significant amount of communication and coordination.

 The Role of Finance Head

The head of finance of an organization or business is the individual in charge of the financial
health of the company. They’re also known as financial managers or chief financial officers. As
head of finance, the individual has many responsibilities including, but not limited to, preparing
financial statements and business activity reports; assessing financial details to ensure regulations
are met; assist management in making financial decisions, and supervising employees who work
with budgets and financial reports.

The financial manager also performs a lot of data analysis and uses their result to help them advise
senior managers on how to increase their profitability. They also analyze the market trends to find
ways to grow and bring in more revenue as well as reduce costs. They may also work with and
advise top executives. This position is one of great importance because it’s the head of finance’s
responsibility to remain profitable.

5.1. Number of human resource requirement

Human resource requirements concern the specific capabilities or attributes needed by the people
who perform the work of the project. The human resource requirement of the project is shown
below

18
 S/N Position Number Salary Annual cost
1 General Manager 1 20,000 240,000
2 Secretary 1 5,000 60,000
3 Adviser 1 15,000 180,000
4 Production Head 1 15,000 180,000
5 Operator 3 8,000 288,000
6 Sale person 2 6,500 156,000
7 Purchaser 2 6,500 156,000
8 Accountant 1 6,000 72,000
9 Cashier 1 4,000 48,000
10 Unskilled person 5 1,500 90,000
11 Driver 1 5,000 60,000
12 Guards 2 2,000 48,000
Total 21 1,398,000

19
6. TECHNOLOGY AND PRODUCTION CAPACITY AND LOCATION
6.1.Technology

It is the number one attention of the owner to select appropriate technology which makes him stay
in the business for long time. In longer running projects which are, to be honest, most of them long
term support and backward compatibility are indeed a topic to take into account. The owner has
selected best technology maize flour producing machinery that is best in the world market.

The following is detail specification of the machinery selected by owner

20
21
22
23
24
25
26
Source: it is invoice presented by owner.

27
6.2. Production Capacity of the Machine

As indicated on invoice presented by the owner of the project the machine has capacity of
producing 120T of maize flour in 24 hours.

Theoretical production capacity 120T/24

120T*1000=120,000kg/24

The machine is expected to operate for 8hr in a day for 250 days

(120,000kg/24)*8*250days=10,000,000kg annually

Changing to quintal 10,000,000/100= 100,000 quintal annually

From the above total product 85% is maize flour and 15% is byproducts

Production/
Types of Item Percentage
annum Quintal
Flour yield 85% 84,150
By product 15% 14,553

The project will produce 84,150 Quintal of maize flour and 14,553 Quintal of byproduct of maize
flour. Due to the project is new in the sector it is not expected to produce at its first year of
operation and thus it is expected to produce at 50% of its total theoretical capacity and then to
increase by 65%, 80% and 90% respectively for future three years.

6.3. Location Of the Project

Alemayehu Desalegn is living in Boset Wereda Welenchity Town. He is going to set the project
there. This location has advantage for distribution of its product. Area like Afar, Hararge and
Sommali are known to consume maize and maize related foods. Therefore it is accessibly to
infrastructure and has physical location advantage.

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7. FINANACIAL PART
7.1. The cost of project

Project costs are the funds required to perform a planned business endeavor, and they are a primary
subject in project budgeting and cost management. Costs are the entities estimated when
developing a budget. They are the money actually invest in work and the amounts tracked and
control until the very end of a project.

7.2.Machinery Cost

The owner wants to get this machine from capital good leasing company/banks operating in the
country. The presented machinery which the owner wants to eruct cost more than 390,000 USD.
Due changing it to the approximate exchange rate of 53 Birr to one USD it cost 390,000*53=
20,670,000.00 Ethiopian currency. The invoice of the following clearly shows the price of the
machine

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7.3.Working Capital

To operate the project after leasing and eructing of the machine, it needs working capital. Project
can incur expenses from when they begin operations throughout their time in their industry.
Operating costs include many of a project’s primary needs, which factor into its profitability.
Understanding operating costs can help make business more efficient and increase profits. An
operating cost is an expense from the daily operations, materials and other necessary components
an organization uses regularly. These costs are the most basic expenses of a business and help form
the basis on which companies build their overall expense sheets and budgeting. Calculating
operating costs can help organizations create more accurate budgets and balance sheets.

 Working Capital For Raw materials

The raw material for maize flour is Maize/corn. The project will up to 100,000 quintal of grain mill

at its first operation year. The market price of a quintal of Maize is expected be 24,000. Thus the

total cost of input for the first year is 240,000,000 when the project operates at 50%. Thus 1 month

working capital is expected to revolve around the operational year.

Required Average
Raw materials Total Cost
(Quintal/Yr) unit cost/Quintal

Maize 100,000 2,400.00 240,000,000

 Working for other costs

Utility
Electricity
Power requirement 308 kw
Annual requirement kw
616,000
Cost per kw 2 birr
Total cost
1,232,000
Water Cost 30,0000 Birr
The project needs about 1.2m for electric power utilization and water utilization annually. It also
needs other different related costs like coat of packing material, salary and others. The summery of
the cost of operation of the project is indicated as follow

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 Types of Years
costs 1 2 3 4 5 6 7 8

Raw Materials 120,000,000 156,000,000 192,000,000 216,000,000 216,000,000 216,000,000 216,000,000 216,000,000

Electric 592,218 769,883 947,549 1,065,992 1,119,292 1,175,257 1,234,019 1,295,720

Wages 1,764,000 1,852,200 1,944,810 2,042,051 2,144,153 2,251,361 2,363,929 2,482,125
Protective 88,200 92,610 97,241 102,103 107,208 112,568 118,196 124,106
Promotion 100,000 105,000 110,250 115,763 121,551 127,628 134,010 140,710
Cleaning 50,000 52,500 55,125 57,881 60,775 63,814 67,005 70,355
Repair 1,033,500 1,033,500 1,033,500 1,033,500 1,033,500 1,033,500 1,033,500 1,033,500
Insurance 165,360 165,360 165,360 165,360 165,360 165,360 165,360 165,360
Other Costs 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000
Total 123,793,278 160,071,053 196,353,834 220,582,649 220,751,839 220,929,488 221,116,019 221,311,877

The project needs a total Birr 123M for its operation in the first year. The operating cost increase
from birr 123m to birr 221m from the fist operation period to its 8 th year operation. The cost
increases because the production capacity of the project is expected to increase yearly. It is
expected one month working capital for raw material is held to run the business.
year
Description 7 8
1 2 3 4 5 6
I. Direct Costs -
Raw Materials 10,000,000 13,000,000 16,000,000 18,000,000 18,000,000 18,000,000 18,000,000 18,000,000

Electric 49,352 64,157 78,962 88,833 93,274 97,938 102,835 107,977

Sub-total 10,049,352 13,064,157 16,078,962 18,088,833 18,093,274 18,097,938 18,102,835 18,107,977

II. Indirect Costs

Wages 147,000 154,350 324,135 340,342 357,359 375,227 393,988 413,688

Protective 7,350 7,718 8,103 8,509 8,934 9,381 9,850 10,342

Promotion 8,333 8,750 9,188 9,647 10,129 10,636 11,167 11,726

Cleaning 4,167 4,375 4,594 4,823 5,065 5,318 5,584 5,863
Repair 86,125 86,125 86,125 86,125 86,125 86,125 86,125 86,125

Insurance 165,360 165,360 165,360 165,360 165,360 165,360 165,360 165,360

Other Costs 37,500 37,500 37,500 37,500 37,500 37,500 37,500 37,500
Sub-total 455,835 464,178 635,005 652,306 670,472 689,546 709,574 730,603

Total 10,505,187 13,528,334 16,713,967 18,741,138 18,763,746 18,787,484 18,812,409 18,838,580

31
7.4. General Project Cost

Total project
Item list Owner's equity Leas cost
cost
120T/24 Maize Flour Mill
1 20,670,000 20,670,000
Working capital
2 10,505,187 10,505,187
Total
10,505,186.50 20,670,000.00 31,175,187

The project total investment is 31M. The owner contribution is 10.5M and the machine is expected
to get from capital good leasing companies.

7.5.Revenue of the project

Project Revenues means, without duplication, all income and cash receipts of the Company
derived from the ownership or operation of the Project. It is also the difference between all income
the projected generated and all cost it has cost during the fiscal year. The project will generate birr
147,420,900 assuming to operate at 50% capacity in first year.

 Gain from sales of the project product

production/ unit price/
Sr. No Product Revenue
annum Quintal Quintal
2 Flour 84,150 3,400 286,110,000
3 By product 14,553 600 8,731,800
Total 294,841,800

7.6.Gain and Loss Statement

A profit and loss forecast is a financial snapshot of where your business is headed. It looks at the
money you expect to be paid and your likely outgoings. In its simplest form, it tells you whether
your project is set to make a profit in the years, or a loss, and for many businesses, it’s a tool that is
heavily relied upon. The level of detail depends on the type of business you run, and its relative
size and complexity. However, even the smallest enterprise needs to have this sort of information
available. Relying on ‘instinct’ or mental calculations can prove grossly inadequate! A profit and
loss forecast would normally cover the required years, but some organizations like to produce one
spanning two or even five years. Of course, this is not information that is cast in stone. A profit

32
 and loss forecast is an estimate of your income and outgoings. However, its findings can play a big
part in deciding the way you run your business in the coming years.

 Key benefits of profit and loss forecasting

Having a clear idea of how much working capital you are likely to have, from a healthy profit
level, can go a long way to supporting your business development. If your forecast suggests cash
will be available, it could be the best time to consider investing in new plant, staff or R&D
projects. Alternatively, if your forecast indicates that profit levels will be low and therefore capital
will be limited, it can guide you towards a more cautious path. Having this level of insight can help
you to manage your risks. You can also take robust steps to increase your business profitability.
This could involve finding new customers, encouraging more repeat sales, or focusing on products
or services offering higher profit margins.

If the forecast suggests you are likely to make losses in the coming months, you can also take
action before this becomes a reality. That way, you can ensure you have enough money available
to continue to trade. For example, you can go after new business or introduce austerity measures to
stop you from dipping too far down into the red. The flowing table shows the forecasted gain or
loss statement of the project.

Description Years
1 2 3 4 5 6 7 8

147,420,900 191,647,170 235,873,440 265,357,620 265,357,620 265,357,620 265,357,620 265,357,620

Sales/Revenue

123,793,278 160,071,053 196,353,834 220,582,649 220,751,839 220,929,488 221,116,019 221,311,877

Less: Operating Costs

23,627,622 31,576,117 39,519,606 44,774,971 44,605,781 44,428,132 44,241,601 44,045,743

Gross Profit

2,067,000 2,067,000 2,067,000 2,067,000 2,067,000 2,067,000 2,067,000 2,067,000

Less: Depreciation

21,560,622 29,509,117 37,452,606 42,707,971 42,538,781 42,361,132 42,174,601 41,978,743

PBIT

2,306,303 2,104,587 1,878,655 1,625,598 1,342,160 1,024,694 669,115 270,846

Less: Service charge

19,254,319 27,404,529 35,573,951 41,082,373 41,196,621 41,336,438 41,505,486 41,707,897

Profit Before tax

6,739,012 9,591,585 12,450,883 14,378,831 14,418,818 14,467,753 14,526,920 14,597,764

Less: PT 35%

12,515,307 17,812,944 23,123,068 26,703,543 26,777,804 26,868,685 26,978,566 27,110,133

Net Gail/loss

33
 According to forecasted gain or loss statement estimated for the project, it is expected to gains
12M in the first year which it will grow to 27M in the next eight years. Therefore, the project will
be profitable in the future operation periods.

7.7.Expected cash follow the project

The cash flows factors can be considered to calculate the parameters to measure organizational
performance. A project's statement of cash flows is the net flow for that project or the organization.
If the net flow increases then it is called positive net flow. If the net flow decreases then it is called
the negative net flow. It depends on the project's results to have positive or negative cash flows.
This net flow as discussed consists of three parameters such as operating, investment, and financial
cash flows. The future cash flow of the project is calculated and presented as follow.

Year
Description
0 1 2 3 4 5 6 7 8

Cash Inflows

Owner's Equity 10,505,187

lease debt 20,670,000

Net Profit 12,515,307 17,812,944 23,123,068 26,703,543 26,777,804 26,868,685 26,978,566 27,110,133

Depreciation 2,067,000 2,067,000 2,067,000 2,067,000 2,067,000 2,067,000 2,067,000 2,067,000

Total Cash
31,175,187 14,582,307 19,879,944 25,190,068 28,770,543 28,844,804 28,935,685 29,045,566 29,177,133
Inflows

Cash out Flows

Fixed assets 20,670,000

Working Capital 10,505,187

Increase in
- 3,023,148 170,827 17,301 18,166 19,074 20,028 21,029
Working Capital

Loan Repayment 1,680,192 1,881,907 2,107,840 2,360,897 2,644,335 2,961,801 3,317,380 3,715,648

Withdrawal 3,754,592 5,343,883 6,936,920 8,011,063 8,033,341 8,060,605 8,093,570 8,133,040

Total Cash
31,175,187 5,434,784 10,248,939 9,215,588 10,389,261 10,695,842 11,041,480 11,430,978 11,869,718
Outflows

Net Cash Flow - 9,147,523 9,631,006 15,974,481 18,381,282 18,148,962 17,894,205 17,614,588 17,307,415

Cumulative Cash
9,147,523 18,778,529 34,753,010 53,134,291 71,283,253 89,177,458 106,792,046 124,099,461
Balance

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According to forecasted cash flow statement estimated for the project, it is expected to generate
9.1M in the first year which it will grow to 124M in the next eight years. Therefore, the project
will be profitable in the future operation periods.
7.8. Debt payment

The cost of financer or lending unit for machinery and generator is paid in eight years see the
detail in the following table.

No. Date Total Payment From Lease Cost Charge

1st year 2024 3,986,494.63 1,680,191.80 2,306,302.83

2 2025 3,986,494.63 1,881,907.42 2,104,587.22
3 2026 3,986,494.63 2,107,840.02 1,878,654.61
4 2027 3,986,494.63 2,360,896.99 1,625,597.64
5 2028 3,986,494.63 2,644,334.75 1,342,159.88
6 2029 3,986,494.63 2,961,800.66 1,024,693.97
7 2030 3,986,494.63 3,317,379.97 669,114.66
8the year 2031 3,986,494.63 3,715,648.40 270,846.24
Total 31,891,957.05 20,670,000.00 11,221,957.05

7.9. Analysis of business financing decisions tools

There are different finance decision making tool. These include different ratios, payback period,
Net present value, internal rate of return and some many others. Form many of listed financing
decision making tools NPV are more powerful in-terms of its realistic. Top world financial
institution like World Bank and African development bank use this tool to make decision and
selection of profitable investment from applied proposals.

7.9.1. Payback Period

Though payback period is mostly used to select one from many mutually exclusive businesses, it
also called pay-off period which is defined as the period required recovering the original
investment outlay through the accumulated net cash flows earned by the Business. Accordingly,
based on the projected cash flow it is estimated that the project’s initial investment will be fully
recovered within the end of two years according to cash flow statement. Logically this business is
35
selectable. But considering the business will confront challenges in future debt payment is set for
eight years.

7.9.2. Net Present Value

The NPV is the difference between present value of cash inflow and present value of cash outflow
and the present value of cash out flow over period of time
𝑛
𝑅𝑡
𝑁𝑃𝑉 = ∑ ( )𝑡
1+𝑖
𝑡=1

Present Disco Present

Discount
year Value of Cash Out untin Value of
Cash inflow ing at NPV
s Cash out flow g at Cash
12@
low 12@ inflow
0 31,175,187 1.00 31,175,187 31,175,187 1.00 31,175,187 -
1 14,582,307 0.89 13,019,917 5,434,784 0.89 4,852,486 582,298
2 19,879,944 0.80 15,848,170 10,248,939 0.80 8,170,391 2,078,547
3 25,190,068 0.71 17,929,793 9,215,588 0.71 6,559,473 2,656,114
4 28,770,543 0.64 18,284,200 10,389,261 0.64 6,602,563 3,786,698
5 28,844,804 0.57 16,367,316 10,695,842 0.57 6,069,108 4,626,734
6 28,935,685 0.51 14,659,719 11,041,480 0.51 5,593,958 5,447,523
7 29,045,566 0.45 13,138,739 11,430,978 0.45 5,170,794 6,260,184
8 29,177,133 0.40 11,784,155 11,869,718 0.40 4,793,980 7,075,738
NPV 32,513,837

The NPV of the Project is Birr 32,513,837 which is above zero. According the NPV capital
budgeting method all Projects with positive NPV are profitable and fine but the more the number
is greater the more probability of the business selected. As the above NPV result shows the Project
is fine and selectable for financing.

7.3. Social andEconomic advantage of the business

Business under consideration promotes the socio-economic development which presented as

follow

36
 Income generation for Owner
 Source of income tax for government
 Play role in alleviating un-employment
 And many other direct and indirect positive effect to the vicinity

37
8. CONCLUSION AND RECOMMENDATION
8.2. Conclusion

The key success and risk factors for a manufacturer in the corn starch and allied products industry
are raw material costs, plant location, manufacturing efficiency, secure supply of corn, quality
standards, access to suitable human resources, infrastructure facilities, adequate distribution,
macroeconomic environment, currency fluctuations, government regulations and policies, etc. The
consultant recommends the implementation of this project taking into account the promoters
decision related to the associated risk factors. By all measures, the project is found to be
economically viable to implement.

In conclusion the project is justified based on the following criteria

 It shows a decent return on investment cost
 It has liquid cash flow over its operational life
 It has positive role to play in our country socio economic development
 It enhance proper allocation of natural resource by promoting regional and sector
development at the same time
It is therefore recommendable that the business should get active support from all stakeholders like
lenders, capital good leasers and government offices to get all legal recognition and capital
budgeting.

38