280.

PROFILE ON PRODUCTION OF VEGETABLE WAXES (CARNAUBA WAX)

280-2 TABLE OF CONTENTS

PAGE

I.

SUMMARY

280-3

II.

PRODUCT DESCRIPTION & APPLICATION

280-3

III.

MARKET STUDY AND PLANT CAPACITY A. MARKET STUDY B. PLANT CAPACITY & PRODUCTION PROGRAMME

280-4 280-4 280-6

IV.

MATERIALS AND INPUTS A. RAW & AUXILIARY MATERIALS B. UTILITIES

280-7 280-7 280-7

V.

TECHNOLOGY & ENGINEERING A. TECHNOLOGY B. ENGINEERING

280-8 280-8 280-8

VI.

MANPOWER & TRAINING REQUIREMENT A. MANPOWER REQUIREMENT B. TRAINING REQUIREMENT

280-10 280-10 280-10

VII.

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

280-12 280-12 280-13 280-14 280-15

280-3 I. SUMMARY

This profile envisages the establishment of a plant for the production of vegetable wax with a capacity of 100 tonnes per annum.

The present demand for the proposed product is estimated at 225 tonnes per annum. The demand is expected to reach at 502 tonnes by the year 2017.

The plant will create employment opportunities for 32 persons.

The total investment requirement is estimated at about Birr 4.13 million, out of which Birr 790,000 is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 28 % and a net present value (NPV) of Birr 3.55 million, discounted at 8.5%.

II.

PRODUCT DESCRIPTION AND APPLICATION

Vegetable waxes are found as coatings on leaves, stems, flowers, and seeds. Carnauba wax is one of these vegetable waxes obtained from palm tree. The product is used as a constituent of floor, automobile and furniture polishes, and in carbon paper, candles, certain moulded products, shoe polishes, leather finishes, varnishes, electric insulating compositions, water proofing, to prevent sun checking of rubber and plastic products and confectionery. The vegetable wax (carnauba wax) is intended to be produced from palm tree that grows in SNNPRS, particularly in sheka zone, Masha woreda.

280-4 III. MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Past Supply and Present Demand

Waxes are use in the manufacture of candles for religious and decorative purposes, and in polishes, matches, waxed paper and cosmetics. Waxes are also used in the manufacture of rust preventives, rubber antioxidants, electrical insulations, paper coatings, printing inks, textile finishes, leather dressings and waxed containers for food. Due to its versatile

application waxes have a wide market both locally and abroad. Since there are no industries that manufacture waxes in the country the entire requirement is met through import. Import of animal or vegetable waxes and artificial waxes in the past eight years is given in Table 3.1. Table 3.1 IMPORT OF ANIMAL , VEGETABLE AND ARTIFICIAL WAXES (TON)

Year 1999 2000 2001 2002 2003 2004 2005 2006 Total Average

Quantity 208.7 50.0 15.3 7.7 9.5 37.2 38.2 1,675.6 2,042.6 255.3

Source:- Compiled from Customs Authority

As could be seen from Table 3.1 import of waxes in the year 1999 has been 208.7 tons and has been declining up to year 2002. But after 2002 the imported quantity has been rising for

280-5 four consecutive years. The import figure which has been 7.7 tons during 2002 has

increased to about 39 tons by the year 2004 and 2005. An exceptionally high figure is recorded during 2006 which amounts to about 1,675 tons.

In the absence of a trend in the data set the average quantity imported during the past eight years has been considered to reflect the current effective demand. Accordingly, current demand for waxes is estimated at 255 tons.

2.

Demand Projection

The demand for waxes is directly related with the growth and development of the end users, particularly the manufacturing sector. The manufacturing sector has been growing by about 7% per annum during the past few years. Hence, this growth rate has been applied to project the future demand. the projected demand is shown in Table 3.2.

Table 3.2 PROJECTED DEMAND FOR WAXES (TON)

Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Quantity 273 292 312 334 258 383 409 438 469 502

280-6 3. Pricing and Distribution

The average CEF price of animal, vegetable and artificial waxes in 2006 is Birr 22,320 per ton. Allowing 30% for duly and other changes Birr 20,000 per ton is recommended as a factory pati price. Since the product is an intermediate input in the manufacturing sector direct sell to the end users is recommended in distribution.

B.

PLANT CAPACITY AND PRODUCTION PROGRAMME

1.

Plant Capacity

According to the market study indicated above the projected demand of vegetable wax (or carnauba wax) in 2008 will be 273 tons (refer to Table 3.2 above). This figure will growth to 438 tonnes and 502 tonnes in 2015 and 2017, respectively. It is proposed, therefore, that the envisaged carnauba wax producing plant will have annual production capacity of 100 tonnes. The plant will operate in two shifts 16 hours a day and for 300 days a year.

2.

Production Programme

Production will start at lower capacity, that is, at 75% of capacity at the first year of plant operation. This is important to provide opportunity for skill development of production workers and establishment of potential market outlets. This is important to provide opportunity for skill development of production workers and establishment of potential market outlets. Production will then increase to 85% and 100% in the second year, third year and thenafter, respectively. Production building-up programme with capacity utilization is given in Table 3.3 below.

280-7 Table 3.3 PRODUCTION PROGRAMME

Year Capacity utilization (%) Production (tonne)

1 75 75

2 85 85

3 and above 100 100

IV.

MATERIALS AND INPUTS

A.

RAW AND AUXILIARY MATERIALS

The basic raw material required for the production of carnauba wax is the fronds of the palm tree. Resoruce Potential Assessemnt of SNNPRS (2005) indicates that palm trees grow in sheka zone, particularly in Masha woreda. It is therefore anticipated that there are enough palm threes is Masha woreda to harvest sufficient raw material (fronds of palm) to produce carnauba wax of a capacity indicated above. The annual requirement of raw material (i.e, fronds of palm) at full capacity production is estimated to be 116.0 tonnes. The annual cost of raw material will then be Birr 120,000.

B.

UTILITIES

Electricity and water are utilities required for the carnauba wax producing plant.
3

An

estimated 20,000 kWh of electricity and 500 m of water are the annual requirement of utilities. At the rate of Birr 0.474 per kWh of electricity and Birr 10.0 per m3 of water, the annual expenditure on utilities will be Birr 14,480.

280-8 V. TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Production Process

Carnauba wax forms on the fronds of the palm. The wax is removed by cutting the fronds, drying them, and mechanically removing the wax. Impurities are removed from the wax by melting and filtering. Centrifuging can also be used to remove impurities, but the filtering method produces the cleaner wax. The filtered wax is then stored and packed in metallic or plastic containers.

2.

Source of Technology

Production equipment required for carnauba wax manufacturing can be supplied by the following company:

PEC Limited Itansa Laya 15,Barakhamda Road, New Delhi 110001 E-mail: pecdel@pecde.pecdel.com.net.in

B.

ENGINEERING

1.

Machinery and Equipment

The list of production equipment required for cannauba wax plant is given in Table 6.1 below.

280-9 Table 6.1 LIST OF PRODUCTION EQUIPMENT

Sr. No. 1 2

Description

Qty LC

Cost (000 Birr) FC 135 20 165 TC

Cutting tools for fronds

Reqd.

20.0 30

Mechanical Equipment for work 1 removal

Equipment for wax melting and 1 set filtering (steam heated melting tank with temperature control)

30

145

175

4 5 6

Boiler for steam generation Wax packing machine Other auxiliary equipment CIF landed cost

1 set 1 set Reqd.

50 10 140

300 45 25 650

350 55 25 790

2.

Land, Building and Civil Works

Land is required for factory building, administrative and social building, and open space for future expansion. A total of 2000 m2 of land is proposed for the establishment of the plant. At the rate of Birr 1.0 per m2 for a period of 80 years, the land lease value will be Birr 160,000. Of the total land area the built-up area will be 1000 m2. At the rate of Birr 2000 per m2, the expenditure on buildings and civil work will be Birr 2 million. Thus, the total investment on land, building and civil works will be Birr 2.16 million.

3.

Proposed Location

Location of a plant is determined on the basis of proximity to raw materials, availability of infrastructure and distance of plant from potential market outlets. Moreover, consideration is given to fair distribution of projects among SNNPRS woredas. In this case, the woreda that grows palm tree is masha woreda. The carnauba wax plant will therefore be established in Masha town.

280-10 VI. MANPOWER REQUIREMENT

A.

MANPOWER REQUIREMENT

Manpower for carnauba wax production consist of skilled operators, unskilled labor, and administrative staff for managerial activities. The details of manpower and related monthly and annual salaries are given in Table 7.1 below.

B.

TRAINING REQUIREMENT

Training is required for production head (a chemical engineer), production operators, mechanics and quality control expert (chemist). Training will be given for a period of two weeks, and will require Birr 10,000 for executing the training programme.

280-11 Table 7.1 MANPOWER REQUIREMENT AND RELATED MONTHLY AND ANNUAL SALARIES

Sr. No.

Job Title

Nos.

Monthly Salary

Annual Salary

A. Administration 1 2 3 4 5 6 7 8 9 10 Plant manager Secretary Accountant Cashier Salesman Store man Clerk Driver Guard Messenger Sub-total B. Production 1 Production engineer) 2 3 4 Quality control expert (chemist) Skilled operator Unskilled workers Sub-total Workers Benefit (25% BS) Total 32 2 8 10 22 1,200 600 350 28,800 57,600 42,000 164,400 60,600 303,000 head (chemical 2 1,500 36,000 1 1 1 1 1 1 1 1 1 1 10 2000 600 800 600 600 600 400 400 250 250 24,000 7,200 9,600 7,200 7,200 7,200 4,800 4,800 3,000 3,000 78,000

280-12

VII.

FINANCIAL ANALYSIS

The financial analysis of the vegetable wax project is based on the data presented in the previous chapters and the following assumptions:-

Construction period Source of finance

1 year 30 % equity 70 % loan

Tax holidays Bank interest Discount cash flow Accounts receivable Raw material local Raw material, import Work in progress Finished products Cash in hand Accounts payable

years 8% 8.5% 30 days 30days 90days 5 days 30 days 5 days 30 days

A.

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 4.13 million, of which 37 per cent will be required in foreign currency.

The major breakdown of the total initial investment cost is shown in Table 7.1.

280-13

Table 7.1 INITIAL INVESTMENT COST

Sr. No. 1 2 3 4 5 6 7 Cost Items Land lease value Building and Civil Work Plant Machinery and Equipment Office Furniture and Equipment Vehicle Pre-production Expenditure* Working Capital Total Investment cost Foreign Share

Total Cost (000 Birr) 160 2,000.00 790.00 150 650 353.31 30.38 4,133.7 37

* N.B Pre-production expenditure includes interest during construction ( Birr 153.31 thousand ) training (Birr 10 thousand ) and Birr 190 thousand costs of registration, licensing and formation of the company including legal fees, commissioning expenses, etc.

B.

PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 1.07 million (see Table 7.2). The material and utility cost accounts for 12.49 per cent, while repair and

maintenance take 13.93 per cent of the production cost.

280-14 Table 7.2 ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Raw Material and Inputs Utilities Maintenance and repair Labour direct Factory overheads Administration Costs Total Operating Costs Depreciation Cost of Finance Total Production Cost

Cost 120.00 14.48 150 137.25 57.19 91.5 570.42 364 142.7 1,077.12

% 11.14 1.34 13.93 12.74 5.31 8.49 52.96 33.79 13.25 100

C.

FINANCIAL EVALUATION

1.

Profitability

According to the projected income statement, the project will start generating profit in the first year of operation. Important ratios such as profit to total sales, net profit to equity total investment (return on total

(Return on equity) and net profit plus interest on

investment) show an increasing trend during the life-time of the project.

The income statement and the other indicators of profitability show that the project is viable.

280-15 2. Break-even Analysis

The break-even point of the project including cost of finance when it starts to operate at full capacity ( year 3) is estimated by using income statement projection.

BE =

Fixed Cost Sales Variable Cost

25 %

3.

Pay Back Period

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

4.

Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 28 % and the net present value at 8.5% discount rate is Birr 3.59 million.

D.

ECONOMIC BENEFITS

The project can create employment for 32 persons.

In addition to supply of the domestic

needs, the project will generate Birr 2.36 million in terms of tax revenue. The establishment of such factory will have a foreign exchange saving effect to the country by substituting the current imports.