CENTRAL REGION

EXPANSION LOAN APPRAISAL REPORT

FOR
XXX LAUNDRY SOAP MANUFACTURING PROJECT
(XXX LAUNDRY SOAP)

Prepared By:-Appraisal Team A

August, 2013

Title Page
1 SUMMARY SHEET.....................................................................................................................3
2 BACKGROUND INFORMATION..............................................................................................5
2.1 The Applicant...............................................................................................................................5
0|Page
Abebech Tsige Project Appraisal report September 2013
2.2 . Brief History of Promoter/Project...............................................................................................6
2.1 Capital Structure of the Promoter...........................................................................................7
2.2 Past performance of the Project /Business..............................................................................7
2.2.1 Summary of Operational Performance (Physical Performance)..............................................7
2.2.2 Summary of Financial Performance (as indicated in financial statements provided)..............7
2.3 Reason for Expansion & Future Plan of the Project................................................................8
2.4 Credit Information of the Promoter.........................................................................................8
2.5 The Loan.................................................................................................................................8
2.5.1. Loan requested: -.......................................................................................................................8
2.5.1 Loan Proposed:-.....................................................................................................................8
3 KEY SUCCESS AND RISK FACTORS....................................................................................10
3.1 Key Success factors....................................................................................................................10
3.1.1 Macro Success factors..........................................................................................................10
3.1.2 Sector Success Factors..........................................................................................................10
3.1.3 Firm Level Success Factors..................................................................................................10
3.2 Risk Factors................................................................................................................................11
3.2.1 General Risk.........................................................................................................................11
3.2.2 Sector Level Risk Factors.....................................................................................................11
3.2.3 Firm Level Risk Factors.......................................................................................................12
3.3 Risk Mitigating Measures...........................................................................................................12
3.3 SWOT analysis of the project......................................................................................................13
4 MARKET ANALYSIS......................................................................................................................14
4.1 PRODUCTION OF SOAP AND DETERGENTIN ETHIOPIA......................................14
4.2 Demand of Soap and Detergent in Ethiopia.........................................................15
4.2.1 Determination of Target Market for Domestic Demand..........................15
4.2.2 Determinants of Market Demand....................................................................16
4.2.3 Export of Soap and detergent.......................................................................................16
4.2.4 Demand Projection................................................................................................17
4.3 Supply of Soap and Detergent in Ethiopia............................................................18
4.3.1 Existing Supply.......................................................................................................18
4.3.2 Existing Domestic Producer of Soap and detergent…………………………... ……19
4.3.3 Imports......................................................................................................................22
4.3.4 Supply Projection Based On Past Five Years Trend..........................................23
4.4 Demand – Supply Gap Analysis.................................................................................24
4.4.1 Marketing and Market Segmentation of Soap and Detergent Products in
Ethiopia...........................................................................................................................................24
1|Page
Abebech Tsige Project Appraisal report September 2013
5 TECHNICAL ASPECT OF THE PROJECT..............................................................................25
5.1 Project Area Location.................................................................................................................25
5.2 Land Availability..........................................................................................................................25
5.3 Physical and Natural Condition of the Project Area....................................................................25
5.4 Project Engineering.....................................................................................................................26
5.4.1 Building Requirement...........................................................................................................26
5.4.2 Machinery and Equipment...................................................................................................27
5.4.3 Utilities.................................................................................................................................28
5.4.4 Material Inputs.....................................................................................................................28
5.4.5 Production Process and Production Capacity.......................................................................29
Basic Production Steps of “Laundry” Soap........................................................................30
5.4.6 Implementation Plan............................................................................................................31
6 ORGANIZATION AND MANAGEMENT.........................................................................................32
6.1 Organizational Structure.............................................................................................................32
6.2 Project Management..................................................................................................................33
6.3 Training requirement and Employee Remuneration and Benefits..............................................34
7 FINANCIAL ANALYSIS...................................................................................................................36
7.1 Total investment items & Costs..................................................................................................36
7.2 Expected Financial Results..........................................................................................................38
7.3 Sensitivity Analysis......................................................................................................................39
8 SOCIO ECONOMIC BENEFIT.........................................................................................................40
9 CONCLUSION AND RECOMMENDATION.....................................................................................41
9.2 Conclusion...................................................................................................................................41
9.3 Recommendation........................................................................................................................41
9.4 Terms and conditions..................................................................................................................42
10 ANNEXES.....................................................................................................................................46

1. SUMMARY SHEET

 Case Team: APPRAISAL TEAM I

 Team Leader: W/ro Genet Yirgu (Principal Appraisal Officer)
 Process Owner: Getachew Mengistu (Central Region Manager)
2|Page
Abebech Tsige Project Appraisal report September 2013
 The Project
 Name of the Project: Xxx/Abebech Tsige Laundry Soap Manufacturing
 Objective of the Project: Producing Quality Laundry Soap for Local market
 Purpose of the Loan: To finance the partial cost of expansion of existing project
 Status of the Project: Existing
 Marketing Strategy of the Project:
The promoter has planned to sell the laundry Soap products in the local market. Generally, the
project shall apply market share and product strategy, niche marketing, product differentiation and
cost leadership strategies.
Since only a few local producers are worthy of name in the market, the major competition is
expected from imported ones. Thus, the project will strongly watch the development in the import
market and make proactive decisions in product design, quality, pricing and distribution of the
product. In order to fulfill its niche marketing strategy the project shall focus on a strictly confined
aim by emphasizing on a limited group of buyers. Besides, product differentiation with the limited
target customers shall also be applied. Cost leadership is also another marketing strategy in which
the project shall produce large amount of laundry soap so as to benefit from economies of scale.
 Appropriateness of Plant lay out and Technology
Appropriateness of the technology and plant layout is verified by the Bank’s engineer technical
evaluation report.
 Management Capacity and Availability of key skilled labor
Ato Hailu Mideksa who is the prospect general manager has bachelor degree in Business
management. In addition, he has been enrolled and completed half of bachelor degree program in
Accounting and Public Finance from Oromia Public Service University. With these accreditations
of vital business administration education background, it can be inferred that the general manager
has sufficient theoretical knowledge to run such a medium sized businesses. Regarding his
professional experience, ato Hailu has been a planning and budget expert in Adami Tulu Jido
Kombolcha Woreda finance and economic development office starting from September 18, 2008
up to July 7, 2012 and from July 8, 2012 up to December 24, 2013 as procurement and market
research team leader. Pertaining to the key professional requirements of the project the promoter
has planned to recruit skilled and competent employees as well as clerical workers.

3|Page
Abebech Tsige Project Appraisal report September 2013
 I. Project Investment 
Description Amount Percentage
Total Fixed Investment Costs 12,842,304 64%
Pre-production Capital Expenditure 391,183 2%
Working Capital 6,780,331 34%
Total 20,013,818 100%

II. Source of fund

Description Amount D/E Ratio
Debt -DBE Loan 12,008,150 60%
Equity 8,005,668 40%
Total 20,013,818 100%

III. Expected Financial results

Description Year-1 Year-10
Sales Revenue
62,629,571
41,753,048
Profit (Loss)
7,315,463
3,361,152
Cumulative Cash Balance
48,087,080
2,352,806
IRR before Tax = 53%
IRR after Tax = 39%

IV. Sensitivity Analysis

Description IRR Before IRR After Tax
Tax
When Revenue decreased By 10% 28% 10%
When Operating Costs increased By 33% 16%
10%
When Investment Costs increased By 49% 35%
10%
Risk Class
Based on the risk matrix of the due diligence report of Adama Branch, the promoter has been rated
at lower risk.

4|Page
Abebech Tsige Project Appraisal report September 2013
 2. BACKGROUND INFORMATION

A. The Applicant
 Name: W/ro Abebech Tsige T/Mariyam
 Address of the promoter:-
 Region: Oromia
 Zone: East Showa
 Woreda: Adami Tulu
 Town: Zeway/Batu
 Kebele: 02
 Mobile: +251 911 76-93-15
 Marital Status: Widow
 Name: Xxx Soap Factory
 Address of the Project
 Region: Oromia
 Zone: East Showa
 Woreda: Adami Tulu
 Town: Zeway/Batu
 Kebele: 02
 Form of Organization:- Sole proprietorship
 Legal form of Business:- Sole proprietorship
 License Registration or/and Renewal
 Investment Certificate
- Licensing Agency: Oromia Regional Government Investment Office
- Licensing Date: 18/06/2004 E.C
- License Number: BIO/II/H69/96
 Trade License Certificate
- Licensing Organ: Oromia Regional Government Trade Agency
- Licensing Date: 01/06/2005 E.C
- Registration Number: 33541/1596/2005
 TIN No:- 0017025327
 Type of project:- Industry

5|Page
Abebech Tsige Project Appraisal report September 2013
  Project Objective: - To produce Quality products in order to substitute the imported
laundry soaps.

B. Brief History of Promoter/Project

The promoter, W/ro Abebech Tsige T/Mariyam was born in Addis Ababa in 1975 and she is
44 year old. After she completed her secondary education she was married Ato Alemayehu
Kassa and has 6 children. She actively participated in assisting her husband who used to own
and operate their own manufacturing firm in Addis Ababa. However, W/ro Abebech and her
husband attracted by the government’s economic policy and they decided to start a soap
manufacturing (i.e. Xxx soap) factory in Zeway/Batu town. The project has been engaged in
manufacturing laundry Soap for local market and was managed by W/ro Abebech, her
husband and their elder son. But currently, the promoter, W/ro Abebech Tsige planned to
expand the project’s capacity by manufacturing export standard products through recruiting
qualified personnel and installing updated machineries. For these reason she proposed loan
request to the Bank for financial assistance to purchase the partial cost of machinery, vehicle
and working capital requirement.
In 1996, she took investment license from Oromia Regional Government Investment Office
for laundry soap manufacturing project aiming to substitute imported products. During the
establishment of the project, Development bank of Ethiopia head office has financed birr
241,000 for partial coverage of the project cost and she settled the loan in 2012 after her
husband died.
As we observed from personal history of the promoter and project assessment report of Adama
Branch, W/ro Abebech Tsige T/Mariyam is strong business women having long years of
experience in manufacturing laundry soap.
However, since the promoter has planned to expand her project, she approached our Bank for
partial finance of investment costs of the project.

2.1 Capital Structure of the Promoter

As per the promoter’s trade license which issued by Oromia Region Trade and Market
Development Bureau, the promoter has registered capital of Birr 300,000 for her laundry soap
manufacturing project.

6|Page
Abebech Tsige Project Appraisal report September 2013
2.2 Past performance of the Project /Business
2.2.1 Summary of Operational Performance (Physical Performance)
After she obtained investment license, the promoter has engaged in manufacturing of laundry soap
for domestic market during its operation season. As per the provisional financial statement
indicated the project is profitable for the last two consecutive years i.e. 2003 and 2004 E.C.
During the last two operational years, the promoter has achieved better performance and acquired
good experience of laundry soap manufacturing and marketing.

Table 2.2 Past Production and Sales Performance

Types of Product Production (Carton)
Production Year Sales
100gm 150gm 200gm value(Birr)
2003 2,200 4000 3120 1,729,421.6
2004 2,000 4100 3500 1,926,168.1

2.2.2 Summary of Financial Performance (as indicated in financial statements provided)

As the past financial performance of any business is very crucial for future projection, we tried to
inspect trend financial performance of the project. Based on Provisional Financial Statements
reports presented for the years ended December 31, 2003, and 2004 E.C, the project has registered
good progress in year 2003 & 2004 E.C with a net profit of birr 476,759.46 and 530,997.68
respectively. Provisional financial statement reports of the project are illustrated below.
Table 2.3 Profit/Loss Statement of the project from 2003 – December 30, 2004
Description 2003 2004
Gross revenue/sales 1,729,421.6 1,926,168.1
Operating Expense 157,711.25 176,807.25
Gross Profit 506,893.49 624,703.15
Net Profit (Before tax) 506,893.49 624,703.15
Profit Tax 84,134.03 93,705.47
Net Loss/Profit 476,759.46 530,997.68

2.3 Reason for Expansion & Future Plan of the Project

Major improvement in the product type, computation, stability, delivery and scale of production,
led the promoter, W/ro Abebech Tsige decided to expand her laundry soap manufacturing factory

7|Page
Abebech Tsige Project Appraisal report September 2013
& install latest machinery providing quality product to substitute and compute the imported
product. She has planned to increase current Production capacity of the factory.
As a result, she also planned to purchase latest machinery, recruited a project manager and employs
qualified technical personnel and as the same times other investment items to support the sustainability
and profitability of project.
2.4 Credit Information of the Promoter
As per credit information obtained from National Bank of Ethiopia dated on March 07, 2013 with
enquiry ID 66219, the promoter has credit relation with Our Bank. As we tried to observe from
the report, the promoter has borrowed from Development bank of Ethiopia and has no record of
default. The detail of credit information of the promoter is depicted below.
Sr. Current Number Credit
Loan Risk
No Name of Institution Loan of Day in Account
Amount Classifn.
. Balance Arrears Status
Development bank of
1 241,000 - - Settled-Normal Pass
Ethiopia

2.5 The Loan

2.5.1. Loan requested: -
Amount: - Birr 7,722,784.19
2.5.1 Loan Proposed:-
 Amount: - Birr 12,008,150

Sr. No. Purpose Amount (Birr)

1 Machinery and Equipment 4,299,670
2 Vehicle 2,567,000
3 Office Furniture & Equipments 49,795
4 Working Capital 5,091,685
Total 12,008,150

2.5.2 Variation: - Birr (4,285,365.49)

8|Page
Abebech Tsige Project Appraisal report September 2013
 Cost variation of
the proposed
Requested Proposed
Ser. than the
Description Amount Amount
requested
Reason for Variation
No. (In Birr) (In Birr)
amount
(In Birr)

Building and (1,275,094) The promoter dropped its plan of

1
Construction
1,275,094 - constructing a new building

Electrical Planned to be covered by Owen

2 - - - equity contribution.
Installation

Based on Performa invoice, the cost

Machinery and 4,299,670 316,047
3 3,983,622.51 of machinery is higher than the loan
Equipment requested by the promoter

Based on Performa invoice the, cost

2,567,000 1,035,800
4 Vehicle 1,531,200 of Vehicle is higher than the loan
requested by the promoter

Office Furniture & 49,795

5
Equipments
- 49,795 Equity contribution by the promoter
doesn’t cover the cost the item

The proposed loan is based on

5,091,685 4,158,817 Working Capital determination &
6 Working Capital 932,868 requirement. The difference is due to
promoter’s underestimation of costs

4,285,365.4
7,722,784.19 12,008,150 9
Total

9|Page
Abebech Tsige Project Appraisal report September 2013
 3. KEY SUCCESS AND RISK FACTORS
3.1 Key Success factors
3.1.1 Macro Success factors
 The government policy and strategies initiates the business persons to invest capital.
Among these are, low bank rate and low taxation rate can be taken as some of the
incentives
 Favorable business environment and suitable agro-ecological conditions,
 A continuously increasing GDP Growth which highlights a positive trend of economic
growth which in turn shows a positive growth in the purchasing capacity in the national
economy.
 Progressive improvement in infrastructure mainly transport that links areas where
industrial products are produced to the potential consumer market in the country.
3.1.2 Sector Success Factors
 The expansion of education especially higher institutions which produces the necessary
professionals needed for industrial projects.
 Existence of technical and vocational school which are the main sources of the technical
personnel is also a favorable condition for the establishment of industries which are the
main consumers of technical people.
 The fact that there exists a considerably large gap between the current demand and supply
of soap products is an advantage for projects intending to increase their amount of
production.
 Availability of some of the major raw materials with in the national market which saves
the project from volatility of exchange rate the a project promoter couldn’t control
 Availability of sufficient daily laborers

3.1.3 Firm Level Success Factors

 Character
The strength of the project promoter as can be evidenced from her ability to successfully settle the
projects loan gives an insight that she could achieve better results even in times of hardship. In
addition, based on the due diligence report, character of the applicant has been rated to lower risk.

 Capacity (Competence)
10 | P a g e
Abebech Tsige Project Appraisal report September 2013
Ato Hailu Mideksa who is the prospect general manager has bachelor degree in Business
management. In addition, as was explained in the back ground part, he has been enrolled and
completed half of bachelor degree program in Accounting and Public Finance from Public Service
University. These accreditations of vital business administration education background, an
inference can be made that the general manager has sufficient theoretical knowledge to run such a
medium sized businesses. Adding a professional experience of more than 5 years in different
government to his educational background means additional strength to the capacity of the
prospect general manager even if the experience seems a little bit minimal.
 Capital
As per Principal Registration Certificate of the Project/factory issued by Trade and Market
Development Bureau, the registered capital of the Project/factory is Birr 300,000.
 Collateral
As the project is a priority area project, the pledged collateral will be the project itself.
 Compliance
All permits and licenses required for the project have been submitted. Besides, from the view
point of the bank’s financing policy, the project is one of the priority area projects. Thus, it is
possible to say that the project complies with all national and local laws and regulations as well as
the bank’s policies and procedures.
3.2 Risk Factors
3.2.1 General Risk
 Stiff market competition is expected from imported products which has long years of
experience and are already enjoying economies of scale. The competition seems much
harder when one considers the project as a new entrant to the production of better quality
laundry soaps.
 In recent years, the price of investment machineries, recurrent inputs and spare parts is
consistently increasing. This will probably threat the establishment as well as operation of
the project.
3.2.2 Sector Level Risk Factors
 Some raw materials of Soap industries are not available within the national market and
thus such projects have to import them from foreign producers. This obviously exposes the
project to exchange rate risk. Considering the continuous depreciation of the Birr, if the

11 | P a g e
Abebech Tsige Project Appraisal report September 2013
 project implementation lags behind plan, there might be a considerable escalation in the
price of imported machineries.

3.2.3 Firm Level Risk Factors

In fact there is no business firm that operates free of risk. All the businesses are truly rounded by
various types of risk even if their reacting mechanisms differ from one to the other. As we try to
identify the strength and weakness of the Project/factory, we found out that
 Even if the prospect project manager has experience in government offices, it can be
considered, at least to a certain extent, minimal to run such a project.

3.3 Risk Mitigating Measures

 The completion and commencement of this expansion project has to be strictly within the
scheduled implementation plan so as to avert the risk of volatility of exchange rate in the
process of importing major machineries of the project.
 The promoter of the project has to consciously watch the development in quality and price
of imported soaps since the major competition is expected from importers.
 The elected general manager of the project should take some training regarding the
management of such industries to support his theoretical knowledge.

12 | P a g e
Abebech Tsige Project Appraisal report September 2013
3.3 SWOT analysis of the project

Strength Weaknesses

 The promoter has long years of experience of with the  Inexperienced project
same soap manufacturing business. In addition, she has management
also proved strength to successfully operate at times of
hardship as it was evidenced by the loan settlement.
 The acquired industrial land is held through land
holding agreement that the promoter shall pay annual
rent which is much less than the leased ones. This helps
the promoter not to incur down payment like in the case
of land lease agreement.
 The existing investment outlay of the promoter covers
more than 22% of the necessary equity contribution so
that she doesn’t get into acute problems of raising cash
equity contribution.

Opportunities Threats

 Attractive government policies and strategies  Stiff competition from

 The project’s proximity to the lone Caustic soda imported quality soaps
producer of the country  The increasing trend of
 The ever increasing trend gap between demand and the value of major
supply of soap and detergent products currencies against the
 The project site is located in the town of Zeway which
national currency which
is near to the main consumer towns of Addis Ababa,
Shashemene and Adama including Zeway itself affects the import of raw
materials

4. MARKET ANALYSIS

13 | P a g e
Abebech Tsige Project Appraisal report September 2013
 a. PRODUCTION OF SOAP AND DETERGENTIN
ETHIOPIA
Our Survey results revealed that currently 22 factories locally produced
different type of soap and detergent in Ethiopia. But these factories could not
satisfy the domestic consumption and the gap is satisfied by imports. Out of
which 3 factories were the old those established before 1991, while the
remaining 19 were established after the fall of Dergue Regime in May 1991
following the economic reform of the country.

Some of the locally produced soap and detergent were well known by their
brand names. Relevant information obtained from the Ethiopian Investment
Agency (EIA) indicated that up to December 09, 2010 about 224 investment
projects aiming at producing soap and detergent were approved and
investment licenses were given to them. Concerning their status, it was
reported that 184 of the licensed investors are on pre-implementation stage,
18 under implementation, and 22 operational. Details are shown in Table 3.1
below.

Table3.1: - Licensed Project for Soap and detergent Production

Ethiopia (Since 1992)

Type of Operation Implementat Pre- Total

Investm al ion Implementatio
ent n
Domestic 11 11 122 144
Foreign 11 7 62 80
Total 22 18 184 224
Source: - Research Soup and Detergent commodity study of 2011;
Page 47
From this fact, the study team observed that the existing volume of local
production is very small i.e. 74,353.61 tons which is 24.94% of the nationally
installed capacity about 298,093 tons. The study team found that major
problem of the sector to produce under their installed capacity is cryonic
shortage of raw materials in the country.

14 | P a g e
Abebech Tsige Project Appraisal report September 2013
 b. Demand of Soap and Detergent in Ethiopia
i. Determination of Target Market for Domestic Demand
Soap and detergent are very important sanitary and health protection
materials for human being and for other industrial activities. The target
markets for both products can be determined by segmenting users of the
products into different economic class in some countries. Some other factors
like disposable household income are also used to segment soap and
detergent markets. In other developing countries, target markets are related
to population so as to develop low cost soap and detergent materials.

The following basic assumptions have been taken into account to determine
target market

a) The current total population of the country is about 79,835,354 million.

b) Average annual population growth rate is 2.60%

Table 3.2 Population of Ethiopia according to 2007 Population and

Housing Census and per capita consumption of Laundry and toilet
soap

Year Population Total Per capita Average

Consumption Of Consumpti Per capita
Soap & on in (Kg) Consumpti
Detergent(tons) on growth
Rate

71,996,624 99,720.63 1.39

2006/07
200708 73,918,505 95,638.78 1.30 1.29%

2008/09 75,840,386 100,625.10 1.41

2009/10 77,812,236 88,841.95 1.14

15 | P a g e
Abebech Tsige Project Appraisal report September 2013
2010/11 79,835,354 98,301.42 1.28

2011/12 81,911,073 105,665,284.2 1.29

2012/13 84,040,761 108,412,581.7 1.29

Source: - Research Soup and Detergent commodity study of 2011;

Page 48

ii. Determinants of Market Demand

Modern literatures on marketing illustrate that different people want different
mixes of benefits from the products that they buy. This concept would also be
explained by portraying the importance of different needs that people
demand for their sanitary protection products.

As a whole, the major determinants (general economic indicators) of product

demand include:

 Size of population
 Population growth rate
 Per capita income
 Per capita consumption
 GDP per capita
 Annual GDP growth rate
 Income distribution
 Availability of substitutes
 Behavioral patterns such as consumer habits & responses.

iii. Export of Soap and detergent

From collected data, the study team concluded that the existing volume of
local exporter is very small and it is insignificant. Show the following table 3.3
Table 3.3 Export Volume of Soap and detergent

Year Total Volume

(Tons)
2005/06 0.43
2006/07 0.23
2007/08 0.10

16 | P a g e
Abebech Tsige Project Appraisal report September 2013
 2008/09 1.78
2009/10 15.03
2010/11 35.06
AGR 141 %
Source: Research Soup and Detergent commodity study of 2011;
Page 49

Table.3.4
Export Projection
Total Volume
Year (Tons)
2011/12 84.49
2012/13 203.63
2013/14 490.75
2014/15 1,182.71
2015/16 2,850.34
2016/17 6,868.84
2017/18 16,553.90
2018/19 39,894.91
2019/20 96,146.74
2020/21 231,713.62
2021/22 558,429.83
2022/23 1,345,815.90
Source: - Research Soup and Detergent commodity study of 2011;
Page 49

iv. Demand Projection

Nowadays, the demand for soap and detergent products is determined by a
set of interdependent demographic economic and some –cultural factor.

As a matter of fact, the major determinants of the demand for soap and
detergent are population size and annual population growth data, household
income, GDP growth rate, level of education, level of development of Socio –
economic infrastructure, etc.

The estimation of demand projection for these products can be done with the
help of various quantitative techniques including, trend analysis, apparent
consumption method,

17 | P a g e
Abebech Tsige Project Appraisal report September 2013
An attempt has been made to forecast the demand for soap and detergent
using target customer approach. The target customers are population of
Ethiopia.

But, one thing is true that the demand for soap and detergent is expected to
increase in the coming years owing to the overall growth of the Ethiopian
economy and rapid expansion of information in the country. Based on
information from table 3.2, 3.3 & 3.4 the study team predicted the coming
five years demand for soap and detergent in Ethiopia. Show in the following
table 3.5

Table 3.5 Demand Projection of Laundry and Toilet Soap

Year Amount of Soap and
detergent(Tons)
2011/12 108,941.73
2012/13 113,455.03
2013/14 118,129.37
2014/15 122,970.09
2015/16 127,982.67
2016/17 128,771.41
2017/18 141,991.64
2018/19 168,970.34
2019/20 228,965.36
2020/21 368,383.98
2021/22 699,063.63
2022/23 1,490,528.08
Source: - Research Soap and Detergent commodity study of 2011;
Page 50

c. Supply of Soap and Detergent in Ethiopia

i. Existing Supply
Existing supply refers to estimate actual volume of domestic production and
imports available in the market. The Market assessment of the supply side
has been examined taking into account the existing source of supply, i.e.
import and local producers.

18 | P a g e
Abebech Tsige Project Appraisal report September 2013
In the process of collecting reliable data on actual volume of local production
and imports of laundry and toilet soap, structured questioners were prepared.
Regarding registered and licensed producers obtained from EIA, MoI (Ministry
of Industry) and Soap and detergent Producers. Then, attempts were made to
contact and interview the stated producers using the contact address
obtained from registering and licensing Institution. On the other hand,
volume and value of soap and detergent import data were obtained from the
Inland Revenue and customs Authority. Concerning local production, EIA and
MoI reported that currently 22 factories are operational, with the capacity of
298,093tons ( 15,000 tons of Elie- Laboratory PLC is not included for Analysis
purpose because the factory is in stage of finalizing Construction and
Installation of machinery ) .so, the study team was to estimate the supply
projection based on the data volume of imports obtained from the Federal
Inland Revenue and Customs Authority and existing national installed
capacity of Soap and detergent. Show the following table 3.6

ii. Existing Domestic producer of Soap and detergent

According to data collected from Ministry of Industry by the study team, there are totally 22
projects operational and penetrated in the market, others 18 and 184 are implementation and Pre-
Implementation stage respectively (MoI). Of the total 144 projects owners are local and 80 are
foreign investors. On top of that the planned production capacity of newly licensed projects other
than 22 could not be found due to loss of contact through the address provided by EIA. In line
with this the team considered only existing supplier of soap and detergent for supply projection.
For detail see table 3.6

19 | P a g e
Abebech Tsige Project Appraisal report September 2013
Table3.6:- Soap and detergent Industries in Ethiopia Production Capacity and Actual Production for the last 5
Years.
Production Address Actual Production(tons)
Sr. Capacity per 2006/07 2007/08 2008/09 2009/10 2010/11
No Name of Factory Annum (ton)
1 Repi Soap & Detergent S.C 13,000 Addis Ababa 2,233 3,575 4,584 3464.00 8,880.0
2 First Indo-Ethiopia PLC. 30,000 Addis Ababa 11,032.7 8,034.80 5,706.60 8,258.03 8,258.0
0
3 Palm Ethiopia PLC. 26,136 Addis Ababa 3,092.33 4,228.50 6,747.10 4689.31 4,689.3
4 Star Soap & Detergent PLC. 12,000 Addis Ababa 10,644 11,459 10,296 10,799.67 4,702.0
5 Gullele soap Factory 12,960 Addis Ababa 890.22 432 640.10 654.11 250.00
6 East African Group PLC. 39,816 Dukem 14,350.5 12,565.60 15,396.90 14,104.33 16,499.
0
7 Zak Ethiopia 29,876 Addis Ababa 2,476 1,480 4,407 2,787.67 1,647.0
8 Bekas PLC. 1,400 Addis Ababa 144.50 397.80 914.60 485.63 1,500.0
9 Helena Health Care PLC. 26,200 Addis Ababa 402.70 252.80 170.20 275.23 275.23
10 Etab PLC.* 5,000 Hawassa 2,250 3,000 3,000 2,750.00 2,880.0
11 Nazareth & Arsi Soap and Edible oil 6,480 Nazareth 4,647 5,147 4,951 4,915.00 6,000.0
PLC.
12 Ethio-Asia PLC. 8,280 Addis Ababa 4,760 3,745.8 5,935 4,813.60 5,500.0
13 G &A PLC. 3,500 Addis Ababa 351.70 668.70 740.70 587.03 1,004.3
14 Amdhun General Trading PLC. 3,277 Addis Ababa 362 1,526 1,125 1,004.33 147.00
15 Shemu Pvt. 7,488 Dire-Dawa - - - 4,224
16 Ambey Home Care Products Manuf. 28,000 Addis Ababa
PLC
17 Get Eshet detergent PLC. 21,000 Dukem 493.00
18 Fanos Detergent Factories PLC 6,480 Mekelle 4.50
19 Mesfin Tadese Soap Factory 3,100 Woliso
20 Pasific Soap Factory - - - - -
21 Petra Industries PLC 13,200 Addis Ababa 7,400.0
22 Almeta Impex PLC 900 Addis Ababa
Grand Total 298,093 57,637.6 56,513.00 64,513.20 59,587.95 74,353.
5
Percentage of Actual Production to the installed Capacity (Annual) 19.34% 18.96% 21.64% 19.99% 24

20 | P a g e
Abebech Tsige Project Appraisal report September 2013
 Production Address Actual Production(tons)
Sr. Capacity per 2006/07 2007/08 2008/09 2009/10 2010/11
No Name
Annual of Factory
Average Growth Annum (ton) 6.
Source: - Research Soup and Detergent commodity study of 2011; Page53

21 | P a g e
Abebech Tsige Project Appraisal report September 2013
From table 3.6 the study team observed that most firms having small
capacity use their capacity efficiently, while factories with Large installed
capacity utilized lower capacity. The reason behind is that large factories
need more raw material in bulk to produced at full capacity and need
more working capital. But, currently, due to this fact the factories current
production is very minimum and the production cost is very high and the
final output price is very high than the factories produced in small
capacity. In the long run this situation does not exist as realty when the
raw martial shortages removed.
According to information collected from ministry of Industry, the total
national production capacity of Soap and detergent is about 298,093 tons.
And the import data form Customs Authority shows no uniform growth
pattern but it indicates the presence of growing potential market.
In addition to imports, local production capacity will be created in the
coming few years due to increased number of investors entering the
market. Apart from the already licensed investors, new investment
projects are expected to enter the market soon.
iii. Imports
It is worth noting that even though it showed no uniform growth pattern, volume and value
of import of soap and detergent during the past four years was significant. Table 3.7
indicates the volume and value of soap and detergent for the period covering 2005/06 to
2010/11.
Table3.7 Import Volume and Values of Soap and detergent
Year Volume (Tons)

2005/06 45,550.28
2006/07 40,045.93
2007/08 44,665.13
2008/09 41,699.71
2009/10 33,181.57
2010/11 30,892.04
2011/12 28,760.49
Average annual growth rate (6 .9% )
Source: - Research Soup and Detergent commodity study of
2011; Page 54
22 | P a g e
Abebech Tsige Project Appraisal report September 2013
iv. Supply Projection Based On Past Five Years Trend
The government has planned to improve the existing underutilized
capacity by setting different strategies however after one planned year
gone, no changes are observed. Hence, supply projection of soap and
detergent is carried out based on the average actual performance of the
past five years and it is assumed to continue in the next five years with
this trend (6.57%) and the base year for projection is the last production
year performance which is 74,353.61tons. The import of Soap and
detergent volume is declining by 6.90% per year. See the following table
3.8 below.

Table 3.8: Supply Projection of Laundry and Toilet Soap.

Year Existing Import Total Supply
domestic trend (tons)
Supply ( tons)
(tons)
2011/1 79,238.64 28,760.49 107,999.13
2
2012/1 84,444.62 26,776.02 111,220.64
3
2013/1 89,992.63 24,928.47 114,921.10
4
2014/1 95,905.15 23,208.41 119,113.56
5
2015/1 102,206.12 21,607.03 123,813.15
6
2016/1
7 108,921.06 129,037.20 108,921.06
2017/1
8 116,077.17 134,805.30 116,077.17
2018/1
9 123,703.44 141,139.33 123,703.44
2019/2
0 131,830.76 148,063.57 131,830.76
2020/2
1 140,492.04 155,604.79 140,492.04
2021/2 149,722.37 163,792.33 149,722.37
23 | P a g e
Abebech Tsige Project Appraisal report September 2013
 2
2022/2
3 159,559.13 172,658.27 159,559.13
Source: - Research Soup and Detergent commodity study of
2011; Page 55

d. Demand – Supply Gap Analysis

Table 3.10 Demand-Supply Gap using the Current Production Trend of the Sector
Year Demand Supply
Projection Projection Gap (tons)
(tons) (tons)
2011/12 108,941.73 107,999.13 942.60
2012/13 113,455.03 111,220.64 2,234.39
2013/14 118,129.37 114,921.10 3,208.27
2014/15 122,970.09 119,113.56 3,856.53
2015/16 127,982.67 123,813.15 4,169.52
2016/17 128,771.41 108,921.06 19,850.35
2017/18 141,991.64 116,077.17 25,914.47
2018/19 168,970.34 123,703.44 45,266.90
2019/20 228,965.36 131,830.76 97,134.60
2020/21 368,383.98 140,492.04 227,891.94
2021/22 699,063.63 149,722.37 549,341.26
2022/23 1,490,528.08 159,559.13 1,330,968.95
Source: - Research Soup and Detergent commodity study of
2011; Page 55

As shown in the demand- supply gap analysis above Table 3.10, there is
excess demand for soap and detergent throughout the projected year.

24 | P a g e
Abebech Tsige Project Appraisal report September 2013
i. Marketing and Market Segmentation of Soap and
Detergent Products in Ethiopia
Products soap and detergent made by Ethiopian soap and detergent
manufacturer are usually distributed by private trading companies to the
local market by purchasing form factory production location by factory
gate price. Imported soap and detergent hold a significant volume of
market share in Ethiopian and enter through the importer agent and then
distributed to local distributor of soap and detergent.

5. TECHNICAL ASPECT OF THE PROJECT

a. Project Area Location

The project is located in Oromiya Regional Government at East Shoa
Zone Adami Tulu Woreda Zeway /Batu/ town which is 160 km away from
the capital Addis Ababa.
Location Advantages: The area has huge location advantage among
which the following area listed below
 Its proximity to the major town of Adama, Shashemene and the city
of Addis Ababa including the town of Zeway itself which is the
major zonal town in the project’s area
 Proximity to the lone local caustic soda producer, Zeway caustic
soda factory is one of the location advantages of the factory even
though the quality of its product is questionable as stated in the
commodity study. Caustic soda is one of the major raw materials of
soap production.
 There is adequate supply of water from the municipality of the
town
 Access to important utilities like road, electricity, water.

25 | P a g e
Abebech Tsige Project Appraisal report September 2013
 b. Land Availability
The promoter has got 1,500 hectares of land through land holding
agreement made with Zeway town Administration on 26/06/82 E.C. the
land holding agreement has been revised in 27/03/88 as per the Oromia
regional state rented land holding administration regulation number
1/1987.

c. Project Engineering
i. Building Requirement
As it is obviously known, the number of buildings and the required floor
space depends on the size of the production machinery and the
administrative tasks expected for the project.
Accordingly, the project has planned to have raw material store, cafeteria
and carton store offices, finished material store, production hall and
office. Fortunately, the promoter has already constructed all the above
necessary buildings including other additional structure which financially
amounting to Birr 1,307,169.48 according to the Bank’s Chief
Engineering Office.
Table 5.1: Existing Building and Construction
Total
Ser. Number of Total
Description Building
No. Building Cost
Area (m2)
1 Office Buildings 1 200,912
.80
2 Finished Product Store 1 257,125
.00
3 Raw Material Store 1 226,441
.70
4 Shed 1 70,917
.69
5 Carton Store & Guard 1 183,222
House .89
6 Production Hall 1 290,472
.00
7 Fence Work 1 45,484
.60
8 Main Gate 1 6,493

26 | P a g e
Abebech Tsige Project Appraisal report September 2013
 .00
9 Back Gate 1 2,885
.80
10 Septic Tank 1 23,214
.00
Total 10 1,307,169
.48

ii. Machinery and Equipment

The project will have several machineries with all the necessary
accessories. As the project intends to expand the existing one, it
obviously has certain existing machineries having a total amount of Birr
454,831.00. Based on the comment made by the bank’s mechanical
engineer and the information obtained from submitted pro forma
invoices, the promoter planned to procure machinery & equipments with
a total cost of Birr 8,201,981 out of which Birr 3,902,311 will be covered
by the promoter and the rest Birr 4,299,670 will be covered by bank loan.
The detail of planned machinery & equipment is presented in the
following table.

Table 5.2 Machinery and Equipment

Ser. Mod Quanti
Description Cost (In Birr)
No. el ty
A complete set of Laundry
1 1 8,201,981
Soap Making Machine
Total 8,201,981

iii. Utilities
Utilities like electric power and water and among important facilities that
are supposed to be fulfilled for smooth operation of every project. As per
the documents included in the applicant’s file the availability of electric
power and water has been confirmed.

27 | P a g e
Abebech Tsige Project Appraisal report September 2013
iv. Material Inputs
As per the commodity study and the applicants plan, the major raw
materials in the production of laundry soap are Palm oil, caustic soda,
sodium silicate, hydrogen peroxide, dolomite perfume and distilled water.
Carton shall also be used for packing the finished product.
A. Palm Oil
Palm oil is one of the major and highly important raw materials of laundry
soap production process especially when one intends to produce quality
soaps. The supply source of all oil use in soap production is import, and
therefore, seeing world situation is so imperative. Palm oil, the main source
of palm fatty acid, is produced largely in Far East countries such as
Indonesia and Malaysia; both are leading producer and exporter of the palm
oil in the world.

B. Sodium Hydroxide
Sodium hydroxide (NaOH), also commonly called caustic soda, main
source is import. The local source, Zeway caustic soda factory, is not
capable enough to satisfy both quantity and quality need of factories and
for that reason the factories forced to import it. Sodium Hydroxide is
used variously in all sorts of cleaning and laundry products. The most
common use of lye is in the soap making industry. Soap makers simply
cannot do without lye soap, so much so that there are some who say, all
soap is lye soap. As an alkali, lye reacts strongly with oil or fat to form
the fatty-acid salt called soap.

C. Sodium Silicate
All sources of all sodium silicate are abroad. There are various states of
this compound; all are glassy, colorless, and soluble in water. Sodium
silicate is stable in neutral and alkaline solutions. Sodium Silicate powder
is a water soluble silicate, generally assumed as a combination of alkali
metal oxide, silica and water. It is a widely used basic chemical

28 | P a g e
Abebech Tsige Project Appraisal report September 2013
material. Some of its uses are as under: Soap industry, in detergent
industry and other
D. Distilled water
As per the explanation extracted from the bank’s commodity study,
water is used to dilute lye crystals, and acts as a carrier for the lye. But,
it is part of the chemical reaction of Saponification. When the oils are
combined with lye the reaction produces soap, water and glycerin.
Eventually the excess water is evaporated during the curing phase (This
is when the soap is left to dry out).
Distilled water or pure (uncontaminated) rainwater is essential to the
soap making since tap water is not good for its minerals contents and
impurities such as calcium, magnesium as well as organic material.
The theory behind distilled water is very basic - Regular water which is
denser, is boiled - the lighter steam rises and is free of contaminants, and
is then collected.

E. Packaging Materials
The promoter can obtain these inputs either through import from China
or from domestic producers and suppliers domestic supplier like Ethio-
pulp and Burayu packaging material factory and there is plenty of supply.
v. Production Process and Production Capacity
Laundry Soap Production Process
Soap requires two major raw materials: fat and alkali. The alkali most
commonly used today is sodium hydroxide. Potassium hydroxide can also
be used. Potassium-based soap creates a more water-soluble product
than sodium-based soap, and so it is called "soft soap." Soft soap, alone
or in combination with sodium-based soap, is commonly used in shaving
products. Soap is produced industrially in four basic steps.

Basic Production Steps of “Laundry” Soap

Industrially the soap goes the following four basic steps to be in usable
form.

29 | P a g e
Abebech Tsige Project Appraisal report September 2013
Step 1 – Saponification

In this step tallow (animal fat) or palm fatty acid is mixed with sodium
hydroxide and heated. The soap produced is the salt of a long chain
carboxylic acid.

Step 2 - Glycerin Removal

Glycerin is produced as a byproduct in the course of soap making and

valuable however, most of it is removed. Some is left in the soap to help
make it soft and smooth. Soap is not very soluble in salt water, whereas
glycerin is, so salt is added to the wet soap causing it to separate out into
soap and glycerin in salt water.
Step 3 - Soap Purification

Any remaining sodium hydroxide is neutralized with a weak acid such as

citric acid and two thirds of the remaining water removed.
Step 4 – Finishing
Additives such as preservatives, color and perfume are added and mixed
in with the soap and it is shaped into bars for sale.

Thus, the reaction between a fat and sodium hydroxide can be

summarized as: fat + 3NaOH → glycerin + 3 Soap.

Production Capacity

The existing full production capacity of the plant is 243 tons of soap a
year and when the current expansion plant is installed the production
capacity shall reaches to 2883 tons a year at full capacity.
The promoter has planned to start production at 60% and increases by
15% a year until it reaches 90% of the full production capacity.

30 | P a g e
Abebech Tsige Project Appraisal report September 2013
vi. Implementation Plan

Sr. 2013 2014

Type of Activiities Oct Dec Jan Feb Marc Apri Augu

No Nov May June July
o e u r h l st
.
1 Loan Processing
2 Installation of Electric Power
Procurement of Machineries and
3
Equipment
Procurement of imported raw
4
materials
Erection and installation of
5
Machineries
Procurement of Furniture &
6
Equipment
7 Procurement of vehicles
8 Recruitement of Employee
Procurement of raw materials from
9
local market
10 Commencement of operation

31 | P a g e
Abebech Tsige Project Appraisal report September 2013
 6. ORGANIZATION AND MANAGEMENT

a. Organizational Structure
The project under consideration planned to be headed by the General
Manager, who is responsible to control the activities of all functional
departments’ of the organization. Under the General Manager, there are
Finance and administration, production and technical and marketing
departments which will be headed by middle level managers. Under each
department there shall be professional and clerical workers. For the sake
of specialization, each of the three departments will be divided in to two
sections. Accordingly, the technical and production manager shall be
assisted by a supervisor chemist who would be responsible for the safe
and minimum defect production process of the plant and technical
personnel who will be responsible for minor repair and maintenance.
Besides, Finance & administration shall be divided into production &
Technical engineering sections and Marketing Department in its turn will
be divided into sales and procurement sections.

Summarized organizational structure of the project is depicted on the

following chart. This organizational structure is designed by taking the
promoters feasibility study as a stepping ground with minor modifications
by the appraisal team.

32 | P a g e
Abebech Tsige Project Appraisal report September 2013
Figure 6.1 Organizational structure of the project

GENERAL
MANAGER

Production and Administration

Marketing
Technical & Finance
Departemnt
Department Department

Production Administration
Department Sales Section

Technical &
Engineering Finance Section
Department Purchase

b. Project Management

Ato Hailu Mideksa who is the prospect general manager has bachelor
degree in Business management. In addition he has been enrolled and
completed half of bachelor degree program in Accounting and Public
Finance from Public Service University. With these accreditations of vital
business administration education background it can be inferred that the
general manager has sufficient theoretical knowledge to run such a
medium sized businesses. Regarding his professional experience, ato
Hailu has been a planning and budget expert in Adami Tulu Jido
Kombolcha Woreda finance and economic development office starting
from September 18, 2008 up to July 7, 2012 and from July 8, 2012 up to
December 24, 2013 as procurement and market research team leader.
Other professionals for the different managerial levels of the project are
to be recruited from the existing labor market of the country based on
their merits.

33 | P a g e
Abebech Tsige Project Appraisal report September 2013
Regarding the key professional requirements of the project the promoter
is planned to recruit skilled and competent project manager as well as
remaining required professional as well as clerical worker.

Table 6.1 Manpower plan and with their respective salary

No. of
Salar Monthl
Require Annual
y y
Categories of staff d Salary
Scale Salary
Employ (Birr)
(Birr) (Birr)
ee
1. General Manager Office
1.1. General Manager 1 8,000 8,000 96,000
1.2. Executive Secretary 1 3,000 3,000 36,000
2. Production and Technical
1 5,000 5,000 60,000
Manager
2.1. Production Supervision 1 4,000 4,000 48,000
168,00
2.2.1. Direct Worker 4 3,500 14,000
0
2.2.1 Unskilled Worker 4 1,500 6,000 72,000
2.2. Repair and
Maintenance
2.2.1.General Mechanic 1 3,000 3,000 36,000
3. Administration & Finance
1 5,000 5,000 60,000
Department Manager
3.1. Administration Section
1 4,000 4,000 48,000
Head
3.1.2. Administration
1 3000 3,000 36,000
officer
3.1.3. Office Guard 2 1,000 2,000 24,000
4.1.4. Store Keeper 1 1,500 1,500 18,000
3.1.5. Cleaner 2 1,500 3,000 9,000
3.2. Finance Section
3.2.1. Accountant 1 3,000 3,000 36,000
3.2.2. Payroll Administrator 1 3,000 3,000 36,000
4. Marketing Department
Manger
4.1. Sales Head 1 3,000 3,000 36,000
4.2. Procurement head /
1 5,000 5,000 60,000
Purchaser
906,00
Total 25 75,500
0
34 | P a g e
Abebech Tsige Project Appraisal report September 2013
 c. Training requirement and Employee Remuneration and
Benefits
Training is a process of enhancing the skills, capabilities and knowledge
of employees for doing a particular job. It is crucial for organizational
development and success. It is fruit full to both employers and
employees of an organization. An employee will become more efficient
and productive if he/she trained well. As a result, continuous and related
training is recommended as deemed necessary.

Employee remuneration and benefit are also an important factor for

employee’s productivity. Employee remuneration refers to the reward or
compensation given to the employees for their work performances.
Similarly, benefits are any perks offered to employees in addition to
salary. The most common benefits are medical, disability and life
insurance, retirement benefits and fringe benefits. Both remuneration
and benefits provide basic attraction and motivation to an employee to
perform job efficiently and effectively. Thus, the promoter has to pay
attention on those issues and works hard on their implementation for
success of the project.

35 | P a g e
Abebech Tsige Project Appraisal report September 2013
 7. FINANCIAL ANALYSIS

a. Total investment items & Costs

Total
Percent
Ser. Investme
Description age
No. nt Cost
(%)
(Birr)
251,
1 Electric Installation
528
1,307,
2 Building and construction
169
8,656,
3 Machinery and Equipment
812
4 Vehicle
2,567,000
Office Furniture & 59,
5
Equipment 795

Sub-total 12,842,30
4 64%
149,2
6 Pre-production Cost
54
241,
7 Pre-production interest
929
Sub-total
391,183 2%
6,780,
8 Working Capital
331
Sub-total
6,780,331 34%

Total 20,013,81
8 100%

36 | P a g e
Abebech Tsige Project Appraisal report September 2013
 7.2 Source of Finance
Se Description Investment cost Source of Investment Cost Total
r. Existing Planned Total Owner's Equity DBE Loan Investme
No Investme Investmen Investm (Birr) nt cost
. nt Cost t ent Existing Contributi Total (Birr)
(Birr) Cost(Birr) Cost(Bir Investmen on In Cash Equity
r) t ( Birr) (Birr) Contributi
on
(Birr)
1 Electric Installation - 251,528 251,528 - 251,528 251,528 - 251,528
2 Building and 1,307,169 - 1,307,16 1,307,169 - 1,307,169 - 1,307,169
construction 9
3 Machinery and 454,831 8,201,981 8,656,81 454,831 3,902,311 4,357,142 4,299,670 8,656,812
Equipment 2
4 Vehicle - 2,567,000 2,567,00 - - - 2,567,000 2,567,000
0
5 Office Furniture & 10,000 49,795 59,795 10,000 - 10,000 49,795 59,795
Equipment
Sub-total 1,772,00 11,070,30 12,842, 1,772,000 4,153,839 5,925,839 6,916,465 12,842,3
0 3 304 04
6 Pre-production Cost 149,254 - 149,254 149,254 - 149,254 - 149,254
7 Pre-production - 241,929 241,929 - 241,929 241,929 - 241,929
interest
Sub-total 149,254 241,929 391,183 149,254 241,929 391,183 391,183
8 Working Capital 819,940 5,960,391 6,780,33 819,940 868,706 1,668,646 5,091,685 6,780,331
1
Sub-total 819,940 5,960,391 6,780,3 819,940 868,706 1,688,646 5,091,685 6,780,33
31 1
Total 2,741,19 17,272,62 20,013, 2,741,195 5,264,473 8,005,668 12,008,150 20,013,8
5 3 818 18

37 | P a g e
Abebech Tsige Project Appraisal report September 2013
 Proportion of 14% 26% 40% 60% 100%
Existing Vs Plan
Percentage D/E 1.50
Ratio

38 | P a g e
Abebech Tsige Project Appraisal report September 2013
7.2 Expected Financial Results
Here, our objective is to provide information about the financial position,
performance and changes in financial position of the project to make
rational economic decision. Hereunder, we will try to look Profit/loss or
income statement forecast, cash flow and balance sheet projection,
financial rate of return and sensitivity of the project for potential
variables.

7.2.1 Profit/loss forecast

Profit/loss forecast presents the results of project’s operations during a
period of time. It shows income earning from the project and expenses
incurred in attaining the income. The projected profit/loss statement of
the project reveals that the project will earn profit of Birr 3,361,152 during
its first year of its operation and earn profit of Birr 7,315,463 at the 10th
end year of projection. This indicates that the project could run profitable
business venture and can maintain objective of its establishment at
competitive quality and price.

7.2.2 Cash flow forecast

Cash flow projection provides a look at the movement of cash in and out
of the project. It is important in determining whether or not a
Project/factory has enough cash to pay its bills, handle expenses and
acquire assets. Thus, it is important to give due attention to identify
whether the total inflows of the project have the capacity to cover all
cash outflows during its operational period. Unless, the project will faces
liquidity crisis and fail before achieving its objective of establishment.
Based on this fact, the forecasted cumulative cash balance shows a
balance of Birr 1,840,985 in the first year and will grow up to
Birr 45,194,542 at the end of project period, demonstrating that the

39 | P a g e
Abebech Tsige Project Appraisal report September 2013
project will not face liquidity constraint to finance its operational costs as
well as debt obligation.

7.2.3 Balance Sheet Projection

Balance Sheet Projection is used to provide insight into assets and debts
of the project at a particular point of time. Total assets of the project
expected to rise from Birr 20,365,266 during the first operational year to
Birr 56,092,742 at the end project year.

7.2.4 Financial Rate of Return

Net Present Value Internal Rate of

(NPV) Return
Before Tax 58,027,931 53%
After Tax 36,373,490 39%

7.3 Sensitivity Analysis

Under sensitivity analysis we tried to make assessments at different cost
and revenue scenarios that could bring different financial results. The
profitability of the project will vary under various circumstances that
could possibly happen. Thus, the project's sensitivity to adverse
circumstances of revenue, operating cost and investment cost is
analyzed as follows

I. Decrease in Revenue
Based on our findings, when revenue decreases by 10% after tax IRR of
the project reduced from 28% to 10%. From this, we can say that the
project is viable and can achieve its objective of establishment even in
an adverse circumstance that may happen and trigger to reduce its
revenue by 10%.

40 | P a g e
Abebech Tsige Project Appraisal report September 2013
II. Increase on operating Cost
Also, if the operating costs of the project may increase by 10% due to
unforeseen circumstances; other things remain constant, after tax IRR of
the project anticipated to reduce to 16%. This means, still the project has
the capacity to cover its costs and make profit for stakeholders.
III.Increase on Investment
When investment costs increase by 10%, after tax IRR of the project
anticipated to be 35%. To summarize, the project is more sensitive to the
sales performance. However, it has the capacity to absorb external shock
and attain its objectives of its establishment.
8 SOCIO ECONOMIC BENEFIT

The establishment of the industrial project has many socio-economic

benefits which includes, among others;
 Creates Employment Opportunity: The project is expected to
create new permanent employments for about a total 25
professional, skilled, semi-skilled and unskilled workers, and large
number of daily laborers.

 Contribution to GDP: The establishment of the industrial project

will contribute to the GDP by increasing the country’s gross
production and enhance income of the workers employed and the
owner too.

 Linkage Effect: Such project has forward and backward linkage

effects; as it has forward linkage with improved hygiene of society
which supports the effort of maintaining good health of the society
and on the backward side it creates employment to the poor urban
dwellers, semi-skilled and professionals.

 Generate Revenue for Government: The project will generate

substantial revenue to the government in the form of taxes.
41 | P a g e
Abebech Tsige Project Appraisal report September 2013
9 CONCLUSION AND RECOMMENDATION

9.2 Conclusion
Xxx Laundry Soap manufacturing industry is one of DBE’s priority area
projects which plan to produce quality soap products capable of
competing both imported and locally produced laundry soaps that adds
to the national GDP of the country. As it is well known the industrial
sector is one of the focus areas of the government’s effort of overall
development as it helps the nation to grasp technology apart from its
roles of job creation and enhancing economic growth. As a result,
implementation of the Project/factory openly supports the sector by
supplying those products to satisfy demand gap of the consumer.

In particular to the soap manufacturing sector, the project could have

indispensable role to satisfying the current demand – supply gap of soap
products in the country, generating additional income for the promoter
and creating permanent employment opportunity for professional,
skilled, as well as unskilled workers directly as well as indirectly. The
project can also contribute for government income through tax.

Also, while we conducted essential analysis and financial projection, we

found that the project is viable in all aspects of analysis. As a result,
Appraisal Team I suggested financing this project is worthy.

42 | P a g e
Abebech Tsige Project Appraisal report September 2013
9.3 Recommendation
Based on the above stated facts and financial findings, the appraisal
team found that the project viable. Accordingly, financing for its
implementation is worthy. As a result, for its implementation the
appraisal team has proposed total loan amount of Birr 12,008,150
derived from the following breakdowns.

43 | P a g e
Abebech Tsige Project Appraisal report September 2013
9.4 Terms and conditions
9.4.1 Terms
A. Disbursement Schedule
 Equity Disbursement Schedule
Balance in
Expected
Equity Amount to be Commitment
Purpose of To be Months to be
Disbursement Disbursed (In Birr)
Disbursement Disbursed to Disbursed
Plan (Birr) 8,00 (2013)
5,668
1,307,
Building & Construction Existing
169
10,
Office Furniture Existing
000
454, 5,26
Machinery and Equipment 4,473 Existing Already
Existing 831
utilized
Working Capital 819,940 Existing
Pre Production Cost Existing
149,254
2,74
Sub-total
1,195
Pre-production interest To DBE
241,929
Electric Installation To EPPCO
251,528
1st December,20
Procurement of Machinery
Disbursement 13
and its accessories (40%
Deposit via SWIFT 3,280,792 To the supplier
Transfer)
Sub-total 3,774,249

44 | P a g e
Abebech Tsige Project Appraisal report September 2013
 Working Capital (30% cost
for L/C Opening for
2nd 868,706 February ,20
imported Raw Material) To the supplier
Disbursement 13
Sub-total
868,706
Procurement of
machineries and its
621,519 To the supplier March ,2013
3rd accessories (Remaining
Disbursement 60% of machineries cost
to be disbursed with Loan)

Sub-total 621,519
Total 8,005,668 -
Equity to be Blocked 5,264,473

 Loan Disbursement Schedule

Balance in
Months to
Loan Amount to be Commitment To be Condition for
Purpose of be
Disbursement Disbursed (In Birr) Disbursed Disbursemen
Disbursement Disbursed
Plan (in Birr) 20,008,1 to t
(2013)
50
Procurement of
machineries and its After signing
accessories (Remaining To the the loan
4,299,670
1st 60% of machineries 7,708,480 supplier agreement and March,201
Disbursement cost to be disbursed fully utilized 4
with Equity) the equity
4, contribution
Sub-total
299,670

45 | P a g e
Abebech Tsige Project Appraisal report September 2013
 After
verification of
Working Capital
3,064, To the the effective
(Remaining 70% of 2,026,980 April ,2014
706 supplier utilization of
imported Raw Material)
previous
disbursement

2nd Procurement of Vehicle 2,567,000

Disbursement

Procurement of Office and arrival of

Furniture and 49,795 imported items
Equipment

Sub-total 4,643,775

After
Working Capital verification of
3 rd
3,064,706 To the
the effective
Disbursement - supplier & June,2014
utilization of
promoter
3, previous
Sub-total disbursements
064,706
20,
Total
008,150 -

46 | P a g e
Abebech Tsige Project Appraisal report September 2013
B. Interest Rates and Other Charges
8.5% interest shall be applied on the outstanding loan balance to be paid
every–four-month starting from April 30, 2015.
C. Commitment Charge Payment:
0.5 % per annum on balances in commitment
D. Repayment Schedule
The principal loan is planned to be repaid within 6 (Six) years beginning
from April 30, 2015 and ending on December 30, 2020. Whereby, the
repayment will be made every four months with 18 equal installments of
Birr 667,119

9.4.2 Conditions
1) Collateral: First degree mortgage on all fixed assets of the
project.
2) Insurance: Purchase of insurance policy for the entire fixed
assets of the project with DBE as a co-beneficiary.
3) Current Account: The promoter should open current account
with DBE.
4) Record Keeping: The Project/factory should maintain proper
record keeping system.
5) L/C Opening: The Project/factory should open letter of credit
(L/C) in DBE both for import and export.
6) Other Conditions
a) The promoter should deposit Birr 5,264,473 in block
account for cost coverage of pre-production interest,
procurement machinery and office furniture and
equipment.
b) Any cost escalation should be covered by the promoter.

47 | P a g e
Abebech Tsige Project Appraisal report September 2013
10 ANNEXES

- Pro forma Invoices

- Detail of Investment Costs
- Basic Assumptions
- Operating Cost Determination
- Working Capital Determination
- Fund Allocation
- Disbursement Schedule
- Loan Repayment Schedule
- Depreciation Schedule
- Profit/Loss Forecast
- Cash Flow Forecast
- Balance Sheet Forecast
- Lists of Manpower Requirement
- FIRR Projection
- Others

48 | P a g e
Abebech Tsige Project Appraisal report September 2013