I.

FEASIBILITY STUDY FOR THE ESTABLISHMENT OF COFFEE

PROCESSING PLANT

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I. EXECUTIVE SUMMARY

1.1 Introduction
The Ministry of Industry (MOI) has commissioned Industrial Project Service (IPS) to prepare
a Feasibility Study for the Establishment of Coffee Processing (value adding) Plant. As per
the agreement between the two parties a Draft Report on Feasibility Study for the
Establishment of Coffee Processing Plant was submitted by IPS earlier. This Final Report is,
hence, prepared by IPS incorporating the comments of MOI and other stakeholders on the
Draft Report.

1.2 Analysis of the Business Environment and Incentives for Investors

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 broad-based economic growth is expected to continue under
GTP II. 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 agro processing 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
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. Moreover,
the strategic location of the country, which is near to the Middle East and Europe, has an
advantage in international trade. As part of the support provided by the government to the
agricultural sector, accesses to productive inputs, such as hybrid seed and fertilizer has been
expanded. The government has also established the Ethiopian Commodity Exchange (ECX),
which is a marketing institution established for creating and running the Ethiopian
commodity market in a transparent, fair and sustainable manner that would benefit all the

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actors in the value chain and the country at large. Accordingly, it can be concluded that
Ethiopia is ideal for investment.

1.1 Market Study

1.2.1 Product Description and Application

In this study the value added coffee products considered include:-

The description of each product is given hereunder.

Green Decaffeinated Coffee
The caffeine is extracted and removed while the coffee is in green raw form by using water
and/or chemicals to reduce the caffeine content to as low as 0.1% to 0.2%.
Roasted Coffee
Green Coffee is roasted at by action of heat (roasting) to develop characteristic flavor and
aroma and packed and supplied to market.
Roasted Ground Coffee
The Roasted Ground Coffee product is prepared by grinding and packing roasted coffee for
house hold consumption as well as for commercial centres like hotels and restaurants.
Liquid Coffee Extract
The Liquid Coffee Concentrate extracted from regular or decaffeinated coffee for house hold
consumption or industrial consumption purpose.
Instant Coffee
Instant Coffee is produced in two forms (spray dried agglomerated and freeze dried) based on
the type of production processes employed. The instant coffee product dissolves instantly in
hot water during consumption.

1.2.2 Local Market

a) Overview of the Performance of the Local Coffee Sub Sector

Ethiopia is endowed with a good production environment for growing coffee with a
combination of appropriate altitude, temperature, rainfall, soil type and pH. Ethiopia is the
center of origin for Coffee Arabica. The country possesses a diverse genetic base for Arabica
coffee with considerable heterogeneity. Ethiopia produces a range of distinctive Arabica
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coffees and has considerable potential to produce number of specialty coffees. There are four
types of production systems in Ethiopia, forest coffee, semi- forest coffee, garden coffee and
plantation coffee. During the period 2004—2013, the land area cropped by coffee shows a
significant growth; increasing from 232,439 hectare to 528,751 hectares, registering an
average annual growth rate of 10.17%. Local production of coffee also exhibits a substantial
growth increasing from 225,362 tons in year 2001 to 373,941 in the year 2012, registering an
average annual growth rate of 5.44%. During the period 2000-2013, the maximum export of
coffee from Ethiopia was 211,981 tons in 2010, while the minimum was 89,220 tons in 2001;
however during the period under consideration, on average, the country was exporting about
155,785 tons of coffee per annum. During the period under consideration (2000-2013), export
of coffee has registered an average annual growth rate of 6.25%.
In terms of value, export of coffee has increased from Birr 2.09 billion in 2000 to Birr 11.39
billion in 2013, registering an average annual growth rate of 20.39%.
Although coffee is still the dominant foreign exchange earner to the Ethiopian economy,
considering the unique natural endowment and the special varieties of coffee produced in the
country, which are highly valued by importing countries, it can be concluded that the country
is not benefiting from its coffee resource potential. For example, during the period 2009-
2013, the average unit value of coffee exported by Switzerland is higher by nearly 10 fold as
compared to the average unit value of coffee exported from Ethiopia. In fact, West European
countries are not producers of coffee but they have specialized in import of the green coffee
from developing countries where the resource is available and then processing the product
(value adding) and re-exporting. Accordingly, in order to fully exploit the country‘s coffee
resource potential, developing local value addition capability is indispensable.

b) Past Supply Trend

The local demand for roasted and milled coffee is supplied through local production and
import. On the other hand the local market for decaffeinated coffee; extracts and concentrates
of coffee and soluble or instant coffee is largely met through import. The finding on the trend
in the past supply of the products under consideration is summarized below.
1) Decaffeinated Green Coffee
Ethiopia produces a small amount of decaffeinated green coffee; which is exclusively targeted
at export market. On the other hand, the country imports insignificant amount of the product.
During the period 2002—2007, the average annual import was about 1.47 tons valued at Birr
29,997. However, during the recent six years (2008--2013), import of decaffeinated green
coffee has increased to7.15 tons in average per annum; valued at Birr 794,335.

2) Roasted and Milled Coffee

Roasted and Milled Coffee not Decaffeinated: The apparent consumption or total supply of
not decaffeinated, roasted and milled coffee consists of local production plus import minus
export. Local production of not decaffeinated, roasted and milled coffee, excluding year
2006, which is exceptionally high, exhibits two distinct trends. During 2000--2008 local
production, except for years 2003 and 2004, has shown a year to year growth increasing from
only 28 tons in 2000 to 2,767 tons in 2008. Beginning from 2009, local production exhibits a
declining trend. However, the volume of local production in the recent seven years (2007--
2013) is much higher than the volume of production during the initial years (2000-2005).
During the period 2000--2005, the average annual local production was 237 tons, which has
increased to an average annual of 1,746 tons during the period 2007--2013. Hence, between
the two periods local production has increased by more than seven folds. Import of not
decaffeinated, roasted and milled coffee fluctuates from year to year without any noticeable
trend. Import ranges from 1.78 tons in 2000 to 94.45 tons in 2007. Nevertheless, when
average import of the product during the initial seven years (2000--2006) is compared with
the average import of the subsequently seven years a growth in import can be noticed. The
average annual import during the initial period was 5.43 tons, which has increased to an
annual average of 40.13 tons during the period 2007--2013. Since the great majority of the
local demand for not decaffeinated, roasted and milled coffee is met through local production
(accounting on average for 98.93% of the total supply during the period 2000--2013, total
supply or apparent consumption of the product exhibits similar trend to local production, i.e.
an increasing and decreasing trend during the periods 2000--2008 and 2009--2013,
respectively, in terms of year to year growth but yet a much higher volume of supply during
the recent period as compared to the initial period.
Decaffeinated, Roasted and Milled Coffee: The country imports a small quantity of
decaffeinated, roasted and milled coffee. During the period 2000—2013, the maximum
import was 28.29 tons in 2010 valued at Birr 1.83 million, while the minimum was 0.01 tons
in 2004 valued at Birr 802. During the period 2000--2013 on average, the country has
imported 4.03 tons of decaffeinated, roasted and milled coffee valued at Birr 242,555.
However, if only the recent four years (2010--2013) are considered the average annual import
increased to 10.06 tons.

3) Instant Coffee
During the period 2000--2013 on average, the country has imported 6.17 tons of instant
coffee valued at Birr 324,573 annually. Import of the product fluctuates from year to year,
however, a general growth can be observed. For example, if only the recent five years (2009--
2013) are considered, the average annual import will increases to 10.68 tons and Birr 744,918
in terms of volume and value, respectively.
4) Coffee Extracts and Concentrates
The local demand for coffee extracts and concentrates is met through import. During the
period 2000--2013 on average, the country has imported 7.28 tons of coffee extracts and
concentrates valued at Birr 213,921. However, if only the recent four years (2010--2013) are
considered, the average annual import increased to 12.31 tons valued at Birr 391,992.
c) Present Effective Local Demand

In order to estimate the current effective local demand for value added coffee products in
Ethiopia, the following methods were applied:

- parameter double exponential smoothing; and

Based on the results of test statistics for decaffeinated green coffee, roasted and milled coffee
(not decaffeinated) and instant coffee, the forecast based on Holt‘s two parameter method and
for roasted and milled coffee (decaffeinated) and coffee extracts and concentrates the
forecasts based on time trend extrapolation are found to be the most appropriate. Accordingly,
the estimated present effective domestic demand for each product is given below.

o Not decaffeinated……………..2,977.00 ton ,

o Decaffeinated………………….…10.73 ton,

d) 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 the
product under consideration are:

population; and

d development level of the hotel industry.

Accordingly, a thorough assessment of the current status and future prospect of these factors
indicates that there is a progressively growing local demand for value added coffee products.

e) Demand Projection
Urbanization and income are found to be the major determinants of the future demand for
value added coffee products. Hence, a growth rate of 5%, which is slightly higher than the
urban population growth rate and much lower than income growth rate, is taken to forecast
the future demand. Accordingly, the local demand for decaffeinated green coffee is projected
to increase from 10.24 tons in 2015 to 13.07 tons and 16.69 tons by the years 2020 and 2025,
respectively. Moreover, by year 2030 the demand is projected to reach at 21.30 tons. The
local demand for non decaffeinated roasted and milled coffee is projected to increase from
3,126 tons in 2015 to 3,990 tons, 5,092 tons and 6,499 tons by the years 2020, 2025 and 2030
respectively. Likewise, the demand for decaffeinated roasted and milled coffee is projected to
increase from 11.27 tons in 2015 to 14.38 tons, 18.36 tons and 23.43 tons by the years 2020,
2025 and 2030, respectively. The local demand for instant coffee is projected to increase from
13.17 tons in 2015 to 16.81 tons and 21.46 tons by the years 2020 and 2025 respectively.
Moreover, by year 2030 the demand is projected to reach 27.39 tons. Similarly, the local
demand for coffee extracts and consecrates is projected to increase from 12.12 tons in 2015 to
15.46 tons, 19.73 tons and 25.19 tons by the years 2020, 2025 and 2030, respectively.

1.2.3 Export Market

a) Trend in Global Import and Export

1) Green Coffee
During the period 2008-2012, global production of coffee has increased from 7.71 million
tons to 9 million tons. The major coffee producers in the world are Brazil on average
accounting for 37% of the total world production followed by Vietnam (15%), Indonesia
(7%) and Columbia (6%). Ethiopia is ranked fifth with an average share of 4%. Global total
export of coffee (in all forms), during the period 2004--2013, has increased from 5.7 million
tons valued at 9.17 billion USD to 8.18 million tons valued at 28.61 billion USD, registering
an average annual growth rate of about 4.15% and 15.27% in terms of volume and value,
respectively. During the period 2004--2013, Brazil followed by Vietnam, Colombia and
Germany were the leading exporters of coffee.
2) Decaffeinated Green Coffee
Global export of decaffeinated green coffee has increased from 168,058 tons in 2004 valued
at USD 347.93 million to 240,447 tons in 2013 valued at Birr 914.16 million, registering an
average annual growth rate of 4.37% and 13.82% in terms of volume and value, respectively.
Germany followed by Mexico, Spain, Canada and France are the leading decaffeinated green
coffee exporters. USA is the leading importer of decaffeinated green coffee. During the
period 2004—2013, USA on average, accounts for 58.91% of the total global import of
decaffeinated green coffee. The other major importers of the product include: Spain, Italy and
Belgium.

3) Roasted and Milled Coffee

During the period 2004—2013, global export of roasted and milled coffee (both non-
decaffeinated and decaffeinated) exhibits a consistent year to year growth, increasing from
473,861 tons valued at USD 2 billion to 909,072 tons valued at USD 9.26 billion, registering
an average annual growth rate of 7.60% and 19.25% in terms of volume and value,
respectively. From the total global export of roasted and milled coffee, on average, the great
majority, i.e. 95.06% and 93.37% in terms of volume and value, respectively is accounted by
non-decaffeinated roasted and milled coffee. Germany, Italy and USA are the leading
exporters of non- decaffeinated roasted and milled coffee while Germany, Italy and Canada
are the leading exporters of decaffeinated roasted and milled coffee. France followed by
Canada, Germany, USA, Netherlands and Austria are the leading importers of non
decaffeinated roasted and milled coffee. Regarding decaffeinated roasted and milled coffee

the leading importers were USA, Canada and France. The other important importers include
Spain, Belgium and Netherlands.

4) Instant Coffee

During the period 2004--2013 global export of instant coffee, though slightly fluctuate in
some years, exhibits a general growth, increasing from 372,031 tons to 740,104 tons in terms
of volume and from USD 2.09 billion to USD 5.22 billion in terms of value, registering an
average annual growth rate of 8.43% and 11.35% in terms of volume and value, respectively.
Brazil, Germany and India are the leading exporters of instant coffee. During the same period
Tunisia, Spain, Indonesia Singapore, UK and Malaysia were also major exporters of instant
coffee. During the period 2004--2013, on average from the total global import of instant
coffee the highest share is accounted by Russia, USA, Germany and UK. The other important
importers of instant coffee include Libya, Philippines, Ukraine, Poland and Japan.

5) Coffee Concentrate and Extract

During the period 2004--2013, global export of coffee concentrates and extracts has increased
from 147,461 tons valued at USD 428.77 million to 325,044 tons valued at USD 1.52 billion,
registering an average annual growth rate of 9.90% and 16.09% in terms of volume and value
respectively. During the same period Thailand was the leading coffee concentrates and
extracts exporter followed by Malaysia, USA, China, South Korea and Hungary. b) Present
and Projected Global Demand The present (2014) global demand for decaffeinated green
coffee is estimated at 250,955 tons, which is projected to reach at 324,376 tons and 401,724
tons in years 2020 and 2025, respectively. Moreover, by year 2030 the global demand is
projected to reach at 497,515 tons. The present global demand for non decaffeinated roasted
and milled coffee is estimated at 939,462 tons. The global demand for non decaffeinated
roasted and milled coffee is projected to increase from 1.47 million tons in 2020 to 2.15
million tons and 3.13 million tons by the years 2025 and 2030, respectively. Likewise, the
global demand for decaffeinated roasted and milled coffee is projected to increase from the
present 39,247 tons to 48,947 tons, 58,840 tons and 70,731 tons by the years 2020, 2025 and
2030, respectively. The present (2014) global demand for instant coffee is estimated at
802,495 tons, which is projected to reach 1.3 million tons and 1.95 million tons in years 2020
and 2025 respectively. Moreover, by year 2030 the global demand is projected to reach 2.92
million tons. Similarly, the global demand for coffee extracts and consecrates is projected to

increase from the present 357,223 tons to 629,399 tons, one million tons and 1.61 million
tons by the years 2020, 2025 and 2030, respectively.
c) Estimated Market Share for Locally Produced Value Added Coffee Products The
present (2014) export demand for locally produced decaffeinated green coffee is estimated at
2,150 tons, which is projected to reach 3,244 tons and 4,017 tons in years 2020 and 2025
respectively. Moreover, by year 2030 the global demand for Ethiopian decaffeinated green
coffee is projected to reach 4,975 tons. The present export demand for locally produced non
decaffeinated roasted and milled coffee is estimated at 9,395 tons. The export demand for
locally produced non decaffeinated roasted and milled coffee is projected to increase from
14,768 tons in 2020 to 21,529 tons and 31,384 tons by the years 2025 and 2030 respectively.
Likewise, the export demand for locally produced decaffeinated roasted and milled coffee is
projected to increase from the present 392 tons in the to 489 tons, 588 tons and 707 tons by
the years 2020, 2025 and 2030, respectively. The present (2014) export demand for locally
produced instant coffee is estimated at 8,025 tons, which is projected to reach 13,042 tons and
19,547 tons in years 2020 and 2025 respectively. Moreover, by year 2030 the export demand
for instant coffee produced locally is projected to reach 29,298 tons. Similarly, export demand
for locally produced coffee extracts and consecrates is projected to increase from the present
3,572 tons to 6,294 tons, 10,091 tons and 16,177 tons by the years 2020, 2025 and 2030,
respectively.
d) Total Projected Demand (Local Plus Export)
The total demand for locally produced decaffeinated green coffee is projected to increase
from 2,629 tons in 2015 to 3,257 tons and 4,034 tons by the years 2020 and 2025
respectively. Moreover, by year 2030 the total demand is projected to reach 4,996 tons. The
total demand for locally produced non decaffeinated roasted and milled coffee is projected to
increase from 13,256 tons in 2015 to 18,758 tons, 26,621 tons and 37,883 tons by the years
2020, 2025 and 2030, respectively. Likewise, the total demand for decaffeinated roasted and
milled coffee is projected to increase from 418 tons in 2015 to 503 tons, 606 tons and 730
tons by the years 2020, 2025 and 2030, respectively. The total demand for locally produced
instant coffee is projected to increase from 8,714 tons in 2015 to 13,059 tons and 19,568 tons
by the years 2020 and 2025, respectively. Moreover, by year 2030 the demand is projected to
reach 29,325 tons. Similarly, the total demand for locally produced coffee extracts and
consecrates is projected to increase from 3,938 tons in 2015 to 6,309 tons, 10,111 tons and
16,202 tons by the years 2020, 2025 and 2030, respectively.

e) Marketing Mix

Product quality is one of the basic and most important marketing mixes that affect the success
of a product. The quality of value added coffee products is mainly dependent on the quality
of the raw material used. Accordingly, in order to insure the quality of the incoming raw
material the envisaged project needs to set up an effective raw material quality control
mechanism. Achieving this form of quality control requires the establishment of a test
laboratory. Moreover, the quality of value added coffee products should be assessed at
various points throughout the manufacturing process.
EU markets and the USA market demand a severe quality control. Implementation of
HACCP and tracking & tracing is necessary for access to these markets. The EU has also set
legal requirements for coffee extracts. The legislation mainly relates to the composition and
characteristics of coffee extracts. Coffee extracts that do not comply will be rejected from the
EU market. Moreover, in the global market for value added coffee taste is important but there
is also growing interest in the conditions in which products were made. Hence, product
quality has increasingly begun to include criteria related to environmental and socio-
economic sustainability. This request can be clearly identified by looking at market trends in
Western countries. There are several organizations that are promoting fair trade. Accordingly,
getting certified by such institution is also important. Roasted and ground coffee may be
packaged in several different formats to achieve the technical objectives of protecting against
oxidation, moisture gain, and aroma loss. Although vacuum steel cans have been traditional
used, flexible laminated packing materials have gained some favor due to better economics.
The disadvantages of flexible laminated packing materials i.e. absence of re-closure, may be
overcome by combining a re-closable injection-molded polypropylene lid to offer a re-
closable canister. Instant coffee has long been packaged in metal cans. However, recently,
PET in conjunction with aluminum foil and metalizing has taken a substantial portion of the
instant coffee-packaging market. Other types of packaging material recently developed
include three-ply foil-based bags. The multi-laminate of the packaging material is made up of
polyester and foil while the seal is made from polyethylene. Based on the assessment of the
trend in the global price of the products under consideration, the recommended factory gate
price is shown below.

o Not decaffeinated………………….Birr 168,461/ton.

o Decaffeinated………………………Birr 192,176/ton.

Due to the very high upfront branding investment required for advertisement and promotion,
for a new entrant from developing country like Ethiopia, attempting to penetrate the market
for value added coffee products in developed countries own brand will not be realistic.
Accordingly, the alternative for manufacturers from developing counties is supplying product
for:

However, if the envisaged project decides to develop own brand, agents or distributors are
required in each major consumption market. The envisaged project should consider
exhibiting at relevant international coffee expos in order to establish contacts with buyers or
to investigate the possibility of securing a business arrangement with a suitable importing and
distribution company or broke. The envisaged project is also recommended to develop a
website. Since, a well designed website can help the envisaged projects‘ export venture in
many ways, from promotion to customer service. The envisaged project should also advertise
in international magazines specialized in coffee such as Tea and Coffee Trade Journal, Fresh
Cup, Coffee Universe, Coffee Bean and Coffee Explorer.
1.2.4 Plant Capacity and Production Program
Based on analysis of market demand project for different coffee value added products,
availability and supply of material and inputs and technology the proposed annual production
of the plant is:
– 2,000 tons/year;

Coffee (out of which 10% decaffeinated) – 5,400 tons/year ;

– 1,800 tons/year;

– 1,875 tons/year;
 ut of which 10% decaffeinated) – 1,875 tons/year;
and - 1,300 tons/year.

The Proposed production program the plant is to start production at 70% of the production
program during the first year of production, increase it to 85% during the second year and
finally reach 100% at the third year of operation of the plant.

1.2 Technical Study

1.2.5 Materials and Inputs

The main raw material for coffee processing plant is pre-cleaned green coffee. The major
producing regions are Oromia and the four Centeral and south Region of the country. The
plant receives pre-cleaned green coffee from cooperatives of primary producers. The pre-
cleaned coffee is processed in to value added products to be exported and consumed locally.
The annual plant green coffee consumption is 28,439.57 tons of un-cleaned coffee. The unite
price of un-cleaned coffee is Birr 103,125.00 (One hundred three thousand one hundred
twenty five Birr) and the total annual raw material cost of the coffee processing plant is Birr
2,932,830,446.60 (Two billion nine hundred thirty two thousand four hundred forty six Birr
and sixty cents). The auxiliary materials required by the plant are chemicals used for coffee
decaffeination process and packaging materials. The other inputs of the plant are electricity,
water and lubricant oils. The annual packaging material is Birr 16,139,000. The utilities used
by the envisaged plant is electricity, cost of utility is Birr 71,097,478.00 (Seventy one
thousand ninety seventy thousand four hundred seventy eighty), out of which USD 29,661.58
(Twenty nine thousand six hundred sixty one USD and fifty eight cents).

1.2.6 Location, Site and Environment

Location of the envisaged Integrated Coffee Processing Plant is selected based on a two stage
location and site selection procedures. The first stage involved identifying potential project
locations, and prioritizing and selection of appropriate one based on critical project selection
criteria. The project location determining factors considered in the study are supply of raw
materials and inputs, access to market, availability of skilled and unskilled labor,
infrastructure such as road, electricity and telephone line, availabilities of social amenities –
hospitals, schools, training centres and residence housing , etc. The second stage of project
location and site selection procedure involved – identifying alternative project locations
within the selected project location and selection of the optimum project site from the
proposed sites. Accordingly, the country is divided in to three regions based on source and

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supply of green coffee and Addis Ababa town and the surrounding towns is included as fourth
region due to its location - a market centre for all three regions. These four regions are
considered as potential project. Then different weights are assigned to the project selection to
compare the proposed locations. Accordingly, from the four proposed potential location
candidates Addis Ababa and its surrounding towns was selected as an optimal project site.
Then, alternative project sites were identified from Addis Ababa town and the surrounding
Oromia towns. The proposed candidate project sites were Bole Lemi and Qilinto Industrial
Zones from Addis Ababa region, Gelan, Dukkam, Burayyu, Sululta, and Lega Tafo from the
Oromia town surrounding Addis Ababa. Finally, Galan town was selected as the appropriate
project site for establishment of the integrated coffee processing plant project.

1.2.7 Technology and Engineering

The major process of value added coffee processing plants are: coffee cleaning, roasting,
grinding, coffee extract and instant coffee processing. Accordingly, the major technology and
machinery required for the envisaged plant is coffee pre-cleaning and storage, coffee roasting
and grinding, coffee extraction and instant coffee plant and utility equipment. The total cost
of process plant machinery and equipment including utility equipment, mechanical and
electrical workshops, vehicles, and lab equipment is Birr 674,744,259.65, 9,450,000.00,
13,500,000.00 & 269,897.70, respectively.
The total cost of building and civil work and office furniture and equipment is Birr
90,768,925.00 and Birr 2,109,830, respectively.

1.2.8 Organization and Manpower

The organizational structure of the envisaged plant is constructed considering the extent of
the industry. The plant structure follows the functional organizational structure approach to
achieve operational efficiencies within a group. The plant has four functional departments
and two services. The functional departments are namely: production and technique
departments, commercial department, finance department and human resource and
administration departments. The two services are Planning and IT services and Internal Audit
service. The project will have 122 employees with annual cost of salary at full capacity
operation is estimated to be Birr 17,135,348.00, including training expenses of Birr
1,173,654.00.

1.2.9 Implementation Schedule

The implementation schedule covers the activities starting from the project evaluation and
approval up to and including the trial-run and commissioning. The complete implementation
program for the envisaged sesame processing plant is planned to take a total of 24 months.
The project operation starts with the assignment of the project manager and establishment of
the project office. It ends when detailed engineering design is completed by the
supplier/suppliers. During this phase, HRD department manager is hired to get adapted to the
processes of the project. Other department heads are also hired during this phase to facilitate
preparatory works for later smooth operation of the envisaged project. They shall be the core
members of the project implementation team who shall recruit and select other employees
and also work as counter parts with all consultants. Then the tender document will be floated
for the civil works to be conducted by local contractors. Orders will be placed for machinery
and equipment procurement by giving priority to those items that have to be manufactured
based on the detailed design. The total cost of project implementation is Birr 71,151,363.92
out of which Birr 68,872,763.92 is for engineering design, erection supervision, and
machinery and equipment erection, Birr 6,330,000.00 is for salary of the project implantation
team, and the rest is for office equipment and furniture and running the project office.

1.3 Financial and Economic Analysis

The financial analysis of the project (benefits and costs) is computed over seventeen years
assuming 24 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 1.35 billion. From the total investment cost the highest share Birr 790.84 million
(58.53%) is accounted by fixed investment cost followed by initial working capital Birr
417.87 million (30.93%) and pre operation cost Birr 142.42 million (10.54%). The total
annual cost of production and revenue at 100% capacity utilization (year 4) is estimated at
Birr 2.274 billion and Birr 2.575 billion respectively. The project will generate a profit
throughout its operation life. Annual net profit after tax will increase from Birr 187 million
during first year of operation to Birr 301.10 million 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 24.06% and
Birr 1.150 billion 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

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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 914.06 million and 41%
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 11% in sales price or increase of 14% in
production cost or an increase of above 50% 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 currency earning effect to the country by exporting its products to the international market.
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 134 persons. Furthermore, it
creates a conducive 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 backward linkages with the agricultural sector.

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