228.

PROFILE ON IMPROVED STOVE PRODUCTION

228-2 TABLE OF CONTENTS

PAGE

I.

SUMMARY

228-3

II.

PRODUCT DESCRIPTION & APPLICATION

228-3

III.

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

228-4 228-4 228-6

IV.

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

228-7 228-7 228-7

V.

TECHNOLOGY & ENGINEERING A. TECHNOLOGY B. ENGINEERING

228-7 228-7 228-8

VI.

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

228-9 228-9 228-9

VII.

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

228-10 228-11 228-12 228-13 228-14

228-3 I. SUMMARY

This profile envisages the establishment of a plant for the production of improved stove with a capacity of 35,000 units per annum.

The present demand for the proposed product is estimated at

20993 units per annum.

The demand is expected to reach at 129,983 units by the year 2020.

The plant will create employment opportunities for 15 persons.

The total investment requirement is estimated at about Birr 1.05 million, out of which Birr 25,200 is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 33 % and a net present value (NPV) of Birr 1.38 million discounted at 8.5%.

II.

PRODUCT DESCRIPTION AND APPLICATION

Improved stove is a house hold item used for cooking 'Injera' and 'wot'. The vast majority of improved cooking stoves, which are built today, are for domestic cooking mainly for cooking or boiling; heating water for tea, washing, or for heating systems; as an oven for roasting or for baking bread or cakes; frying on a hot plate

It is made up of metal cladding with metallic stand and a chimney for exhausting the flue gas that comes out due to the burning of biomass .The part used for baking Injera is made of cement mixed with sand and sometimes with gypsum. A gate is attached for the purpose of applying pieces of wood when preparing Injera or bread.

228-4 III. A. 1. MARKET STUDY AND PLANT CAPACITY MARKET STUDY Past Supply and Present Demand

Improved charcoal stoves are household items used for cooking. They are made after modifying and improving the traditional stoves, as to make them more efficient in energy utilization reducing hardships and avoid incomplete combustion. Charcoal stoves are domestic items manufactured by blacksmiths usually available at the production sight around open markets. Most of the available charcoal stoves are however traditional. The supply of both traditional and improved stoves is not recorded officially. As an urban household item mostly the supply of charcoal stoves can be estimated based on the number of households in the region. According to the 1994 census conducted by CSA, the total number of urban households in the Southern Nations, Nationalities and Peoples Regional government were 142,212. Among these 95,299 are non storied detached households. Households in the region are presented in Table 3.1. Table 3.1 HOUSING UNITS IN SNNPR, 1994 E.C Type of Building All Housing Units Non storied detached Non storied 2 units attached Non storied 3-5 units attached Non storied 6 or more units attached One or more storied detached One or more storied 2-3 units attached One or more storied 4-6 units attached One or more storied 7-10 units attached One or more storied 11 or more Not stated Units 142,212 95,292 25,840 13,915 5,538 193 134 133 15 10 1,135

Source: The 1994 Population and Housing Census of Ethiopia, Results for SNNPR, Volume II Analytical Report, Dec. 1988.

228-5 As a target for charcoal stoves only none storied detached urban households in the region are considered. Assuming 3% growth rate of none stored detached house holds in the region and one stove per household the current available stock is estimated at 139,950.

Although improved stoves are better alternatives than the traditional ones, the public awareness and their availability and supply are believed to be limitation factors for the wide application and the growth in demand. Therefore it is assumed that only 15% of the total available stock in the region is improved stoves or 20,993 stoves.

2.

Demand Projection

The projection of demand for charcoal improved stoves is made on the assumption that the public awareness, adequate supply and availability of the product will be much better as to replace the traditional products.

Since improved stoves are advantageous over the traditional ones and they are sold at reasonably affordable price, an annual growth rate of 20% is assumed to project the demand. The projected demand is presented in Table 3.2. Table 3.2 PROJECTED DEMAND FOR IMPROVED STOVES Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Pieces 25,192 30,230 36,276 43,531 52,237 62,685 75,222 90,266 108,319 129,983

228-6 Hence the demand for improved stoves in the Southern Nations, Nationalities and Peoples Region in the year 2017 will be 129,983 pieces.

3.

Pricing and Distribution

Improved charcoal stove retail price is Birr 38. The new project will have a proposed price of Birr 25.

The product will be made available at open market places, retailed through similar traders of household items.

B.

PLANT CAPACITY AND PRODUCTION PROGRAMME

1.

Plant Capacity

The annual production capacity of the envisaged plant is set at 35000 units. The plant will operate single shift 8 hours a day, and for 300 days a year. Production can be increased if the plant operates double shift 16 hours a day.

2.

Production Programme

The plant will start operation at 75% of its capacity during the first year and then will raise production to 85% and 100% during the second year and third year, respectively. Table 3.3 below shows production programme.

228-7 Table 3.3 PRODUCTION PROGRAMME

Year

Capacity Utilization

Production (Units/ Pieces)

1 2 3-15

75% 85% 100%

2625 2975 3500

IV.

MATERIAL AND INPUTS

A.

RAW MATERIALS

The major raw materials required for the production of improved mirt stove are sand and cement. Annual requirement of these materials together with costs are shown in Table 4.1

Table 4.1 RAW MATERIALS REQUIREMENT Sr. No. 1 2 3 Sand (m3 ) Cement (Quintals) Other inputs Total 5000 1200 Reqd Description Qty FC 75 201.6 5 281.6 Cost (000 Birr) LC 75 201.6 5 281.6 TC

B.

UTILITIES

Water and electricity are inputs required for the production of improved Mirt stove. Annual water cost is estimated to be Birr 5000, while estimated electricity cost will be Birr 10,000. Thus, the total annual expenditure on utilities will be Birr 15,000.

228-8 V. TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Production Process

The production process consists of raw material preparation, metallic moulds cleaning and adjustments, mixing of raw materials in the right proportion, filling of the metallic molds with the mix, keeping the moulds for some bours, removing the mould pieces and keeping the parts of Mirt stove in open storage until the proper setting time is over. Water is regularly poured onto the moulded Mirt parts until the pieces are completely set.

2.

Source of Technology

The technology of improved Mirt Stove Production is well known in the country. GTZ and Selam Technical and Vocational Training Center are engaged in the promotion of Mirt Stove Production. GTZ is engaged in promoting Mirt stove production in Selam Vocational Training Centre can also be

Regional States of the country.

approached on train after technology for Mirt Stove Production.

B.

ENGINEERING

1.

Machinery and Equipment

Equipment and hand tools required for the production of improved Mirt stove are given in Table 5.1 below.

228-9 Table 5.1 LIST OF EQUIPMENT

Sr. No. 1 2 3 4

Description

Qty

Cost (000 Birr) FC LC 20 0.10 0.12 5 TC 20 0.10 0.12 5

Metallic moulds Shovel Spades

10 units 5 10

Sieves, plastic pails, Reqd and other hand tools Total -

25.22

25.22

2.

Land, Building and Civil Works

The total land requirement will be 1000 m2 and land lease cost for 80 years will be Birr 80,000. The total Built-up area will be 400 m2, at the rate of Birr 1500 per m2, the total cost of land, building and civil works will be Birr 680,000.

3.

Proposed Location

Production of Mirt stove requires such raw materials as sand and cement. Availability of water, electricity and other infrastructure should also be seen as factors to determine the proposed location. In view of these points, the proposed plant would have to be located in an area where there would be minimum expenditure and maximum availability of infrastructure. As this Mirt stove is required by urban and rural population of the SNNPRS, it is therefore advised that manufacturing enterprises be established in each zonal town of the region.

228-10 VI. MANPOWER AND TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

The manpower required for the proposed plant is given in Table 6.1 below.

Table 6.1 MANPOWER REQUIREMENT

Sr. No. 1 2 3 4 5 6 7

Job Title

No. Reqd

Monthly Salary (Birr)

Annual Salary (Birr) 12,000 4,800 6,000 3,000 8,640 19,200 5,400 59,040

Plant manager Secretary Sales man Clerk General services Production workers Helpers Sub total Workers benefit Total cost

1 1 1 1 4 4 3 15 15

1,000.00 400.00 500.00 250.00 180.00 400.00 150.00

14,760 78,800

B.

TRAINING REQUIREMENT

One week training is adequate to produce skilled worker. A total of Birr 2000 is allotted to conduct the training programme.

228-11 VII. FINANCIAL ANALYSIS

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

Construction period Source of finance

1 year 30 % equity 70 % loan

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

3 years 8% 8.5% 30 days 30days 3 days 30 days 5 days 30 days

A.

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 1.05 million, of which 13 per cent will be required in foreign currency.

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

228-12 Table 7.1 INITIAL INVESTMENT COST

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

Total Cost (000 Birr) 80 680.00 25.20 75 132.23 64.13 1,056.6 13

* N.B Pre-production expenditure includes interest during construction ( Birr 57.23 thousand ) training (Birr 2 thousand ) and Birr 73 thousand costs of registration, licensing and formation of the company including legal fees, commissioning expenses, etc.

B.

PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr

586,950

(see Table 7.2). The material and utility cost accounts for 50.53 per cent, while repair and maintenance take 12.78 per cent of the production cost.

228-13 Table 7.2 ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

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

Cost 281.60 15 75 47.28 19.7 31.52 470.10 63.02 53.83 586.95

% 47.98 2.56 12.78 8.06 3.36 5.37 80.09 10.74 9.17 100

C.

FINANCIAL EVALUATION

1.

Profitability

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

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

228-14

2.

Break-even Analysis

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

BE =

Fixed Cost Sales Variable Cost

= 22 %

3.

Pay Back Period

The investment cost and income statement projection are used to project the pay-back period. The projects initial investment will be fully recovered within 3 years.

4.

Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 33% and the net present value at 8.5% discount rate is Birr 1.38 million.

D.

ECONOMIC BENEFITS

The project can create employment for 15 persons. In addition to supply of the domestic needs, the project will generate Birr 659,710 in terms of tax revenue. The establishment of such factory will have a foreign exchange saving effect to the country by substituting the current imports.