PROJECT PROPOSAL FOR THE ESTABLISHMENT OF

PAPER PACKAGING MANUFACTURING PLANT

PROJECT TO BE IMPLEMENTED IN OROMIA REGIONAL

STATE BISHOFTU TOWN

PROMOTER: MEKDES TAYE DHANA

MARCH 2023
ADDIS ABABA
 APPLICATION LETTER
TO WHOM IT MAY CONCERN
Dear Sir/Madam;
We are here to request Land for investment with its license by name of our private trading
which it named MEKDES TAYE TRADIG. Since the establishment of MEKDES TAYE
TRADIG we are exercising different business activities so as to crate job opportunity for our
society as well as developing our financial capacity and making benefit the government also.
Dear sir/madam we are here today as we begun before participating on our country’s
development, we are looking for an opportunity which enables as to take over the
developments of our country through investment. Which it is too vast and can give better job
opportunity than any other that can keep the truck our begun development.
Hence, if your organization accepting our application, give us an opportunity and signing the
project agreement with achieved anticipated results MEKDES TAYE TRADIG will have
self-motivated, energetic and experiences in business duties and committed to undertake the
intention of this investment program from design, planning, implementing, monitoring and
evaluation of the activities with responsibilities to deliver the desired result of the project
with required quality for targeted groups.
We are looking forwards your positive response!!
Better Cooperation for better development!
MEDES TAYE DHANA
 C/C MEKDES TAYE TRADIG

TABLE OF CONTENT

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I. Table Of Content----------------------------------------------------------------------------------------------------3
II. List of Abbreviation---------------------------------------------------------------------------------6
III. Grand Summary of the Project-----------------------------------------------------------------7
1. Introduction ------------------------------------------------------------------------------------------8
1.1. Introduction and Overview of the
Project----------------------------------------------------8
1.2. Ethiopia’s Restructuring
Economy----------------------------------------------------------- 8
1.3. Economic
Liberalization----------------------------------------------------------------------- 8
1.4. The Foreign Investment
Policy----------------------------------------------------------------9
1.5. Guarantees to
investor--------------------------------------------------------------------------9
1.5.1. Repatriation of Capital and Profit------------------------------------------------- 9
1.5.2. Guarantees Against Expropriation-----------------------------------------------9
1.6. Measure Investment Incentives-------------------------------------------------------------
10
1.6.1. Customs Import Duty------------------------------------------------------------- 10
1.6.2. Exemptions for payment of export customs duties--------------------------- 10
1.7. An overview of Ethiopia’s
Performance-------------------------------------------------- 10
1.8. Background of the
Project--------------------------------------------------------------------11
2. Objectives of the project---------------------------------------------------------------------------13
2.1. General
Objectives---------------------------------------------------------------------------------------------13
2.2. Specific
Objective----------------------------------------------------------------13

3. Market Study----------------------------------------------------------------------------------------14
3.1. Product Description and Application--------------------------------------------------------
14
3.2. Past Supply-Demand Trend------------------------------------------------------------------15

3
 3.2.1. Local Production-------------------------------------------------------------------15
3.2.2. Import--------------------------------------------------------------------------------
15
3.2.3. Apparent Consumption------------------------------------------------------------16
3.2.4. Present Effective Local Demand-------------------------------------------------
16
3.2.5. Trend in Factors that Affect the Local Demand for the Products under
Consideration--------------------------------------------------------------------------- 16
3.2.6. Demand Projection-----------------------------------------------------------------
17
3.2.7. Market Share------------------------------------------------------------------------
17
3.2.8. Marketing Mix--------------------------------------------------------------------- 17
4. Product mix, Plant Capacity and Production Program---------------------------------------- 18
4.1. Product
Mix------------------------------------------------------------------------------------ 18
4.2. Plant
Capacity----------------------------------------------------------------------------------18
4.3. Production Program---------------------------------------------------------------------------19
5. Technical Study-------------------------------------------------------------------------------------19
5.1. Raw Materials and
Inputs-------------------------------------------------------------------- 19
5.2. Utility-------------------------------------------------------------------------------------
-------20
5.3. Location, Site and
Environment-------------------------------------------------------------20
5.3.1. Location-----------------------------------------------------------------------------20
5.3.2. Site-----------------------------------------------------------------------------------21

5.3.2.1. Bishoftu Town------------------------------------------------------------- 22

6. Technology and Engineering----------------------------------------------------------------------24
6.1. Machinery and Equipment-------------------------------------------------------------------24
6.2.
Vehicle------------------------------------------------------------------------------------------25

4
 6.3. Office Equipment’s-------------------------------------------------------------------------26
7. Land use plan and Cost of Building and Construction------------------------------------26
7.1. Building and Civil
work----------------------------------------------------------------------27
8. Organization Structure and Human Resource---------------------------------------------------
27
9. Project Implementation Schedule-----------------------------------------------------------------
28
10. Financial and Economic Analysis----------------------------------------------------------------
29
10.1. Production Costs of the Project------------------------------------------------------------
30
10.2. Project Capital and Financing of the Project-------------------------------------------- 30
10.2.1. Project Capital----------------------------------------------------------------------30
10.2.2. Source of Finance------------------------------------------------------------------31
10.3. Depreciation of Taxed Investment Items-------------------------------------------------
31
10.4. Revenue Estimate---------------------------------------------------------------------------31
11. FINANCIAL EVALUATION--------------------------------------------------------------------32
11.1. Profitability---------------------------------------------------------------------------------32
11.2. Break-even Analysis--------------------------------------------------------------32
11.3. Pay Back Period-----------------------------------------------------------------------32
11.4. Cost Benefit Analysis------------------------------------------------------------32
11.5. Risk-Assessment--------------------------------------------------------------------- 32
11.6. Economic and Social Benefits---------------------------------------------------------- 32
11.7. Internal Rate of Return--------------------------------------------------------------------33
11.8. Net Present Value--------------------------------------------------------------------------33
12. Economic and Social Benefits------------------------------------------------------------------33
12.1. Environmental Impact
Analysis----------------------------------------------------------33

13. Monitoring and Evaluation-----------------------------------------------------------------------34

13.1. Monitoring-----------------------------------------------------------------------------------34

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 13.2. Evaluation------------------------------------------------------------------------------------
34

II. Lists of Abbreviation

FDRE Federal Democratic Republic of Ethiopia
GDP Gross Domestic product
MIGA Multilateral Investment guarantee Agency

6
 ICSlD Settlement of Investment disputes between States and nationals of other States
PEST Political, economic, socio- cultural and technological developments,
GTP Growth and Transformation Plan
TVET Technical, Vocational Education and Training
IPS Industrial Projects Service
MoI Ministry of Industry
IRR Internal Rate of Return
NPV Net Present Value
GSM Grams per square meter
VOC Volatile organic compound

III. Grand Summary of the Project

1 Project Name The Establishment of Paper Packaging Manufacturing Plant
2 Project Owner MEKDES TAYE TRADIG
3 Nationality Ethiopian

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4 Project location Bishoftu Town of Oromia Regional State,

5 Project This profile envisages the establishment of Paper Packaging Manufacturing Plant
Composition with a capacity of 8000 tons for paper board production and 500 ton/ year for the
duplex paper board.
6 Premises Required The total land area of the plant including the open space is 10,000 m2.

7 Source of Finance The total capital of the project is estimated to be Birr 76,000,000.00 birr, among
this, (30%) 22,800,000.00 [30%] is financed by the contribution of the promoter
and the remaining balance of Birr 53,200,000. 00[70%] is to be financed by banks.
8 Project Capital The total investment capital of the project is estimated at birr 76,000,000.00 of
which birr 69,844,000.00 is for fixed investment items while the remaining
balance of birr 6,156,000.00 will be initial working capital.
9 Employment The total man-power required for the envisioned project will be 304 employees
Opportunity at f ull capacity.
 Permanent “workers 90
o Skilled 60 and Unskilled 30
 Temporary workers 214
o Skilled 16 and Unskilled 198
10 Technology The machinery equipment and technology of establishment of the industry can
be secured from foreign countries.
11 Market Share Based on a 10% discount rate the Internal Rate of Return (IRR) and Net Present
Value (NPV) are computed to be 26.53% and Birr 97,812,000.00 respectively,
indicating the viability of the project.
11 Benefits of the Provide service and source of revenue, employment opportunity, save/generate
project for the city the country foreign exchange, benefit for the local community stimulate the
and country local economy and technology transfer.

Table: 1 Grand summery of the project

1. Introduction and Overview of the Project

1.1. Introduction
Since 1991, the new Democratic Government coming into power and soon after it
adopted the market oriented Economic policy in 1992. The Federal Democratic Republic
of Ethiopia (FDRE) was set up under a new constitution in 1995. The FDRE came with

8
new Federal governmental system that has a bicameral parliament, with the House of
people's Representative being the highest authority of the Federal Government and House
of federation which account as the second chamber with its only federalism character that
empowered with the interpretation of the country’s constitution and representatives of all
nation nationalities of Ethiopia, while the members of both councils are democratically
elected for five years.
1.2. Ethiopia’s Restructuring Economy
A prevailing agricultural economy financial records for about 42% of Ethiopia’s Gross
Domestic product (GDP), 62% of total exports and 85% of employment. Coffee alone
contributes over 30% of total agricultural exports. Agriculture is supplemented by
manufacturing, mining, trade, tourism, construction, services, etc. Make the remaining 58%
of GDP. About 13% of GDP comes from the Industrial sector supplying important consumer
goods to the domestic and international markets. The main manufactured export products
include textiles, food stuffs, tobacco, beverages, leather and leather products, wood, metallic
and non-metallic products, paper plastic products, canned and frozen meat, sugar and
molasses and oil cakes products.
1.3. Economic Liberalization
Since the new market oriented Economic policy adopted in 1992, a number of policy
measures and reforms have been undertaken to change the structure of the economy and
encourage radical economic growth and development. The reforms include, among others,
the following short-term economic Liberalization and structural adjustment measures:
 Deregulation of domestic prices,

 Abolition of all exports taxes and subsidies,

 Reduction of inflation through fiscal and monetary controls,

 Liberalization of foreign trade,

 Devaluation of national currency, birr to reflects its market value,

 Privatization of public enterprises,

 Issuance of a new labor law,

 Liberalization of foreign exchange regime,

1.4. The Foreign Investment Policy

Ethiopia has endorsed a liberal Investment code. This encourages both domestic and foreign

9
investors to play a protuberant role in the economic development of the country. The code
provides a w ide of incentives including tax holidays, duty exemptions, and free remittance
of founds and retention of foreign exchange earnings.
1.5. Guarantees to Investor
Ethiopia provides the following guarantee to foreign investors:-
1.5.1. Repatriation of Capital and Profit
Capital repatriation and remittance of dividends and interest is guaranteed to foreign
investors under the investment proclamation. Any foreign investor has the light, in respect of
an approved investment, to make the following remittances of Ethiopia in convertible
currency at the prevailing rate of exchange on the date of remittance:

 Profit and dividends accumulating from an investment,

 Principal and interest payments on external loans,

 Payments related to technology transfer or management agreements,

 Proceeds from sale or liquidation of an enterprise,

 Proceeds from the sale of transfer of shares or assets,

 Compensation paid to a foreign investor.

1.5.2. Guarantees Against Expropriation,

The constitution of the Federal Democratic Republic of Ethiopia protects private property.
The investment proclamation provides investment guarantees against measures of
expropriation and nationalization and nationalization that only may occur with the
requirements of the law. Where such expropriations are made, the government guarantees to
provide adequate compensation corresponding to the prevailing market value of property
and such payment shall be reflected promptly.
Other guarantees in Ethiopia are a member of the World Bank, affiliated Multilateral
Investment guarantee Agency (MIGA) that issues guarantees against none, commercial risks
to enterprise, which invest in signatory countries. Ethiopia is at any time ready to conclude
bilateral Investment promotion and protection treaties with any country and is in fact
currently concluding such agreements with a number of developed countries.
Ethiopia has also signed the World Bank Treaty "The Convention on settlement of
Investment disputes between States and nationals of other States (ICSlD). Investors are

10
protected against expropriation and nationalization. Ethiopia has ratified the convention
establishing the multilateral investment guaranteed Agency (MIGA). It has also signed
bilateral investment promotion and protection agreements with a number of OECD
countries. The Investment offices serve as a one stop shop for foreign investors securing
investment certificates, company registration certificates and operating licenses.

1.6. Measure Investment Incentives

To encourage private investments and promote the inflow of foreign capital and technology
into Ethiopia, the following incentives are granted to investors (both domestic and foreign)
engaged in new enterprises and expansion in areas qualified for investment incentives.
1.6.1. Customs Import Duty
One hundred percent from the payment of import customs duties such as plant, machinery,
equipment etc. plus spare parts worth up to 15% of the value of the imported investment
capital goods. Investment capital goods imported may be transferred to another investor
enjoying similar privileges.
The duty drawback scheme applies to all taxes at the time of importation, and those paid on
local purchases.
1.6.2. Exemptions for Payment of Export Customs Duties
Ethiopian products and services intended for exports are exempted from the payment of any
export tax other taxes and levied on export.
1.7. An overview of Ethiopia’s Performance
It is widely known that the ancient country of Ethiopia underwent a period of turmoil
economic stagnation and famine during the 1970s and 1980s. What is less well known is
that since the demise of the military dictatorship in 1991, a new Ethiopia has emerged which
is politically stable and making good economic progress.
The achievements of this rapid economic turnaround rest on solid foundations of political
and economic reform, sound management of the economy and an ongoing partnership with
external donor and investors. Ethiopia has been at peace with itself since the establishment
of a federal system of government and parliamentary democracy. Simultaneously, it has
firmly moved from a command to a market economy.
Macroeconomic stability has been secured by careful sequencing of economic reforms,
coupled with tight fiscal and monetary policy. The progress on policy reform to date has
secured the foundations for future growth, creating a favorable climate for foreign and local
investment in Ethiopia. This will be further enhanced by the consolidation of continuous

11
 market reforms and investment code reforms.
Ethiopia offers investors a wide array of opportunities. Ethiopia's proximity to Middle
Eastern and European markets, its abundant natural resources, land, livestock, minerals and
a population of 86 million potential consumers are just some of its key advantages.
In addition, its wealth of unique tourist sites, unpeopled scenic beauty and the authority’s
commitment to upgrade infrastructure, all under lined the country's determination and
potential to work with private investors. A fuller appreciation of the improved environment
can be gained by looking at four factors.
 The broad picture of transition from a command to a market economy,
 Its record of economic growth and stability,
 Improvements in infrastructure,
 Ethiopia's specific investment strategic/incentives (both foreign and local).
It is with this in mind that the promoter, has intended to establish PP BAG manufacturing
plant (project) so as to satisfy the growing demand of the surrounding population for the
project out puts in utilizing long years’ experience in different business.

1.8. Background of the Project

As per the analysis carried out by different institutions on the political, economic, socio-
cultural and technological developments (PEST), Ethiopia offers a stable political and
economic environment as well as security; exceptional climate; almost complete absence of
routine corruption; continuously improving public service delivery which makes it potentially
an ideal destination for investment.
The macro economic performance in the past seven years has been very positive and the GTP
indicates a very good prospect, with a minimum of 11% GDP growth per annum, for the
future. Although the incentive packages that are currently given seem to be adequate, the
government is planning to give additional incentives for the manufacturing sector,
particularly to export oriented and import substituting projects. Priorities will be given to the
manufacturing sector in support provision in the areas of licensing, land and finance
allocation, training and the like.
The expansion of Universities as well as Technical, Vocational Education and Training
(TVET) in all parts of the country provides good opportunity in the supply of skilled and
semi-skilled technical personnel. Health service provision and development of infrastructures
such as roads, energy and communication are also showing a rapid improvement in the

12
country. The advancement of science and technology in the world and the spread of same in
the country will favorably influence the smooth operation of the envisaged project.
To encourage investment a number of incentives are granted to investors which include;
exemption of customs duty for importing capital goods and spare parts for investment and
raw materials for production of export goods, income tax holidays and the permission of
losses to carry forward during tax holiday period. Ethiopia also provides different guarantees
with respect to repatriation of capital, profit and against expropriation and nationalization.
Accordingly, it can be concluded that Ethiopia is ideal for investment.
Indeed the Feasibility Study for the Establishment Paper Packaging Manufacturing Plant is
prepared by the Industrial Projects Service (IPS), the Consultant, as per the consultancy
agreement concluded with the Ministry of Industry (MoI), the Client. This profile envisages
consists of market, technical and financial analyses components on the feasibility study of the
envisaged plant.
This profile envisages the establishment of Paper Packaging Manufacturing Plant with a
capacity of 2700 tons per annum. Corrugated paper board is widely used for diverse packing
applications.
The demand for corrugated paper board is met through domestic producers and import. The
present (2012) demand for corrugated paper board is estimated at 2,311 tons. The demand for
corrugated paper board is projected to reach 3,242 tons and 4,546 tons by the year 2017 and
2022, respectively.
The principal raw materials required are Kraft paper of different grades, adhesive or glue and
printing inks. Starch, glue, ink are available locally while flute medium, kraft, liner, and test
liner have to be imported.
The total capital of the project is estimated to be Birr 76,000,000.00, birr, among this, (30%)
22,800,000.00 [30%] is financed by the contribution of the promoter and the remaining
balance of Birr 53,200,000.00 [70%] is to be financed by banks. From the total investment
cost the highest share (Birr 65,018,000.00 or 85.55%) is accounted by fixed investment cost
followed by initial working capital (Birr 10,982,000.00 or 14.45%). And from the total
investment cost Birr 23,172,400.00 or 30.49% is required in foreign currency. Also from the
total capital of profile envisages about (Birr 6,698,482.00 or 11.14%) the pre operation cost.
Based on a 10% discount rate the Internal Rate of Return (IRR) and Net Present Value (NPV)
are computed to be 26.53% and Birr 78,280,000.00 or (103%) respectively, indicating the
viability of the project.

13
The project can create employment for 304 persons. The establishment of such factory will
have a foreign exchange saving effect to the country by substituting the current imports. The
project will also create backward linkage with chemical manufacturing sub sector and
forward linkage with the food, textile, pharmaceuticals, cigarette, soaps, cosmetics and
consumer durables manufacturing sub sectors. The project also generates income for the
Government in terms of tax revenue and payroll tax.
2. Objectives of the project
2.1.General Objectives

The general objective of the project is to establish corrugated Paper Packaging Manufacturing
Plant and to provide the needed quality and quantity with affordable price to generate profit
for the promoter.

2.2. Specific Objective

The market demand for the corrugated Paper Packaging product is going to increase due to
huge government plans to transform the country; hence the Sector plays a vital role in the
economic development. Improving productivity and capacity utilization of existing industries
and also having new industries, entering the market will definitely help the national effort in
narrowing the gap between demand and supply in the sector. Like any business enterprise and
establishments of its kind, the project is basically planned with an objective of generating
profit for the promoter. Beyond that, it is also aimed to promote the following objectives.
 To Produce corrugated Paper Packaging product,
 Develop local technology by bringing expatriate technical advisers for few years and
create the base for development of the industry.
 Provide direct and indirect employment to a large segment of the population and
reduce unemployment.
 Generate foreign exchange through the sale of its products in the export markets.
 Increase Government revenue through different forms of taxes which in turn used to
facilitate social and economic development.

3. Market Study

3.1. Product Description and Application

Packaging is the industrial and marketing technique for containing, protecting, identifying
and facilitating the sale and distribution of agricultural, industrial and consumer products.
Virtually all manufactured and processed goods require packaging during some phase of their

14
production and distribution. The most popular paper products used for packaging purpose
today are corrugated paper box, paperboard and paper sack and bag.
A. Corrugated Paper Box or Carton: Corrugating is defined as the imparting of wave-like
shape to a paper. Kraft paper or fluting medium paper is passed through heated
corrugated rolls to obtain continuous rolling, wave-like shape. These are called flutes.
Observed vertically, they form a row of columns, a basic structural form capable of
supporting great weight.
Fluted paper, when stuck to another flat sheet of paper gets converted into 2-ply
corrugated paper box. 3-ply corrugated paper box has one fluted paper and two flat
papers. Similarly, 5- ply, 7-ply and 9-ply corrugated boards are manufactured by
converting multiples of flat papers and fluting media papers.
Major industries which use corrugated packaging are: food; textile, pharmaceutical;
electrical; engineering; consumer durables; soaps and cosmetics; cigarettes; glass etc.
There is perhaps no product that cannot be effectively packed in corrugated box. From
small, fragile and delicate products like crockery and large products like washing
machines, refrigerators... to perishables like fruits and vegetables, almost all products can
be effectively and economically packed in a corrugated box.
B. Paperboard: Paperboard is the general name given to a variety of different types of
materials that are used to make boxes and cartons. They can be used as shipping (outer)
containers or as consumer packs. Paper boards are produced in the same way as paper but
it is made thicker and often in multiple layers, to protect products from mechanical
damage (crushing, puncturing, and vibration).
There is a large range of paperboard types for different applications as consumer packs or
shipping containers. Cartons or boxes are printed (if necessary), cut out to the appropriate
size and shape and creased. The flat carton (or 'blank') may then be glued and assembled
by the board manufacturer or alternatively delivered to end users for assembly on site.
C. Paper Sack and Bag: A paper bag or paper sack is a preformed container made of paper,
usually with an opening at one end. It can be one layer of paper or multiple layers of
paper and other flexible materials. Paper bags are used for packaging and/or carrying
items.
Paper shopping bags, brown paper bags, grocery bags, paper bread bags and other light
duty bags have a single layer of paper. A variety of constructions and designs are
available. Many are printed with the names of stores and brands. Paper bags are not

15
 waterproof. Types of paper bag are: laminated, twisted, flat tap. The laminated bag, whilst
not totally waterproof, has a laminate that protects contents to some degree.
Multiwall (or multi-wall) paper sacks or shipping sacks are often used as shipping containers
for materials such as fertilizer, animal feed, sand, dry chemicals, flour and cement. Many
have several layers of sack papers, printed external layer and inner plies. Some paper sacks
have a polyethylene foil or polyethylene coated paper layer in between as a water-repellant
barrier.
3.2. Past Supply - Demand Trend
The local demand for corrugated paper box is met through both local production and import,
while the demand paper board and paper sacks & bags is met through only import.
Accordingly, the major findings of the trend in past supply of paper packing materials are
summarized below.
3.2.1. Local Production
Local production of corrugated paper box during the period 2000--2013 exhibits a growth
trend, increasing from 2,136 tons in 2000 to 23,535 tons in 2013, registering an average
annual growth rate of 19.53%.
3.2.2. Import
During the period 2000--2013, import of paper packing materials (corrugated paper box,
paper board and paper sacks & bags) exhibits a substantial growth. In the year 2000 import
was only 5,005 tons and Birr 36.79 million in terms of volume and value, respectively. By
2013 import has increased to 7,528 tons and Birr 202.89 million in terms of volume and
value, respectively. During the period under consideration, import of 16 corrugated paper
box, paper board and paper sacks and bags has registered an average annual growth rate of
15.26% and 25.07% in terms of volume and value, respectively.
During the recent five years (2009--2013), from the total import of paper packing materials
the highest share (on average, 61% in terms of volume and 52% in terms of value) is
accounted by paperboard followed by paper bags and sacks (21% in terms of volume and
29% in terms of value). The remaining 18% in terms of volume and 19% in terms of value is
accounted by corrugated paper box.
3.2.3. Apparent Consumption
During the period 2000--2013 total supply or apparent consumption of paper packing
materials (corrugated paper box, paper board and paper sacks & bags) has increased from
7,141 tons to 31,063 tons registering an average annual growth rate of 17.38%.

16
 3.2.4. Present Effective Local Demand
In order to estimate the current effective local demand for paper packing materials in
Ethiopia, the following methods were applied:
 Double exponential smoothing (one parameter)
 Holte’s two------ Parameter double exponential smoothing; and
 Time trend extrapolation
Based on the results of test statistics the Holt’s two parameters exponential smoothing is
found to be the most appropriate for all the products under consideration. Accordingly, the
estimated present effective demand for each product is given below.
 Corrugated paper box……25,713 tons
 Paper board …………4,849 tons
 Paper sacks and bags …..1,700 tons
Total ………………………. 32,262 tons
3.2.5. Trend in Factors that Affect the Local Demand for the Products
under Consideration
The variables that are essential in determining the magnitude and trend of demand for under
consideration are:
 Performance of the national economy,
 Performance of the manufacturing sector,
 The level and value of new manufacturing investment,
 Performance of the food and beverage manufacturing sub sector,
 Performance of the pharmaceutical manufacturing sub sector,
 Cosmetics and personal health care manufacturing sub sector,
 Performance of the foot water and apparel manufacturing sector,
 Trend in export of flowers;
 Performance of the service sector and
 Rate of population growth and urbanization.

Accordingly, thorough assessment of current status and future prospect of these factors
indicates that, there is a progressively growing local demand for paper packing materials.
3.2.6. Demand Projection
The local demand for paper packing materials (corrugated paper box, paper board and paper
sacks & bags) is projected to increase from 43,716 tons in 2015 to 99,302 tons and 206,282

17
tons by the years 2020 and 2025 respectively. Moreover, by year 2030 the demand is
projected to reach 411,409 tons.
Regarding by type of product, the local demand for corrugated paper box is projected to
increase from 34,842tons in 2015 to 79,144 tons, 164,407 tons and 327,893 tons by the years
2020, 2025 and 2030 respectively.
Likewise, the demand for paper board is projected to increase from 6,571 tons in 2015 to
14,925 tons, 31,004 tons and 61,835 tons by the years 2020, 2025 and 2030, respectively.
The local demand for paper sacks and bags is projected to increase from 2,304 tons in 2015
to 5,233 tons and 10,871 tons by the years 2020 and 2025 respectively. Moreover, by year
2030 the demand is projected to reach 21,681 tons.
3.2.7. Market Share
The market share of the envisaged project for corrugated paper box is projected to increase
from 1,192 tons in 2015 to 21,495 tons and 68,686 tons by the years 2020 and 2025
respectively. Moreover, by year 2030 the demand is projected to reach 207,649 tons.
The market share of the envisaged project for paper board is projected to increase from 5,585
tons in 2015 to 12,686 tons, 26,354 tons and 52,560 tons by the years 2020, 2025 and 2030
respectively. Likewise, the market share of the envisaged project for paper sacks and bags is
projected to increase from 1,958 tons in 2015 to 4,448 tons, 9,240 tons and 18,429 tons by the
years 2020, 2025 and 2030, respectively.
3.2.8. Marketing Mix
The raw materials used for the production of paper packing materials are the cornerstones of
high quality final products. Accordingly, different mechanical/physical testing procedures has
to be performed on the incoming materials to insure the quality of the final products. The
tests include determination of ring crush resistance, flat crush resistance of lab-fluted
corrugating medium, bursting strength and determination of water absorption. Moreover, the
final products have to undergo many tests to prove that the transported goods are protected to
the maximum. The tests include drop, compression, stacking and vibration tests. Hence, the
quality control service of the envisaged plant requires a laboratory appropriate for conducting
tests on raw materials and final products.
Based on the data collected from end users the recommended factory gate price is shown
below.
 Corrugated paper box …………. Birr 25,935 per ton,
 Paper board……………………… Birr 27,800 per ton,
 Paper sacks and bags ……………. Birr 23,750 per ton,

18
For the envisaged project, its products are intermediate product used for packaging of various
products manufactured by other industries and the end users are few in number and their
geographical distributions is limited and are mostly located in or around major cities and
towns of the country. Accordingly, by taking the nature of the products and the characteristics
of the end users direct distribution to end users is selected as the most appropriate distribution
channel.
The envisaged factory is recommended to aggressively advertise its product by website page,
by media, distributing calendars, pamphlets as well as by participating in exhibitions and
bazaars. Moreover, in a competitive market, trade promotion should be made to persuade or
to make a product attractive for end users. Therefore, the envisaged factory is recommended
to offer discounts with the volume of product bought and credit for one to two weeks.

4. Product mix, Plant Capacity and Production Program

4.1. Product Mix
The market study has identified and proposed corrugated paper board, duplex paper board
and paper bag to the product mix of paper packaging materials to be produced by of the
envisaged plant. However most of the packaging industries that used the paper bag as an
input for their packaging material have conversion machinery that will convert the standard
paper for packaging to paper bags of different size according to the weight and type of
product mostly dry processed products. More over the value addition of the process is very
low relative to the corrugated paper board and duplex paper board. In view of this only
corrugated paper board and duplex paper board are proposed to be produced by the envisaged
plant.

4.2. Plant Capacity

For the capacity determination the demand projections worked current supply and cost of
investment accordingly both low and high estimate of the projections have been compared on
average with current and potential supply in the future.
Economic scale of corrugated paper board technology ranges from the 3500-4000 ton /year
for small scale, 8000-8500 ton/year for medium scale and 15000-16000 tone / year and above
for large scale of production.
So, considering projected demand and supply gab analysis in the market study and optimum
economic scale of operational technology the middle level of plant capacity 8000 tons/year
for paper board production and 500 ton/year for the duplex paper board is recommended for
envisaged plant working one shift and 300 days per year.

19
 4.3. Production Program
The envisaged plant will operate at 65% capacity utilization rate at first, 75 % at second year,
85% at the third year of production and followed by rich experience of technical, financial,
marketing and sales factors of the environment, the envisaged plant will operate at full
capacity utilization (100%) in the fourth year and then after.
5. Technical Study

5.1. Raw Materials and Inputs

The direct raw material of the envisaged plant for the corrugated board manufacturing
includes different grades of paper namely Kraft liner of different GSM [grams per square
meter] mainly from120 to 160 GSM, Tesliner of different GSM mainly from 112 to 170
GSM and Semi-chemical fluting/medium fluting of different GSM mainly from 105 to 150
GSM. Similarly the direct raw material for duplex board making is flat type duplex board at
different GSM mainly from 150 to 400 GSM depending on the customer order for packing
their product types.
Similarly some ingredients and additives are required in the production process which
includes materials used for gluing, printing and closure application in which the proportion of
those raw materials vary according to the designed quality of corrugated paper board and
employed in the process technology namely Corn Starch, Sodium borate, Caustic soda,
Stitching wire ,Vinavil glue, Printing ink Similarly for duplex paper board oil based printing
ink, are glue substance; chrome plated printing plate, plate developer, plywood and different
size steel rules.
In addition to direct raw materials and ingredients some auxiliary material inputs and factory
supplies are required which are to be consumed and used during intermediate operation of the
production process. These include packaging materials, oil and grease, maintenance
consumables.
The Sources of the major raw materials are both the local and foreign markets for the
corrugated paper board production. However Indonesia, and South Africa are viable for a
competitive price; and also it is advisable to form purchase contacts from local producers
namely from Wonji paper and pulp factory and from the newly established Indian investors
company located around Ambo town in which both of them recycle paper from used paper
boxes and other paper waste with some percentage mix of imported virgin pulp for the
production of semi-chemical fluting and test liner papers.

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 Table:2 Annual Raw & Auxiliaries Materials Required and Cost
No Item Standards Total Cost
1 Flute Medium 112 -127 g/m 2
2 Kraft Liner 170-180g/m2
3 Test Liner 160 -180 g/m2
4 Starch Corn starch
5 Glue Vinyl acetate
6 Ink Oil ink
7 Sodium borate, Caustic soda, Stitching wire,
Vinavil glue, Printing ink , oil based
printing ink, chrome plated printing plate,
plate developer, plywood, different size
steel rules, maintenance consumables, oil
and grease and packaging materials.
8 others
Total 42,476,400.00

5.2. Utility
Utilities are another important category of inputs required for the envisaged process, which
mainly includes electric power, compressed air, furnace oil, gasoil and water with different
consumption rate at different operational points of the process.
Basically, required important utilities cost is following the actual status of the country’s
decided cost of these services.
Accordingly, the annual utilities consumption for plant at full capacity operation is estimated
at about Birr 3,040,000.00 in local currency.
5.3. Location, Site and Environment
5.4. Location
In process of the project location selection, the Consultant has adopted two stage
selection processes for the envisaged plant. The first stage is the identification of
potential geographical locations based on the assessment of critical project requirements.
The second stage involved selection of the best location from the potential locations
identified using different selection criteria and as well as established rating scale.

Accordingly the candidate towns for industrial clustering program and their associated
planned industries by type and sector which are relatively associated with the
envisaged project are list below:

21
  Adama- packaging industry,
 Bishoftu - packaging industry,
 Dukem- printing industry,
 Bishoftu- printing industry,
 Sululta- printing industry,
Accordingly the candidate locations are evaluated generally with respect to the major
factors of the plant location determination and it is found that:
 Since the product is highly customer order based, corrugated board making plant must be
located near to the center where the markets are available. This implies the area where
high product consumers are located. It is also located along the main road and this
gives better opportunities to import the required inputs from abroad.

 The existence of well-established infrastructures such as telecommunication, electricity

and water supply contributes to smooth operation of the project. The environment of the
area is also proved to be appropriate to the project.
 On the other hand, it may be useful to recycle used paper boxes and other paper waste
into the production process and produce semi-chemical fluting and test liner papers. It is
advisable to think on the subject therefore the plant location should consider the
availability of enough area for the expansion.
The plant, therefore, has to identify initially the major beneficiaries and also check
the availability of the required space. In fact about 80% of the users are in and around
Addis Ababa especially in the east side of the city. Based on the above requirement of the
plant, the following town is proposed to be the alternative potential location of the plant:

As per the evaluation made on these alternative locations, Bishoftu town which is about 35
km south east of Addis Ababa on the road to Djibouti is found to be the most suitable one
followed by Bisheftu, Sululta, Dukem and Adama.

5.5. Site
Site is a plot of land within the selected location sufficient and suitable for installation
and operation of the plant. The project site is near the vicinity of Addis Ababa where
infrastructure facilities like supply of power, water, Road transport, Communication
services, banking etc. are better organized and available for smooth operation of the plant.
Moreover, almost all beneficiaries of the product are located in and around Addis Ababa
which is a short distance from the project site.
Future own raw material development is also farsighted in this project. For collecting

22
waste papers (damaged cartons and related products) from different industries for reusing
this waste paper and carton, therefore the plant location is also appropriate for collecting
the raw material.

5.5.1. Bishoftu Town

This project is to be implemented in Oromia Regional State Finfine Special Zone in the
Bishoftu Town administration. This is located at 25 km away from Addis Ababa in Southern
direction or between 7012’ 90 14’ N Latitudes and 38°32’ - 39°32’ E Longitudes and it sites
in the Southern direction, on the main road root to Djibouti. Bishoftu Town is one of the
fastest growing towns in the country due to its proximity to Finfine, favorable climate for
habitation, easy access to land both for investment and construction, and relative fulfillment
of different infrastructures for development. The proposed Project has 7,900 m2 of land
which is planned to be secured by leasing from the town Land Development and
Management Agency which is fixed by the Regional Government. The accessibility to
market, infrastructure and services, human resource as well as existence of institution are
among the most prominent- for starting the Business that generates growth and create gainful
employment to the residents. Moreover, the growth and development of the City is believed
to stimulate the rapid transformation of surrounding rural communities as well. The General
Advantages to Choose Bishoftu for the implementations of this Project is:-
Its proximity to Addis Ababa city administration with good scenery and weather
condition. Its proximity to services and facilities is such as transport facilities and utilities
electric power, water and telephone line.
The existence of conducive social and investment situations and increase number of private
investment in the area. Its accessibility and ease of future development are some of the
reasons behind selecting the area for the proposed project.
5. Technology and Engineering
Technology selected for the envisaged project for the production of corrugated paper board is
a C and B flute double board (5-layer) production process technology. The production output
is either single board or double board depending on the customer order.
The technology selection is mainly done based on international trained and the main products
required by the customers in the current development stage of the country. 99 % of the
manufacturers in Ethiopia needs C–flute single wall corrugated box or C&B combination
double wall corrugated box; therefore, the technology employed for manufacturing this
products is a double board production process technology with flexo graphic printing.

23
The manufacturing process of the project under consideration includes the fundamental
process namely, Corrugating, gluing and laminating ,Creasing and cutting, Printing Rotary
splitting, creasing and corner cutting , Stitching and Gluing.
Similarly duplex Paper board can be made on multi-ply paperboard machines and the higher
thicknesses are made by lamination machine which takes reels of board, usually up to six
reels in line, glue laminates them and cuts them into sheets at the end. The typical weight of
PE applied in this way is 15 g/m², in addition white lined folding boxboards and solid
bleached (white) boards can also be used as required. Depending on the quality required,
printing on the paper board is carried out on sheets by letter press, offset litho or flexo
followed by Cutting and creasing.
6.1. Machinery and Equipment

Based on the technology selected the investment costs of plant machinery and equipment’s is
estimated to be Birr 27,010,400.00 or [35.54%] out of which 86% required in foreign
currency. And the investment costs of plant utility equipment’s, tools and devices is
estimated to be Birr 10,412,000.00 [13.7%] out of which 87% is require in foreign currency.

Table: 3Machineryand Equipment Required and Cost

No. Description Cost (in Birr)
1 Corrugators Machine 27,010,400.00
2 Slitter/Scorer
3 Printer Machine
4 Rotary Slotter
5 Folding / Gluing Machine
6 Boiler (8 bar)
7 Forklift (5 tons)
8 Others
Sub-Total (F.O.B)
Freight, Insurance, Inland
Transport and Bank Charge etc.(25%FOB Price).
Total 27,010,400.00

6.2. Vehicle
The investment cost of transportation facilities for material handling and public transport
service is estimated to be Birr 3,800,000.00 [5%] required in local currency;

For the transportation of raw materials and finished products one mini truck will be procured.
For the project manager and administrative work one double cabin pick up (4WD), one Mini
Trucks and one Ambulance are purchased.

Table4: Cost of Vehicles

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 Description Quantity Rate Amount(Br.)
Pickup(4WD) 1,894,200.00 1,678,396.00
1
Service bus 803,140.80 803,140.80
1
Ambulance 1 1,318,363.20 1,318,363.20
Total 3,800,000.00
6.3. Office Equipment’s
The investment cost of plant office furniture and equipment’s is Birr 281,200.00 [0.37%] in
local currency.
Table: 5 Office Equipment’s
SN Description Measurement Qty. Unit cost in birr Total cost in Birr
1 Managerial tables Unit 5 2,600.00 13,000.00
2 Managerial chairs Unit 5 1,950.00 9,750.00
3 Office table with chair Unit 7 1,350.00 9,450.00
4 Secretarial table with chairs Unit 2 1,450.00 2,900.00
5 Computer with chairs Unit 12 16,000.00 192,000.00
6 Shelf Unit 12,081.00 12,081.00
7 Filing cabinets Unit 1 1,500.00 1,500.00
8 Guest chairs Unit 11,719.00
9 Fax & Telephone machine Unit 5 1,300.00 1,300.00
10 Carpet and Curtain LS 1 23,000.00
Total 281,200.00

7. Land use plan, Cost of Building and Construction

This envisaged plant requires land for factory block including space for corrugation process,
space for printing process, space for administrative & technical staffs, for raw material
storage, for finished item storage, for internal roads and path ways, greenery and utilities,
water circulation and adequate land for future expansion.
The total area of the envisaged paper packaging plant estimated to be is 10,000 m2 (1.00
hectare) with a length of 100 m and of 100 m width. Of the envisaged total area, the building
area including the main production area, administrative staff accommodation area, raw
materials storage area, finished items storage area all covers about 2758m2 or 27.58%
Generator, furnace house, guard house and water reservoir cover about 93 m2 or 0.93%.
Roads, parking areas and, walk ways account for 3220 m2 or 32.20 %. Open space accounts
for 1706 m2 or 17.06 %. The greenery accounts 2223 m2 or 22.23 %.
Accordingly, assuming a land lease cost of Birr 11birr per m2 the total land lease cost is
estimated at Birr 10,890,000 of which 10 % of the total or Birr 1 ,089,000 be paid in advance
and the remaining balance will be paid in equal installments.
The total estimated cost of the civil engineering works is Birr 18,696,000.00 [24.6%], of this
total amount Birr 11,892,525.6 or 63.61 % of the total is expected to be incurred for the

25
construction of Factory building including administrative & technical offices, raw material &
finished items storage.
7.1. Building and Civil work

To estimate the construction cost of buildings the prevailing contractors average unit cost of
the project area. Accordingly, building and construction cost is estimated as follows.
Table6: Land use plan; Cost of Building and Construction:

No Description Unit Qty. Rate Amount

1 Site clearing and leveling M2 10,000 40.58 402,871.00
2 Factory Buildings m.2 4000 3,095.40 18,039,077.60
3 Office building M2 600 3,095.40 1,773,835.00
4 Raw Material, Finished product M2 2,200
3,095.40 6,494,040.00
Store and showroom/Rig Metal/
5 Guardhouse.Shower and Toiler M2 60 3,095.40 180,390.00
6 Other supportive functions like Parking M2 3,140 ,
1,142,440.00
area, internal roads, Greenery area etc/
7 Fencing mL , ,
1,082,340.00
Ground Total 29,032,000.00

8. Organization Structure and Human Resource

The total personnel requirement of the plant is estimated to be 304 skilled, Semi-skilled and
unskilled. The project will have employees with an initial total annual salary of about Birr
5,179,500.00. The factory management should arrange for on job training with the machinery
suppliers before and during the installation & commissioning of the machineries at the
premises of the supplier for about one month.
However it should be emphasized that training should be viewed as ongoing activity of the
factory and not just one-time affair. Accordingly the estimated training cost is summarized to
be birr 165,250.00, similarly legal recruitment of employee demands coverage of some
employees’ benefits such as pension contribution, medical allowance, and employee
insurance that are protected by the local labor law. Accordingly the estimated employees
annual benefit cost is summarized to be birr 617,250.00.

Table: 7 Human Resources Requirement and Labor Costs (in BIRR)

26
 No. Position Held No. Monthly Monthly Annual
1 Manager 1 10,000.00 10,000.00 120,000.00
2 Secretary 3 3,000.00 3,000.00 108,000.00
3 Administration and Finance Head 1 6,000.00 6,000.00 72,000.00
4 Commercial Head 1 5,000.00 5,000.00 60,000.00
5 Technical Head 1 8,000.00 8,000.00 96,000.00
6 Production Head 1 7,000.00 7,000.00 84,000.00
7 Clerk 10 2,000.00 2,000.00 24,000.00
8 Messenger and Cleaner 6 800.00 4,800.00 57,600.00
9 Guard 6 1,000.00 6,000.00 72,000.00
10 Production supervisor 3 5,000.00 15,000.00 180,000.00
11 Technicians 4 4,000.00 16,000.00 192,000.00
12 Operators 12 2,500.00 5,000.00 360,000.00
13 Assistant Operators 5 2,000.00 10,000.00 120,000.00
14 Mechanics and electricians 4 2,500.00 10,000.00 120,000.00
15 General Services 3 2,500.00 7,500.00 90,000.00
16 Personnel 1 2,500.00 2,500.00 30,000.00
17 Store Head 1 2,000.00 2,000.00 24,000.00
18 Cashier 1 2,000.00 2,000.00 24,000.00
19 Skilled labor 62 1000.00 62,000 744,000.00
20 Un skilled labor 145 900.00 130,500 1,566,000.00
Subtotal 4,143,600.00
Workers Benefit (25%) 1,035,900.00
Total 304 5,179,500.00

9. Project Implementation Schedule

The project implementation schedule covers the activities starting from the project evaluation
and approval up to and including the trial-run and commissioning. It is envisaged that the
complete implementation program requires a total of 18 months starting from the project
approval. The implementation cost of the envisaged project comprises project office running
and follow-up expenses, erection and commissioning costs.
Project implementation costs include project follow up and office running cost, cost of
design, manufacturing, and erection and commissioning of the plant, and cost of design and
supervision of building and civil works of the plant. The total cost implementation including
project follow up and office running cost, cost of stationery and communication, cost of
design, manufacturing, erection, and commissioning estimated to be Birr 1,231,200.00 in
local currency.
10. Financial and Economic Analysis

27
The financial analysis of the project (benefits and costs) is computed over seventeen years
assuming 18 months implementation period and 15 years of operation. In addition
depreciation and amortization, customs duty and income tax, repair and maintenance costs,
terminal (salvage) values well as working capital have been worked out based on the existing
laws of the country and standard assumptions. Accordingly, the major findings of the
financial analyses are given below.
The total investment cost of the project is estimated at Birr 76,000,000.00. From the total
investment cost the highest share (Birr 65,018,000.00 or 85.55%) is accounted by fixed
investment cost followed by initial working capital ((Birr 10,982,000.00 or 14.45%). and pre
operation cost (Birr 6,698,482.00 or 11.14%). The total annual cost of production and
revenue at 100% capacity utilization (year 4) is estimated at Birr 76.42 million and Birr 95.75
million respectively.
The project will generate a profit throughout its operation life. Annual net profit after tax will
increase from 7,600,000 during first year of operation to Birr 19,000,000.00 during the last
year of the project life.

The projected cash flow of the envisaged project shows that the project would generate
positive net cash flows throughout the operation years. Based on a 10% discount rate the
Internal Rate of Return (IRR) and Net Present Value (NPV) are computed to be 26.53% and
Birr 78,280,000.00 respectively, indicating the viability of the project.
The initial investment cost of the project will be fully recovered within six years, which is a
reasonably short period of time. Other measures of profitability net profit as a % of sales
revenue, net profit to equity and net profit to total investment are also attractive.
The efficiency ratios like current assets to current liabilities and net cash flow to sales
calculated from the balance sheet show that the project is highly liquid with sound financial
performance. The breakeven point for sales and capacity utilization is computed at Birr
34,200,000.00 and 47% which are reasonable. Moreover, the sensitivity analysis carried out
indicates that the project could be viable at adverse conditions i.e. either a decrease of 16% in
sales price or increase of 22% in production cost or an increase of 40% in investment cost. In
addition to its financial viability the project has a number of economic and social benefits.
The establishment of the project has a foreign exchange saving effect to the economy.

Moreover, as a profitable venture it will contribute to the increase of Regional and Federal
government revenue through corporate, payroll and other taxes. The project will create direct
employment opportunities for about 304 persons. Furthermore, it creates conducive

28
environment for the rapid growth of service and trade sectors around the project site which in
turn create employment opportunity for a substantial number of persons.
Moreover, the project will also create forward linkage with the manufacturing sector.
Table 8: Summery of Fixed Costs

Item No. Description Estimated Cost(Br)

1 Building and construction 29,032,000 .00
2 Machinery and equipments 27,010,400.00
3 Vehicle .
3,800,000.00
Total = 59,842,400.00

Table 9: Repair and Maintenance

Item No. Description Cost estimate/year
% Value
1 Building and construction 2 580,640.00
2 Machinery and equipment 3 810,312.00
Vehicle 5 190,000.00
Total - = 1,580,952.00

10.1. Production Costs of the Project

Production cost of the project includes direct production cost and overhead or
administrative costs. The major cost items under this include salary of employee; cost of raw
materials and utilities, repair and maintenance, office supplies its medical and other
miscellaneous expenses.
The total annual cost of production and revenue at 100% capacity utilization (year 4) is
estimated at Birr 76.42 million and Birr 95.75 million respectively.
10.2. Project Capital and Financing of the Project
10.2.1. Project Capital
The total investment capital of the project is estimated at birr 76,000,000.00 of which birr
59,842,400.00 is for fixed investment items while the remaining balance of birr
16,157,600.00 will be initial working capital. The details are given below.

Table 10: Investment capital

29
 Item No. Description Amount(Birr)
1 Building&:construction 29,032,000.00

2
Machinery and equipment’s 27,010,400.00
3 Vehicle
3,800,000.00
4 Salary 5,179,500.00
Subtotal 65,021,900.00
Initial working capital
10,978,100.00
Grand Total 76,000,000.00

10.2.2. Source of Finance

The total investment capital of the project is to be financed from the promoter’s equity and
bank loan. Out of the Total capital birr 76,000,000.00 among this 22,800,000.00 (30%) is
contributed by the promoter, while the remaining balance of birr 53,200,000.00 (70%) is to
be financed by local banks. The bank loan will be repaid based on the following terms and
conditions.
 Loan amount = birr 53,200,000.00
o Installment period/term = 5 years
o Interest on loan (including service charge) = 9.5%
Table11: Loan Repayment Schedule
Year Principal Repayment Interest Payment Year ending Balance
0 , , 53,200,000.00
1 10,640,000.00 5,320,000.00 42,560,000.00
2 10,640,000.00 4,256,000.00 31,920,000.00
3 10,640,000.00 3,192,000.00 21,280,000.00
4 10,640,000.00 2,128,000.00 10,640,000.00
5 10,640,000.00 1,064,000.00 .
Total 42,091,000.00 15,960,000.00 ,

10.3. Depreciation of Taxed Investment Items

The straight line method has been used to depreciate/amortize all fixed items of the project.
The depreciation rate applied for all fixed assets as given below.

Table12: Depreciation Schedule

30
 Item No. Description Original Value Annual depreciation
% Amount (Br)
1 Building &: construction 29,032,000.00 5 1,451,600.00
2 Machinery&: equipment s 27,010,400.00 10 2,701,040.00
3 Vehicle 3,800,000.00 10 380,000.00
Total 4,532,640.00

10.4. Revenue Estimate

The revenue of the project is generated from sales of the product supplied to local and export
markets. Moreover, the revenue of the project will be based on the production capacity
explained above. i.e. 75% the first year, 85% the second year and 100% from 3rd year and
after. The project is proposed to supplies its product (100%) to domestic markets. The total
revenue generated at full capacity (100%) is expected to be 95.75 million Birr.
Accordingly, the total annual cost of production and revenue at 100% capacity utilization (year 4)
is estimated at Birr 76.42 million and Birr 95.75 million respectively.
11. FI NANCIAL EVALUATION
11.1. 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
(Return on equity) and net profit plus interest on total investment (return on total investment)
show an increasing trend during the life time of the project .

11.2. Brea k-even Analysis

The breakeven point of the project including cost of finance when it starts to operate at full
capacity (year) is estimated by using income statement projection. The breakeven point for
sales and capacity utilization is computed at Birr 35,720,000.00 and 47% which are
reasonable.
11.3. Pay Back Period
The investment cost and income statement projection are used to project the payback period.
The project's initial investment will be fully recovered within 5 years.
11.4. Cost Benefit Analysis
Additional facts or assumptions and Opportunity cost: is Benefit forgone on resources
earmarked for equity finance of the corrugated paper packaging processing plant. 9.5% rate is
applied on proportionate value of around Br. 7.2 million.
Forgone rental expense is the cost that would have been paid had the company continue to

31
use rental facilities.

11.5. Risk- Assessment

Rent buy (own) decision are also taken based on a risk management assessment even though
the cost benefit analysis doesn't justify acquiring situations taken in to account while
considering this method are: whether the process/ facility is critical to overall operation of the
business and required now and then.
11.6. Economic and Social Benefits
The project can create employment for 304 persons. The project will contribute to the
government's coffer in the form of tax commencing year court. The establishment of such
factory will have a foreign exchange saving and earning effect to the country by substituting
the current imports and exporting its products to the international market. The project will
also create backward linkage with the agricultural sector and forward linkage with the hotel
and tourism sector and also generates income for the government in terms of payroll tax.

11.7. Internal Rate of Return

The internal rate of return (IRR) is the annualized effective compounded return rate that can
be earned on the invested capital, i.e., the yield on the investment. Put another way, the
internal rate of return for an investment is the discount rate that makes the net present value
of the investment's income stream total to zero. It is an indicator of the efficiency or quality
of an investment. A project is a good investment proposition if its IRR is greater than the rate
of return that could be earned by alternate investments or putting the money in a bank
account. Accordingly, the IRR of this project is computed to be 26.53% indicating the
viability of the project.
11.8. Net Present Value
Net present value (NPV) is defined as the total present (discounted) value of a time series of
cash flows. NPV aggregates cash flows that occur during different periods of time during the
life of a project in to a common measuring unit i.e. present value. It is a standard method for
using the time value of money to appraise long-term projects. NPV is an indicator of how
much value an investment or project adds to the capital invested. In principle, a project is
accepted if the NPV is non-negative.
Accordingly, the net present value of the project at 10% discount rate is found to be Birr
78,280,000.00 which is acceptable.
12. Economic and Social Benefits

32
 12.1. Environmental Impact Analysis
In general in paper packaging environment solid waste could consist of the following, scrap
paper produced, at end cutter of board making process at flap cutter of printing process and at
die cutting process of packet production. In addition to scrap papers damaged products, bad
printing or spoilage, outdated materials, damaged plates and test production are the main
source of solid wastes.
Wastewaters from paper packaging production operations may contain waste ink, cleanup
solvents, photographic chemicals, acids, alkaline and plate coatings, and glue waste during
single facer cleaning and glue preparation. Printing operations in packaging industries
produce volatile organic compound (VOC) emissions from the use of cleaning solvents and
inks as well as alcohols and other wetting agents.
Generally the envisaged plant is a typical medium level environmental friendly process that
discharges insignificant waste in solid and gaseous form and investments on environment as
well as environmental management system are recommended with the necessary operating
and overhead costs to manage and comply with both national and international standards.
13. Monitoring and Evaluation
13.1. Monitoring
With support of executive bodies and decisions in line with agreed up on project as well as
guidelines between stakeholder bodies and the project owner. The project owner shall
monitor all activities [Land request processing, Land approval, Bank loan processing, Site
Development, Building and construction work, Preparation for service and service execution]
required to make the process of the project from beginning to end and deliver required
commercial service efficiently and effectively.
13.2. Evaluation
The project promoter evaluates the on-going process of the project at each phase of
implementation. Even if joint evaluation conducted at the end of the project, the engineering
estimation of bill of quantity is the basic tool of project success evaluation. This evaluation
will be based on the agreed upon project document.

33