PROJECT PROPOSAL FOR ESTABLISHMENT

OF MEAT PROCESSING AND SLOUGHTERING

HOUSE
MEAT PROCESSING

PROJECT TO BE IMPLEMENTED IN MODJO TOWN,

OROMIA REGION
PROMOTER:-POULTORY PARADISE AGRICULTURE ANIMAL PRODUCT
PLC

App ,2025
Modjo town Ethiopia
 TABLE OF CONTENT
I. EXECUTIVE SUMMARY.................................................................................................................................... 5
1. BACKGROUND INFORMATION........................................................................................................................ 7

1.1. INTRODUCTION...................................................................................................................................................7
1.2. PRODUCT DESCRIPTION.........................................................................................................................................8
1.3. PROJECT LOCATION AND JUSTIFICATION....................................................................................................................8
1.3.1. Location of Modjo town........................................................................................................................8
1.3.2. Demography of Modjo town.................................................................................................................8
1.3.3. Economic activity of Modjo town............................................................................................................9
1.4. MEAT PRODUCTION TRENDS IN ETHIOPIA..............................................................................................................11
1.5. DOMESTIC MEAT CONSUMPTION IN ETHIOPIA........................................................................................................11
1.6. STATUS OF MEAT PROCESSING INDUSTRY IN ETHIOPIA..............................................................................................12
1.7. WHY IS IT BENEFICIAL TO INVEST IN MODJO TOWN?................................................................................................12
1.7.1. The city benefit from the investment...................................................................................................14

2. MARKETING STUDY...................................................................................................................................... 15

2.1. MARKET ANALYSIS SUMMARY........................................................................................................................15

2.2. THE SUPPLY OF PROCESSED MEAT..................................................................................................................15
2.2.1. Local meat Supply................................................................................................................................15
2.1.2. Import..................................................................................................................................................16
3. TECHNOLOGY AND ENGINEERING................................................................................................................. 22

3.1. TECHNOLOGY....................................................................................................................................................22
3.1.1. Meat production and preserving process.............................................................................................22
3.1.2. Process flow chart of Cattle meat processing unit...............................................................................23
3.1.3. Environmental and social impact assessment of the project...............................................................24
3.1.4. Production Capacity and Production Program.....................................................................................25
3.2. ENGINEERING...................................................................................................................................................26
3.2.1. Land, buildings and civil works.............................................................................................................26
3.2.2. Machinery and equipment......................................................................................................................29

4. ORGANIZATIONAL STRUCTURE FOR MEAT PROCESSING UNIT......................................................30

4.1. MANPOWER REQUIREMENT AND ESTIMATED ANNUAL MANPOWER COSTS....................................................30

5. FINANCIAL ANALYSIS.......................................................................................................................................................32

5.1. GENERAL.........................................................................................................................................................................32

5.2. INITIAL FIXED INVESTMENT COSTS................................................................................................................................................34

5.3. WORKING CAPITAL..........................................................................................................................................35
5.4. PROJECT FINANCING......................................................................................................................................................................... 35
5.5. PRODUCTION COSTS.........................................................................................................................................36
5.5.1. Material inputs.......................................................................................................................................36
5.5.2. Utilities...................................................................................................................................................37
5.5.3. Repair and maintenance........................................................................................................................38
 5.5.4. Salaries and wages................................................................................................................................38
5.5.5. Over heads.............................................................................................................................................38
5.5.6. Financial costs.......................................................................................................................................39
5.5.7. Depreciation...........................................................................................................................................40
5.6. BREAK EVEN POINT AND ROI.........................................................................................................................41
5.6.1. Return on investment......................................................................................................................................41

5.7. PROJECT COSTS.............................................................................................................................................42

5.8. PROJECT BENEFITS......................................................................................................................................43

LIST OF TABLES

Table 1Installed capacity and utilized capacity of Slaughter house in Ethiopia.....................................................15

Table 2 Volume of imported processed meat from 2012 to 2021 in kg..................................................................16
Table 3 Future forecast of import of processed meat by trend adjusted exponential smoothing method...............17
Table 4 Projected Demand for meat in Ethiopia.....................................................................................................19
Table 5 Volume of Exported meat from 2012 to 2021 in kg..................................................................................19
Table 6 Future forecast of export of processed meat by trend adjusted exponential smoothing method...............20
Table 7 Demand supply gap Analysis.....................................................................................................................21
Table 8 Production programme...............................................................................................................................25
Table 9 Approximate cut out weight for cattle........................................................................................................25
Table 10 Building costs...........................................................................................................................................27
Table 11 Land lease period in Modjo town.............................................................................................................28
Table 12 Land lease floor price in Modjo town......................................................................................................28
Table 13 Lists of meat processing machineries.......................................................................................................29
Table 14 Annual manpower costs...........................................................................................................................30
Table 15 Initial Fixed investment costs...................................................................................................................34
Table 16 Raw materials input plan in Birr'000'.......................................................................................................36
Table 17 Utilities of the factory’000”Birr...............................................................................................................37
Table 18 Overhead costs..........................................................................................................................................39
Table 19 Depreciation in Birr"000".........................................................................................................................40
Table 20 Source of revenue in Birr"000"................................................................................................................43
Table 21 Annual total production costs”000”.........................................................................................................46
Table 22 Calculation of working capital.................................................................................................................47
Table 23 Projected Net income statement "000".....................................................................................................48
Table 24 Debt services schedule and computation..................................................................................................49
Table 25 Projected Cash flow statement.................................................................................................................50
Table 26 Total investment costs”000”.....................................................................................................................51
Table 27 Total Assets..............................................................................................................................................51
Table 28 Sources of finance....................................................................................................................................52
Table 29 Summary of financial efficiency tests..............................................................................................52
Table 30 Calculation of payback period”000”................................................................................................53
Table 31 Calculation of NPV at 17% D.F.......................................................................................................54

LIST OF FIGURES

Figure 1 process flow chart for cattle meat processing unit............................................................................23

 I. Executive summary
1.Project Name Slaughtering House and Meat Processing Plant
.
2.Project Owners Poultry Paradise Agriculture Animal
Product Plc.
3.Nationality Ethiopian

4.Project location Modjo town, East Shoa Zone, Oromia National

Regional State
5.Project Composition Slaughtering house and processing of
different livestock meats.
6.Primeses Required 10,000m2 will be required./1hek/

7. Startup Capital For implementing this project a total of 40,000,000Eth birr is

required. From these 30% or 12,000,000birrs will be owner’s
contribution while the rest 70% or, 28,000,000.00 Eth birr will
be covered by bank loan.

8.Employment This project fully employees the local individuals. Except the
Opportunity general manager all other employees are used from the local
area. Hence, this project will create employment
opportunities for 256 individuals from this 156 are skilled and
100are unskilled
9. For The region/ Source of foreign currency, job opportunity for the
country around people, source of revenue for the
government in the form of business tax and etc.
 1. Background information
1.1. Introduction
Ethiopia has one of the largest livestock populations in Africa and the tenth in the world. The

country had 59.5 million heads of cattle, 30.70 million heads of sheep, 30.20 million heads of

goats, 56.53 millions of poultry and 1.21 million heads of a camel. Cattle in Ethiopia provide

draught power, income for farming communities, means of savings and investment. It is central to

the Ethiopian economy contributing about 45% to the agricultural GDP, supporting the livelihoods

of 70 % of the population, 18.7% to the national GDP and 16–19% to the total foreign exchange

earning of the country. Meat is the most valuable livestock product and for many people serves as

their first-choice source of animal protein which provides all the essential amino acids and various

micronutrients in proper proportion to the human beings. Meat defined as all animal tissues

suitable as food for human consumption. This includes all processed or manufactured products

prepared from animal tissues. Meat production and consumption is an important in the Ethiopian

economy. The annual contribution of cattle meat production in Ethiopia is accounts for over 70%

of the total red meat production and over 50% of the total meat output in Sub Saharan Africa. The

Country’s export performance reached its peak in 2016/17 by exporting 19,779.20 tons of meat. In

the same period under review, the meat export (chilled shoats, beef carcass and offal) value has

picked up from 1.7 million USD to 92.65 million USD. Among these shoat carcass account 80.35

million dollar (86.72%), beef carcass 6.23 (6.72%) and offal 6.07 (6.55%).
 1.2. Product description
Processed meat is considered to be any meat which has been modified in order to either improve

its taste or to extend its shelf life. Methods of meat processing include salting, curing, fermentation

, smoking, and/or the addition of chemical preservatives. Processed meat is usually composed

of pork or beef, but also poultry, while it can also contain offal or meat by-products such as blood.

Processed meat products include bacon, ham, sausages, salami, corned beef, jerky, hot dog, lunch

meat, canned meat and meat-based sauces. Meat processing includes all the processes that change

fresh meat with the exception of simple mechanical processes such as cutting, grinding or mixing.

The project is a concept of Poultry Paradise Agriculture Animal Product Plc– an

enterprise based and operating out of Ethiopia. The project entails the

establishment and operation of a modern abattoir in Ethiopia cattle corridor.

This modern abattoir will have a starting capacity to slaughter and process

200 cattle and 2,000 goats/sheep per working day on a double shift basis. The

plant will have a high level of hygiene which will enable its production to be

exported at a suitable time in the future. Initially, live animals will be bought

from the local markets and the processed meat will all be sold on the domestic

market.

Recovery of usable by-products will form an important part of the process and

it is expected that the quality of the by-products like skins/hides, offals, blood,

heart, kidneys will be superior to that obtained from the existing conventional

slaughterhouses.

In order to assure availability of live animals for the meat processing plant, it
 is proposed to develop strong links with live animal traders as well as with the

cattle farmers in the areas surrounding the abattoir plant.

Company Legal Status

Poultry Paradise Agriculture Animal Product Plc is a limited private company incorporated in
Ethiopia, 19,3,2015 E.C

Poultry Paradise Agriculture Animal Product Plc commissioned Bright star and management
Cultanuncy plc. to prepare a feasibility study on the commercial prospects and financial viability of
setting up and operating a modern abattoir in Ethiopia [one of the three major livestock-producing
areas in the country] purposely to produce beef and other beef by-products from the existing livestock
off-take numbers and market them on the domestic market through cold-chain distribution outlets in
Modjo City.

Project Objectives

The proposed abattoir project, which includes commercial and national level interventions to the

beef industry, has the following objectives:

 Poverty alleviation

 Improve Public Health

 Safeguard the environment

 Earn Foreign Exchange

 Job Creation

 Create World Class Facility for the Domestic market and Export

 Modernize Agriculture

 Ensure returns for Stakeholder

1.3. Project location and justification

1.3.1. Location of Modjo town

Modjo town is the seat of the Ethiopian federal government. It is located on the central highlands
of Ethiopia in the middle of Oromia Region. The absolute location is around the intersection point

of 901’48’’N latitude and 38°44′24″E longitudes. This is very near to the geographical center of

the country. It is, therefore, equidistant to the peripheral areas or is equally accessible to almost all

parts of Ethiopia. Modjo town is located on a well-watered plateau surrounded by hills and

mountains. The city is in the highlands on the edge of the Ethiopian rift valley or the eastern slopes

of the Modjo town ranges bordering the Great Rift Valley. The total area of Modjo town is about

540 km2 of which 70km2 are rural.

1.3.2. Economic activity of Modjo town

The transformation of Modjo town has especially been rapid since 1991. According to the data

from the city’s Bureau of Finance and Economic Development (2006), per capital income of

Modjo town has grown from USD 788.48 in 2010 to USD 1,359 in 2015. The city also achieved a

decline in the poverty index from a high of 29.6 in 2012 to 22.0 in 2014. Moreover, the current

poverty headcount index for Modjo town is estimated at 18.9 while the poverty severity account

for 5 and 1.8 index points respectively. Even though, the poverty status of Modjo town has an

improvement over previous years, there is still much work to be done to curb both the incidence

and severity of poverty.

The major contributor to the economic growth of the city is the implementation of publicly

financed mega urban projects like condominium housing, the Light Rail Transit, the international

airport and industrial zone development (The state of Modjo town, 2017). The existence of

international large and medium-size enterprises in and around Modjo town have also significant

role in creating huge opportunity for employment and technology transfer. Furthermore, there are

strong demand for goods and services following the existence of many embassies and inter-
governmental organizations like the African Union, the United Nations Economic Commission for

Africa.

The manufacturing sector’s contribution to Modjo town’s GDP is high. Despite the fact that 86%

of the industries in the city are micro and small scale (cottage and handicrafts, and small-scale), the

majority of the country’s large and medium scale industries are found in the city. Noticeable

increases are also registered currently in other aspects of industrial growth.

The service sector is both the largest contributor to the city’s economy and the largest employer. It

contributes to 76.4% of the city’s GDP while industry’s share makes up (almost all) the rest. This

sector is dominated by three major sub-sectors: Transport and communication; Real estate, Renting

and Business services; and Trade, Hotel and Restaurants. According to the state of Ethiopian Cities

2015 report, the service sector has also been responsible for more than 50% of the growth in the

estimated annual growth of the city’s GDP. Although 75% of employment in the city is also

generated in the service sector, a large proportion of the employed work in low skill and low

paying jobs as shop salespersons, petty and 'gullit' traders, sales workers in small shops, domestic

helpers or doorkeepers and restaurant service workers.

Analysis of the economic structure of Modjo town reveals that the services sectors (63%)

dominates with industry (36%) in second place indicating that these sectors account for almost all

of the Modjo town’s GDP (The State of Modjo town, 2017).

Modjo town has a great share in the economy of the country due to its attractiveness to businesses,

companies, individuals and foreign direct investment. Overall primacy index of the city is 24.8

based on urban employment and unemployment survey (CSA 2015). According to the State of

Modjo town 2017 report, the simultaneous high rates of economic growth and urbanization in
Modjo town indicates a likely further rising dominance of the city in Ethiopia’s economy as well

as growing agglomeration of economic activities in and around the city.

 1.4. Meat Production Trends in Ethiopia
Meat production offers opportunity to serve a vast export market as well as Ethiopia's domestic

market. The total meat production increase from 578,240 tons in 2004 to 749,430tons in year 2014

and decreased to 596,765 tons in year 2017. Despite the fact that Ethiopia is the tenth largest

livestock population in the world, the production of meat is still low and contributed to about 0.2

percent of the world total meat production, of which most is sheep and goat meat. This ranked

Ethiopia the 55th largest meat producing country in the world. The reasons behind low production

of meat in Ethiopia are due to low off-take rates, most animals slaughtered and exported live were

not produced in commercially oriented manner and sell only in need of cash or when animals get

too old after serving for draft purpose and inability to fulfill minimum standard required in the

international market for processed meat. The trend of meat production in Ethiopia shows it was

rising moderately, of course with some fluctuations from 2004 to 2017.

1.5. Domestic Meat Consumption in Ethiopia

The domestic meat demand is believed to increase with increasing population, urbanization, and income in

general and particularly for beef due to preference for eating meat. Meat consumption is often an indicator

of economic status of a country or an individual. People with a higher social or economic status demand a

greater amount of high-quality meat products. The per capita consumption of meat in developed countries is

much higher than in developing countries. Countries whose population consumes the least amount of meat

are located in Africa and Asia. Developed countries consumed a consistent level of 77 kg of meat per capita

annually, while developing countries struggled to maintain a diet with only 25 kg of meat per capita

annually. With the fast growth of Ethiopian economy and population, the domestic demand for meat is

increasing; however, the country is one of the lowest per capita of meat consumption in the world which is

8 kg, of which about 5.3 kg comes from beef. This is due to low per capita incomes, non-commercial

oriented animal
husbandry practices, high domestic meat prices and the fasting days over 200 days per year by the Orthodox

Christians.

1.6. Status of meat processing industry in Ethiopia

Meat processing industry is on the rise in Ethiopia even though the sector is still much less than it

should be given the resource potential. Currently there are about 15 export slaughter houses

(including 8 under establishment) with installed capacity of 140,702 tons/year while they utilized

23%of their installed capacity and more than 29 abattoirs (with installed capacity 588,123

cattle/year and 317,785 goat/year) serving the local market. Notwithstanding, illegal or informal

killing of animals is highly practiced for domestic consumption at the backyard of practically all

households especially for shoats whereas for cattle killing at village level to share among a group

of neighbors or close families is common which is called” Kircha‟. Municipal level domestic

abattoirs are growing time to time with the growth of urbanization whereas modern slaughter

houses are mainly established for exporting purpose

1.7. Why is it beneficial to invest in Modjo town?

Modjo town is the largest and most economically significant city in the country. Ethiopia’s urban

population share is only 17 percent (as of 2012, World Bank 2015). The city is the only urban area

in Ethiopia capable of delivering scale economies in terms of concentrated demand, specialization,

diversity and depth of skills, innovation, and technology transfers. Thus, investors will be

benefited in getting capable human power from the market.

The capital is the country’s main industrial hub. The city dominates industrial capacity in almost

all the braches of light manufacturing that Ethiopia prioritizes. As a result Modjo town completely

dominates production in various subsectors. This can be taken as the political and social stability

of the city.
Overall, the city has a beautiful environment, favorable location, and strong industrial base. Its

advantage as an economic powerhouse of the country and human resource center are the most

attractive features for local and overseas investors.

Moreover, investors will be getting a comprehensive set of incentives for priority sectors. These

include:

 Customs duty free privilege on capital goods and construction materials, and on spare parts

whose value is not greater than 15% of the imported capital goods’ total value.

 Investors have the right to redeem a refund of customs duty paid on inputs (raw materials

and components) when buying capital goods or construction materials from local

manufacturing industries.

 Income tax exemption of up to 6 years for manufacturing and agro-processing, and up to 9

years for agricultural investment.

 Additional 2-4 years income tax exemption for exporting investors located within industrial

parks and 10-15 years exemption for industrial park developers.

 Loss Cary forward for half of the tax holiday period. Several export incentives, including

Duty Draw-Back, Voucher, Bonded Factory, and Manufacturing Warehouse, and Export

Credit Guarantee schemes.

 1.7.1. The city benefit from the investment
The city will be benefited from investment. These are discussed below.

 Employment opportunity

Investment is expected to provide direct and indirect employment. These range from unskilled

causal workers, semi-skilled and skilled employees.

 Improving growth of the economy

Through the use of locally available materials and exporting products, the investment contributes

towards growth of the economy by contributing to the growth of domestic product. These

eventually attract taxes including VAT which will be payable to the government hence

increasing government revenue while the cost of local materials will be payable directly to

the producers. In addition, domestic products save foreign exchange and exports also bring

money to the country.

 2. Marketing study
2.1. Market analysis summary

The current drive and emphasis by the government on the diversification of the industrial base

away from the other sector presents an opportunity for production industry to a valuable

contribution towards achieving goal. Having undertaken a thorough and comprehensive research of

the market we realized that there was a vast opportunity for domestic products. Aware of the fact

operating in such a market is largely dependent on good networking, the promoter intends to

establish networks and strategic relationships with various wholesalers and retailers to ensure a

steady stream of orders. In so doing the owner intend to ensure that the products they produce are

of extremely high quality and fully serve the customers purpose.

2.2. The Supply of processed Meat

2.2.1. Local meat Supply

In Ethiopia there are large scales, medium and household level meat slaughter house. The design

capacity and current utilizing capacity is mentioned in table 1.

Table 1Installed capacity and utilized capacity of Slaughter house in Ethiopia

S/No Slaughter House Quantity Total installed Currently Current status

utilized
Capacity
capacity
1. Slaughter house for 15 140,702 tons 31,687 tons For export
export market
2. Slaughter house for local 29 588,123 cattle 223,639 tons Average cattle
market 317,785 goat weight is 350kg
and average goat
weight is 28kg
For local market 223,639
tons/year
 2.1.2. Import
The supply of meat has been met both through import and domestic production. Although there is

no apparent trend in the growth of import processed meat has continuously been appearing in the

import statistics.

Table 2 Volume of imported processed meat from 2012 to 2021 in kg

Year Net weight CIF value in CIF value in Total TAX in Total value Unit price
(in Kg) (ETB) USD ETB in ETB per Kg
2012 23,550 23,019 4,474,642 250,461 3,010,368 168,501
2013 13,693 13,562 3,297,673 175,407 2,222,705 118,228
2014 70,819 68,302 6,971,171 346,074 1,603,664 79,612
2015 156,298 134,265 8,694,265 418,356 5,706,053 274,567
2016 48,788 42,093 1,559,541 72,206 993,346 45,991
2017 47,260 45,529 2,662,536 109,945 1,427,669 58,953
2018 17,434 16,454 639,316 - 405,182 20,877
2019 - - - - - -
2020 139,106 119,911 7,640,960 - 1,363,544 -
2021 181,872 151,100 16,191,912 - 4,950,736 -
Source: Ethiopia customs Authority

As it has been shown in table 3 import of processed meat which was 23,019 kg at the beginning of

the period (2012) has increased to 151,100kg by the end of, 2021. A closer observation at the data

set reveals that imported processed meat over the study period has shown varying patterns. Based

on the data obtained from Ethiopia customs Authority, the annual average volume of imported

processed meat is 61,424 kg from 2012 through 2021.

 2.1.2.1. Forecasted future import of meat

Table 3 Future forecast of import of processed meat by trend adjusted exponential smoothing method

Year Single exponential

Actual smoothing
2012 23,019
2013 13,562
2014 68,302
2015 134,265
2016 42,093
2017 45,529
2018 16,454
2019 0.00
2020 119,911
2021 151,100
2022 151,100
2023 163,908
2024 176,716
2025 189,524
2026 202,332
2027 215,141
2028 227,949
2029 240,757
2030 253,565
2031 266,373
2032 279,181

Sources :- Compiled by consultant

 2.1.2.2. Meat Demand Projection

2.1.2.2.1. Local consumption

The demand for meat can be influenced by a number of factors. The size of population and its

growth rate, disposable income prices and culture are few among many variables. With the fast

growth of Ethiopian economy and population, the domestic demand for meat is increasing;

however, the country is one of the lowest per capita of meat consumption in the world which is 8

kg, of which about 5.3 kg comes from beef. This is due to low per capita incomes, non-commercial

oriented animal husbandry practices, high domestic meat prices and the fasting days over 200 days

per year by the Orthodox Christians Nevertheless, for the purpose of this study, attempts have been

made to forecast the likely future demand for meat on the basis of the following assumptions:

i. Local supply of meat assumed to be increased by 2.5% every year

ii. Ethiopia population is estimated to be 120,202,679 in 2022

iii. Annual growth of population is taken to be 2.5%

iv. According to International Journal of Food Science and Agriculture, 2019 consumption of

per capital is 8kg/year.

Table 4 Projected Demand for meat in Ethiopia

Demand based on Per capital consumption ,

Population 8kg/year
2022 120,202,679 961

2023 123,207,746 985

2024 126,287,940 1,0

2025 129,445,138 1,0

2026 132,681,267 1,0

2027 135,998,298 1,0

2028 139,398,256 1,1

2029 142,883,212 1,1

2030 146,455,292 1,1

2031 150,116,675 1,2

2032 153,869,592 1,2

As it is indicated above the demand for meat in 2022 is 961,621,432kg. This volume will increase to

1,230,956,736 kg in the year 2032.

2.1.2.2.2. Export market

Table 5 Volume of Exported meat from 2012 to 2021 in kg

weight weight value in

816,350 777,953 38,814,320

5,757 5,503 567,550
2,057 1,866 205,892
21,944 21,196 1,976,760
82,439 80,077 4,448,568
12,611 12,351 1,047,695
 7,365 7,265 728,020
38 38 1,163
44,673 42,397 1,541,318
40,410 39,877 7,839,907
Source: Ethiopia customs Authority
 2.1.2.2.3. Forecasted future export of meat

Table 6 Future forecast of export of processed meat by trend adjusted exponential smoothing method

Year Single exponential

Actual Smoothing
2012 777,953
2013 5,503
2014 1,866
2015 21,196
2016 80,077
2017 12,351
2018 7,265
2019 38
2020 42,397
2021 39,877
2022 34,337
2023 34,337
2024 34,337
2025 34,337
2026 34,337
2027 34,337
2028 34,337
2029 34,337
2030 34,337
2031 34,337
2032 34,337

Sources: - Compiled by consultant

 2.1.2.3. Demand-Supply Gap Analysis

When we see the historical supply volume of meat in Ethiopia there is no apparent trend in the

growth. Hence, it is found difficult to objectively forecast the future supply volume. Single

exponential smoothing method was used, for import forecasting purposes. A 2.5% growth rate,

equivalent to population growth of our country, is also assumed for local supply increase, for new

as well as expansion projects for domestic suppliers of the existing slaughters’ house.

Table 7 Demand supply gap Analysis

Year Domestic Import Total supply Demand (kg) Excess

production in in (in in (kg) demand(kg)
(in kg) kg) Local demand Export market
2022 223,639 ,000 151,100 223,790,100 961,621,432 737,865,669
34,337
2023 229,230,000 163,908 229,393,908 985,661,968 756,302,397
34,337
2024 234,961,000 176,716 235,137,716 1,010,303,520 775,200,141
34,337
2025 240,835,000 189,524 241,024,524 1,035,561,104 794,570,917
34,337
2026 246,856,000 202,332 247,058,332 1,061,450,136 814,426,141
34,337
2027 253,027,000 215,141 253,242,141 1,087,986,384 834,778,580
34,337
2028 259,353,000 227,949 259,580,949 1,115,186,048 855,639,436
34,337
2029 265,836,000 240,757 266,076,757 1,143,065,696 877,023,276
34,337
2030 272,482,000 253,565 272,735,565 1,171,642,336 898,941,108
34,337
2031 279,294,000 266,373 279,560,373 1,200,933,400 921,407,364
34,337
2032 286,277,000 279,181 286,556,181 1,230,956,736 944,434,892
34,337
As shown in the above table, the project will have unsatisfied demand for the coming 10 years’
period. The projected demand will continue to be positive until 2032. It can be clearly noted that
there is a huge gap between supply and demand figures, which can really be taken as the apparent
demand-supply gap for meat in Ethiopia. This is really the actual unsatisfied demand as imports
have to be substituted that also helps in saving the foreign currency outflow from the country. The
unsatisfied demand for meat for the year 2032 estimated at 944,434,892 kg.
 Figure 6: Beef and live cattle marketing chain

Cattle Farmer

Village Middleman

Primary stock
market

Secondary stock
Cattle Trader
market
Local slaughter slab

Tertiary stock Abattoir Wholesaler

market

Local Market
Processor
(Supermarket)
(wholesaler)

Live cattle export

Border
 3. Technology and engineering
3.1. Technology

3.1.1. Meat production and preserving process

The meat processing involves the slaughter of animals and fowl, processing of the carcasses into

cured, canned, and other meat products, and the rendering of inedible and discarded remains into

useful by-products such as lards and oils. Meat is exposed to a series of wide range of processes

viz. curing or preserving processes such as salting, wet pickling, drying, cooking and canning,

sausage manufacture, ham curing. All these processing techniques are aimed at inhibiting the

microbial spoilage and increasing the shelf life of the meat. Major principles involved in meat

processing are use of heat, low temperature, smoking, modified atmosphere packaging and

ionizing radiations. The methods of preservation are mainly grouped in three categories i.e. control

by temperature, by moisture and by lethal agents (bactericidal, fungicidal etc.).

Freezing is an excellent process for preserving the quality of meat for long periods. Freezing is

often used to preserve meats during shipment over long distances or for holding until long times of

storage. Its effectiveness depends on ice crystal formation and rate of lowering of temperature.

When the temperature of storage is below - 18C 2, changes occur at a very slow rate in the muscle

of warm blooded animals. Quality of frozen meat depends on various factors such as rate of

freezing, packaging etc. When muscle tissue is frozen rapidly, small both intra and extra cellular

ice crystals are formed which cause little damage to the meat structure. While large ice crystals are

formed in slow rate of freezing causing compactness of muscle fiber. The process of denaturation

can be accelerated with a resulting decrease in water holding capacity of tissue. Loss of water

holding capacity of the muscle along with mechanical damage to cells by ice crystals is responsible

in large parts of thaw exudates. To protect quality loss due to changes in protein, anti-freezing
compounds
 or cry protectants i.e. polydextrose, polyphosphate are added to meat formulations.

Rapid freezing can be obtained by using air blast freezers either on batch or continuous

basis which employs -20 to

-40C2 cold air. Large size meat cuts are vacuum packaged to prevent lipid oxidation and

discoloration due to formation of metmyoglobin. Retail meat is packed in low

permeability films with better mechanical strength.

Process Description

The slaughtering and meat processing process has been summarized in the diagram
below:

Figure 7: Slaughtering and Meat Processing Process

Lairage

Ante-mortem

Dirty Process
Slaughtering
and Bleeding

Skinning or
Scaling

Evisceration

Post-mortem

Clean Process Rigor Mortis

Process

Chilling,
Hanging and
Delivery/Dispatc
 3.1.2. Process flow chart of Cattle meat
processing unit

Quality testing Meat Chopping

Grinding
and Blast freezing

Added into Bowl

Product shaping chopper and Ingredient mixing
mixing unit

Smoking and Quick freeze Packaging

cooking

Figure 1 process flow chart for cattle meat processing unit

 3.1.3. Environmental and social impact assessment
of the project
Typically, any developmental projects also trigger a set of environmental and social impacts.

These environmental and social due to development projects occur in different forms. An

Environmental and Social Impact Assessment (ESIA) has to be carried out to study the potential

environmental and social impacts due to the production processed meat. Potential environmental

and social impacts due to the production of meat based products on attributes like air quality,

noise, water quality, soil, flora, socio-economic, etc. have to be assessed as part of the ESIA study.

Appropriate mitigation measures to help minimize/avoid impacts from the development have to be

recommended in the study. The measures include avoidance measures, mitigation measures and

environmental enhancement measures. For the purpose of including environmental costs, the costs

of wastewater treatment plant and solid waste incineration systems are included in the cost of

machinery and equipment. Social responsibility cost estimated to be 1% of fixed investment costs.
 3.1.4. Production Capacity and Production Program

3.1.4.1. Plant capacity

The annual production capacity of the plant in full capacity is 500 heads of cattle per day, their

weight is 400kg each. The production capacity is based on projected demand and realistic market

share that could be captured. The production commences three shift and 260 working days a year.

3.1.4.2. Production program

The annual production program for the year 1 to year 4 is indicated in Table 8 below. The plant

initially produces 70 % of its annual rated capacity bound to initial operating problems such as

machine set up and marketing. The production capacity will increase by 10 % and attain its full

capacity by the third year of its commencement.

Table 8 Production programme

Product Production programme
Year 1 2 3 4
Capacity 70% 80% 90% 100%
Canned meat in Kg 12,376,000 14,144,000 15,912,000 17,680,000

Table 9 Approximate cut out weight for cattle

Component % of cut out weight

Carcass 34
Bones 16
Organs 16
Skin and attached fat 6
Blood 3
Fatty tissues 4
Horns, hooves, feet and skull 5
Abdominal and intestinal contents 16
 3.2. Engineering
3.2.1. Land, buildings and civil works
The required area (m2) and construction cost for the production facilities essential for the

successful operation of the processing plant is shown in Table10. A total area ready for the

processing plant is 10,000m2 out of which 1,900m2 is to be covered by building while uncovered

area of 2,100m2 is left open for parking, storage of waste materials and future expansions. In order

to estimate the land lease cost of the project profiles it is assumed that all the project will be

located in different land level from level 1/1 to level 4/3, their current market lease price is from

39,073.31 birr per M 2 to 2,800.71 birr per M 2respectively. Therefore, for the profile a land lease

rate of birr 3,885 per M 2 have been taken, which is between the ranges.

The cost of construction of building should be appropriate to the size and expected profitability of

business, costs of building generally differs by the type of construction materials used, the type of

foundation, wall height and location. The current building cost for simple storage and processing

room is from 10,000 Birr per m2 to 25,000 Birr per m2. The total construction cost of buildings and
2
civil works, at a rate of Birr 20,000 per m is estimated at Birr 402.80 million. Therefore, the total

cost of land lease and construction of buildings and civil works is estimated at Birr 597 million.

The proposed plant layout comprises the following buildings and structures.
Table 10 Building costs

S/No Estimated cost per Total estimated

Descriptions Total area square meter cost ( in Birr)
M2 (in Birr)
1 Open area meat 2,000 20,000 10,000,000.00
processing facility
2 Covered area meat 1,000 20,000 5,000,000.00
processing plant
3 Raw material storage 1,000 20,000 4,000,000.00
4 Cold storage area 1000 20,000 3,000,000.00
6 Main product store 1,500 20,000 1,000,000.00
7 packing materials store 1000 20,000 6,000,000.00
8 Office and toilet 500 20,000 1,000,000.00
9 Canteen 300 20,000 6,000,000.00
10 Guard house 100 20,000 2,000,000.00
11 parking 100 3,333,33 1,000,000.00
12 Green area 500 5,000 2,000,000.00
13 For expansion 0.00 800,000.00
14 Fence 1,000M 1,200*2*2,000 704,000.00
10,000 42504000
TOTAL
Table 11 Land lease period in Modjo town

Sector of development Period of lease Down payment

activity
Education, health, 90 10%
culture and sports
Industry 70 10%
(manufacturing )
commerce 60 10%
For urban agriculture 15 10%
For others 60 10%

Sources: - city government of Modjo land development and management bureau

Table 12 Land lease floor price in Modjo town

Current
S/No Land level land lease Current lease price per M2
floor price per M2 (Market price )
1 1/1 2,213.25 39,073.31
2 1/2 2,165.47 36,825.73
3 1/3 1,900.19 34,578.15
4 ¼ 1,552.93 31,119.21
5 1/5 1,531.91 29,096.45
6 2/1 1327.39 27,073.71
7 2/2 1,221.18 25,050.96
8 2/3 1,191.17 23,028.21
9 2/4 1,074.39 21,005.46
10 2/5 1,027.84 18,982.71
11 3/1 994.71 16,959.96
12 3/2 960.21 14,937.21
13 3/3 927.84 12,914.46
14 ¾ 904.77 10,891.71
15 3/5 873.74 8,868.96
16 4/1 814.06 6,846.21
17 4/2 786.45 4,823.46
18 4/3 748.80 2,800.71
 3.2.2. Machinery and equipment

Table 13 Lists of meat processing machineries

S/No Machines Quantity

1 Automatic meat processing line including 1
bowl chopper, mixing unit, vacuum filler,
formic shape, smoke house and fryer
2 Cold storage 1
3 Packaging line 1
4 Refrigerated vehicle 2
5 Generators and solar system 2
6 Tube well for water supply 1
7 Miscellaneous 1

3.2.3. List meat processing machinery suppliers

Hermann Wiegand GmbH

Am Anger 27
36169 Rasdorf, Germany
Tel.: +49 (0)6651 9600-0
Fax.: +49 (0)6651 9600-16

SCHRÖDER Maschinenbau
GmbH & Co. KG
Esch 11
33824 Werther, Germany
Tel.: +49 5203 9700 0
Fax.: +49 5203 9700 79
4. Organizational structure for meat processing unit

The selection of structure of the envisaged project is made based on the existing structure of
manufacturing plants operating in the country, the capacity, complexity and technology mix of the
plant. Organizational structure principles such as specialization, coordination, and
departmentalization are also considered for design of structure that best suits the envisaged project

4.1. Manpower Requirement and Estimated Annual manpower costs

Table 14 Annual manpower costs

s/no Description Number of Salary in birr

persons monthly annually
1 General manager 1 45,000.00 540,000.00
2 executive secretary 1 15,000.00 180,000.00
3 legal advisor 1 20,000.00 240,000.00
4 Planning and project development 1 20,000.00 240,000.00
5 Manager- admin. and finance 1 25,000.00 300,000.00
6 assistance manager- finance 1 22,000.00 264,000.00
7 Accountant 1 15,000.00 180,000.00
8 accounting clerk 1 10,500.00 126,000.00
9 Cashier 1 10,000.00 120,000.00
10 personnel and general service 1 15,000.00 180,000.00
11 Guards 5 4,500.00 270,000.00
12 messenger and cleaner 1 7,500.00 90,000.00
13 driver ii 4 10,000.00 480,000.00
14 Veterinary doctor 1 24,000.00 288,000.00
15 chief quality controller 3 22,000.00 792,000.00
16 Food technologist 1 20,000.00 240,000.00
17 Meat packers/processors 3 24,000.00 864,000.00
18 Sanitation expert 3 17,500.00 630,000.00
19 senior mechanics 3 15,000.00 540,000.00
20 senior electrician 3 15,000.00 540,000.00
21 store keeper 1 10,000.00 120,000.00
22 manager- commercial 1 20,000.00 240,000.00
23 Purchaser 1 10,000.00 120,000.00
24 sales- manager 1 25,000.00 300,000.00
TOTAL 41 7,884,000.00
5. Financial Analysis

5.1. General

The financial analysis evaluation of the project, under consideration has been carried out for meat

processing cost estimates of the envisaged factory are mainly consisted of capital investment as

well as operating and maintenance costs. The capital investment costs include fixed investment

costs (initial fixed investment and replacement costs) and working capital, while operating and

maintenance costs comprise current expenses related to material inputs, labour, utility, repair and

maintenance costs, spare parts, Overheads, Sales and distribution, interest and depreciation

expenses.

The financial analysis and evaluation has been conducted taking assumptions:

1. It is assumed that about 70% of the total capital investment costs including the working

capital requirement could be covered through development bank loans of short and long-

term credits. The remaining balance 30% will be covered by equity capital contribution of

the project owner.

2. Even though the project might secure loans under different term and conditions as well as

from different financial sources, for the purpose of calculation of debt service scheduling,

the current development bank of Ethiopia credit terms and conditions have been used.

Consequently. It is assumed that the project will secure loan facility on the basis of 11.5 %

annual interest rate.

3. Even though the estimated project production life is more 10 years, the financial analysis

has been undertaken for a period interval covering the first 10 years only, during which
time
most of the capital assets are assumed to be deprecated, debts recovered and pay-back period

accomplished.

4. It is assumed that the project will be start up production activity at 70 % capacity. During

years 2 & year 3 the projects is anticipated to gradually increase capacity utilization to

reach 100% in year 4. Therefore, starting from year 4 the project will be operational at full

capacity.

5. For the project under reference promotional, sales and distribution expenses have been

estimated at 3% of the sales revenue.

6. Maintenance and spare parts costs are 1.5% of the fixed investment costs.
 5.2. Initial Fixed investment costs
Table 15 Initial Fixed investment costs

S/No investment type Unit of Quantity Unit price Total Amount Remarks
measurement
1 Square meter 50,000 3,885 194,250,000.00 period of land lease will
be 70 years and
birr/M2 10% of the total
2Buildings and civil works Square meter 5,100 lump sum 402,800,000.00 lease amount
will be paid in
the first

total 597,050,000.00
3Machineries set 2 Lump sum 120,000,000.00
4Transformer set 1 Lump sum 2,000,000.00
5Weighbridge Set 1 Lump sum 4,000,000.00
6 and vehicles Pcs 2 Lump sum 12,000,000.00
7Furniture and Pcs 500,000.00

TOTAL 138,500,000.00
Fixed capital investment 735,550,000.00
costs
8pre-operational expenses 2,000,000.00

Working capital 354,099,000.00

TOTAL INVESTMENT COSTS 1,091,649,000.00
 5.3. Working capital

Working capital is the financial means required for smooth operation and maintenance of a project

mathematically, it is a difference between current assets and current liabilities. In the particular

case of the project under consideration, the current assets comprise receivables, inventories (local

and imported material inputs, spare parts, work in progress, and products ready for delivery) and

cash in hand, while current liabilities comprise accounts payable to creditors.

5.4. Project Financing

Fixed capital investment costs and working capital requirements are assumed to be financed by

equity capital of the owner and through loans of short and long-term credits.

As stated earlier even though the company obtains loans under different terms and condition as

well as from different sources, for the purpose of calculation of debt service scheduling the current

development bank of Ethiopia credit terms and conditions have been used. Accordingly, it is

assumed that the company will be able to obtain loan 70% of the total investment costs and the

remaining balance that of the total investment costs will be expected to be covered by equity

contribution of the project promoter.

 5.5. Production costs

As it is depicted in Annex Table 21 major categories of the total production costs are assembled

into the following cost elements.

5.5.1. Material inputs

In the project under study the basic material inputs are cattle (Oxen, bulls, and cows), labelled cans and salt.

Therefore, the current prevailing local and international market prices have been used for estimation of

material inputs costs. At full capacity operation the material inputs costs are estimated at Birr 10.05 billion

per annum.

Table 16 Raw materials input plan in Birr'000'

Period Start-up Full

Capacity
Capacity utilization 70% 80% 90% 100%

Project year 1 2 3 4
Materials input Quantity at full Unit
for meat Description Capacity price
processing
1 Cattle Average weight 400kg 500 cattle/day 75,000 6,825,000 7,800,000 8,775,000 9,750,000

2 Can 1000gm, holding capacity 68, 000pcs/day 15 185,640 212,160 238,680 265,200

3 Salt Food grade salt 378kg/day 13 895 1,023 1,150 1,278

4 Carton For packing 5,667 pcs /day 22 22,691 25,932 29,174 32,415
5 Plaster One roll for 40 cartons 142 roll/ day 75 1,938 2,215 2,492 2,769
7,036,164 8,041,330 9,046,496 10,051,662
Total
 5.5.2. Utilities
In estimating costs of utility expenses for operation and maintenance of the project, Costs of fuel, oil and

lubricant, electricity and water consumptions have been taken in to consideration, the rates of which have

been estimated on the basis of the proposed capacity utilization program of the project and at the current

official charging rates. At full capacity operation the project will have the following utility expense per

annum which amounts to Birr 8.88 million.

Table 17 Utilities of the factory’000”Birr

Start-up Full
Utility”000”Birr Capacity
Capacity utilization 70 % 80 % 90 % 100 %
Project year 1 2 3 4
Item description Unit of measurement
Fuel
Gasoline for service vehicle 50km*260days*37Birr/LIT*8km/Li 29.575 33.80 38.025 42.250
Gasoline for transport truck (200km*300days*37Birr/LIT*5km/Li)*3 655.20 748.80 842.40 936.00
Sub-Total
684.775 782.6 880.425 978.25
Change of oil and lubricant 10% of the fuel consumption
68.48 78.26 88.04 97.83
Sub-Total
753.25 860.86 968.47 1,076.08
Electricity 260days*24 hrs*650kwh* 0.4736Birr/kwh 2,839 3,245 3,650 4,056

Sub- Total 2,839 3,245 3,650 4,056

Water 365days*1,000m3/day*10 Birr/m3 2,555 2,920 3,285 3,650
Sub -Total 2,555 2,920 3,285 3,650
Telecommunication
Telephone 5 lines*
500Birr/month/line+18Birr/line/month 31.08 31.08 31.08 31.08
Mobile 5 lines*500 Birr/month/line 30.00 30.00 30.00 30.00
Fax 2line*500Birr/month + 17 Birr/line/month 12.40 12.40 12.40 12.40
Internet 2,500 Birr/month 30.00 30.00 30.00 30.00
Sub-Total 103.48 103.48 103.48 103.48
6,250.73 7,129.34 8,006.95 8,885.56
TOTAL
 5.5.3. Repair and maintenance

In the expenses under this title have been considered cost estimates required for annual repair and

maintenance works including spare parts expenses. These costs include the annual repair expenses

of structures and civil works as well as repair and maintenance expenses of machinery and

equipment including accessory and general service facilities. The repair and maintenance and spare

parts costs have been assumed to be 1.5% of the total fixed costs.

5.5.4. Salaries and wages

The costs of salaries have been calculated in accordance with the manning list proposed under the

“organization and Management” section of this study. In the estimation of salaries and wages, the

official minimum wage has been taken in to account. At full capacity operation the costs of salaries

and wages will amount to Birr 7.884Million.

5.5.5. Over heads

In the expenses under this title have been included land and building taxes, buildings, vehicles as

well as machinery and equipment insurance, vehicles annual inspection; postage, telephone and e.

mail, stationery and office supplies; printing and copying; audit fee; cash indemnity etc. The

overhead costs and divided in to direct overheads and administration overheads.

Table 18 Overhead costs

Direct Overhead”000”Birr Year 1 Year 2 Year 3 Year 4

Annual land lease Payment 27,750 27,750 27,750 27,750

Insurance
Building and Civil works 0.10% 402.80 402.80 402.80 402.80
Machinery and Equipment 0.20% 240.00 240.00 240.00 240.00
Motor vehicle and Truck 1% 120.00 120.00 120.00 120.00
Vehicles annual inspection and 15,000 Birr per annum per vehicle
registration 45.00 45.00 45.00 45.00
Work cloth Two times per annum per workers at
800 Birr 65.60 65.60 65.60 65.60
Cleaning and sanitation An estimate of 300 Birr/day 78.00 78.00 78.00 78.00
Sub Total
28,701.40 28,701.40 28,701.40 28,701.40
Administration Overhead “000’ Birr
Audit fee 40,000 Birr per annum 40.00 40.00 40.00 40.00
Office cleaning and sanitation 2,000 Birr per month 24.00 24.00 24.00 24.00
Stationery and office supplies 2,000 Birr per month 20.00 20.00 20.00 20.00
Printing and Copy 2,000 Birr per month 24.00 24.00 24.00 24.00
Sub Total 108.00 108.00 108.00 108.00
28,809.40 28,809.40 28,809.40 28,809.40
GRAND TOTAL

5.5.6. Financial costs

As it has been outlined earlier under” project Financing” the current Development Bank of

Ethiopia credit terms and conditions for newly establishing projects have been used to compute the

financial costs, estimated to be incurred in connection with that of the total investment costs

assumed to be covered through loan financing. The amount of the loan capital to be obtained and

the financial costs to be incurred thereof have been determined depending on the amount of fixed

investment cost and pre-production expenses.

 5.5.7. Depreciation

Depreciation charges should be taken in to account as part of the total production costs in order to

calculate the total production costs, the net working capital and the gross or net-profit. For the

given project under reference, the fixed assets and the pre-production capital expenditures have

been depreciated and amortized respectively on “a straight line” depreciation method basis using

the following rates of the original acquisition costs of the assets:

The rationale uses for the estimation of the depreciation and the amortization rates is based on the

expected service life of the assets and repayment capacity of the project under consideration.

Based on the above charging rates and consideration of the above facts, the total annual

depreciation cost at full capacity operation have been estimated at Birr 41.44 million.

Table 19 Depreciation in Birr"000"

Period Start-up

Capacity utilization 70 % 80 % 90 % 100 %

Project year 1 2 3 4
Item description Original Value

Structure and civil works 402,800,000.00 5% of original value 20,140 20,140 20,140 20,140

Machinery and equipment 120,000,000.00 15 % of original value 18,000 18,000 18,000 18,000

Transformer 2,000,000.00 15 % of original value 300 300 300 300

Motor vehicles and trucks 12,000,000.00 15 % of original value 1,800 1,800 1,800 1,800

Weighbridge 4,000,000.00 15% of original value 600 600 600 600

Office equipment and furniture 500,000.00 20 % of original value 100 100 100 100

Pre-production expenses 2,000,000.00 25 % of original value 500 500 500 500

Total 41,440 41,440 41,440 41,440

 5.6. Break Even point and ROI
To determine BEP Annual Sales, multiply annual sales found in income statement by the

annual fixed cost, and divided by Annual sales less Annual variable cost.

BEP (sales) = = Annual sales−Annual variables costs

Annual sales x Annual fixed costs

Annual sales = 8,153,600.00 Birr

Unit selling price = 600 Birr/kg

==
Annual sales x Annual fixed
Annual sales−Annual variables = = 8,153,600−7,345,143
costs
BEP (sales) 8,153,600 x 165,510

costs

BEP (Sales) = 1,669,232,000 Birr

A. BEP production

To determine BEP production volume, divided BEP sales by the unit selling price (USP)

BEP production = 1,669,232,0002/600 = 2,782,053

Annual fixed costs x 100%

=
BEP percentage
Annual sales−Annual variables
B.

costs

= 8,153,600−7,345,14
165,510x 100%

= 20.47%

5.6.1. Return on investment

Return on investment = Net profit /Total capital requirement

= 41%

The return on owners’ investment (ROOI)

= Annual net profit /owners’ investment

= 137%
 5.7. Project costs

Project capital investment costs are the sum of fixed capital investment (fixed investment plus pre-

production capital expenses) and net working capital at full capacity, with fixed capital constituting

the resources required for constructions and civil works, importation and installation of production

machinery and equipment and general service facilities, whereas, the working capital

corresponding to the resources needed for operation of the project totally and partially.

As it has been revealed in Annex Table 21 the total annual operating costs excluding depreciation

and interest are estimated to range from 7.3billion Birr in year 1 to 10.45 billion Birr in year 4 and

then after remain constant for the rest of the project life.

The total annual production costs including depreciation and interest increase from 7.46billion Birr

in year 1 to 10.566 billion Birr in year 4 then starts declining until it reaches 10.48 billion Birr in

year 10.

In according to Annex Table 22 requirement for the total working capital has been found to range

from 354 Million Birr to in year 1 to 483 Million Birr in year 4 and then and then after remain

constant for the rest of the project life.

In the assumptions used to compute the working capital, basically care has been taken to cover

costs of consumable materials inventory (material input, spare parts stock, work in progress and

product ready for delivery), delivered products and cash in hand requirement.
 5.8. Project benefits

For financial analysis and evaluation of the given project, the current cattle price, and packing

materials buying price and final packed meat price at the project gate has been taken as a basis. As

it has been stated earlier the project is envisaged to reach full capacity operation four years after

commencement of production activities which are assumed to begin with 70% of the estimated

total capacity.

At full capacity operation the project is envisaged to have the following revenue

components. Table 20 Source of revenue in Birr"000"

Period Start-up Full Capacity

70% 80% 90% 100% 100%
Capacity utilization

Project year 1 2 3 4 5
Unit price
Product type
1 Canned meat 600/kg 7,425,600 8,486,400 9,547,200 10,608,000 10,608,000

2 By product like blood, 40% of total 50birr/kg 728,000 832,000 936,000 1,040,000 1,040,000
fatty tissue, skin, weight of the
organs and etc. cattle will be
sold as by
products
TOTAL 8,153,600 9,318,400 10,483,200 11,648,000 11,648,000

Thus, according to the computation in Annex Table 23 and Annex Table 25, the net income and

cash flow statements analysis revealed that at full capacity operation the project will generate a

total income (gross revenue) amounting to 11.64 billion Birr per annum. The corresponding Annex

Table 23 of “Net Income Statement” shows a steady growth of gross profit starting from 692

million Birr in year 1 reaching the peak of 1.1billion Birr in year 10. In its 10 years of

manufacturing activities,
the project is expected to generate a total net profit of 6.68 billion Birr and contribute 3.6billion

Birr to the government treasury in form of 35% income tax.

According to the current investment Law, machinery and equipment are anticipated to be imported

duty- free. The liquidity position of the project is very strong. The corresponding Annex Table 25

of “Cash Flow Statement” shows the positive cumulative cash balance of Birr 6.2 billion and the

project will not face any cash shortage throughout its production life.

The computation of the pay-back period as depicted in Annex table 30 indicates that the project

will be able to reimburse itself from its net cash-income within one year after commencement of

production activities, the period which is considered to be very good for the project of this nature.

In Annex Table 31 of the Benefit-cost ratio and Net present value (NPV) have been calculated at

17% discount factor (D.F) for 10 years of the project activity. Accordingly, the project has NPV of

3.69billion Birr at 17%D.F. and the benefit-cost ratio of 1.09at 17% D.F. These results are most

appreciable, especially, when related to the external capital borrowing interest rate which ranges

from 8.50% to 18.5 % for newly establishing projects.

The project under study when implemented will have BEP at about 20.47% operation of the

estimated full capacity. In addition to this, finally, summary of financial efficiency tests have been

conducted in Annex table 29, Accordingly, all efficiency ratios indicated positive trends and

consequently, it can be inferred that the project can operate in the frame work of free market

mechanism on commercially and financially viable basis and is remunerative.

ANNEXES
 ANNEX II

CALCULATION OF ANNUAL PRODUCTION COSTS

Table 21 Annual total production costs”000”

Period Start-up Full capacity

Capacity utilization 70 % 80 % 90 % 100 % 100 %

Project Year 1 2 3 4 5 6 7 8 9 10
Cost category
I. Material inputs 7,036,164 8,041,330 9,046,496 10,051,662 10,051,662 10,051,662 10,051,662 10,051,662 10,051,662 10,051,662

II. Labor 7,884 7,884 7,884 7,884 7,884 7,884 7,884 7,884 7,884 7,884
III. Utility 6,251 7,129 8,007 8,886 8,886 8,886 8,886 8,886 8,886 8,886

IV. Repair and Maintenance and spare 8,120 8,120 8,120 8,120 8,120 8,120 8,120 8,120 8,120 8,120
parts (0.5 % of fixed costs)
VI Direct overheads 28,701 28,701 28,701 28,701 28,701 28,701 28,701 28,701 28,701 28,701
A. Direct Production costs 7,087,120 8,093,164 9,099,208 10,105,253 10,105,253 10,105,253 10,105,253 10,105,253 10,105,253 10,105,253

VII. Administration over head 108 108 108 108 108 108 108 108 108 108
VIII. Marketing and Promotional expense
244,608 279,552 314,496 349,440 349,440 349,440 349,440 349,440 349,440 349,440
3 % of sales revenue
B. Operating costs 7,331,836 8,372,824 9,413,812 10,454,801 10,454,801 10,454,801 10,454,801 10,454,801 10,454,801 10,454,801

Interest 87,377 82,747 77,028 70,650 63,539 55,610 46,769 36,911 25,919 13,664
Depreciation 41,440 41,440 41,440 41,440 40,940 40,840 34,009 20,140 20,140 20,140
C. Total production costs 7,460,653 8,497,011 9,532,280 10,566,891 10,559,280 10,551,251 10,535,579 10,511,852 10,500,860 10,488,605
 ANNEX IV
CALCULATION OF WORKING CAPITAL REQUIREMENTS

I. Minimum requirement of current assets and liabilities

A. Accounts receivable: 30 days at total production costs minus depreciation and interest
B. Inventory
1. Material inputs: 30days
2. Spare parts : 90 days
3. Work under process: two days at direct costs
4. Product ready for delivery: 8 days at direct costs plus administration overheads
C. Cash on hand : 90 days
D. Accounts payable 52 days for material inputs and utilities
ii. Working capital requirement
Table 22 Calculation of working
capital
Minimum Coeff- Project year
Days of icient Start up Full capacity
coverage of
Cost category turnover
1 2 3 4 5 6 7 8 9 10
I. Current asset
A. A/R 26 10 733,184 837,282 941,381 1,045,480 1,045,480 1,045,480 1,045,480 1,045,480 1,045,480 1,045,480
B. Inventory
1. Material inputs 26 10 703,616 804,133 904,650 1,005,166 1,005,166 1,005,166 1,005,166 1,005,166 1,005,166 1,005,166
2. Spare parts 90 4 2,030 2,030 2,030 2,030 2,030 2,030 2,030 2,030 2,030 2,030
2 130 54,516 62,255 69,994 77,733 77,733 77,733 77,733 77,733 77,733 77,733
3. Work under process
8 32.5 218,173 249,128 280,084 311,039 311,039 311,039 311,039 311,039 311,039 311,039
4. Product ready for delivery 90 4 51,064 51,942 52,820 53,699 53,699 53,699 53,699 53,699 53,699 53,699
C. Cash on hand
D. Current assets 1,762,583 2,006,770 2,250,959 2,495,147 2,495,147 2,495,147 2,495,147 2,495,147 2,495,147 2,495,147
II. Current liabilities
A. A/p 52 5 1,408,484 1,609,692 1,810,900 2,012,110 2,012,110 2,012,110 2,012,110 2,012,110 2,012,110 2,012,110
III. Working capital
A. Net working capital 354,099 397,078 440,059 483,037 483,037 483,037 483,037 483,037 483,037 483,037
B. Increasing in working capital 354,099 42,979 42,981 42,978 0.0 0.0 0.0 0.0 0.0 0.0
 ANNEX VI

PROJECTED NET INCOME STATMENT

Table 23 Projected Net income statement "000"

Period Start up Full capacity

Capacity utilization 70 % 80 % 90 % 100 %

Project year 1 2 3 4 5 6 7 8 9 10

Item description
8,153,600 9,318,400 10,483,200 11,648,000 11,648,000 11,648,000 11,648,000 11,648,000 11,648,000 11,648,000
Product sales revenue
7,460,653 8,497,011 9,532,280 10,566,891 10,559,280 10,551,251 10,535,579 10,511,852 10,500,860 10,488,605
Less total production costs

Gross profit 692,947 821,389 950,920 1,081,109 1,088,720 1,096,749 1,112,421 1,136,148 1,147,140 1,159,395

Tax 242,531 287,486 332,822 378,388 381,052 383,862 389,347 397,652 401,499 405,788

Net profit 450,416 533,903 618,098 702,721 707,668 712,887 723,074 738,496 745,641 753,607
Accumulated 450,416 984,318 1,602,416.40 2,305,137 3,012,805 3,725,692 4,448,766 5,187,262 5,932,903 6,686,510
undistributed profit
 ANNEX VII
DEBT SERVICE SCHEDULE AND COMPUTATION
PAYMENT OF EQUAL ANNUAL INSTALLMENTS

Table 24 Debt services schedule and computation

Item description Project year

1 2 3 4 5 6 7 8 9 10
A. Investment and working capital
1. Investment
2. Increment working
capital Total
B. Loan receipts and balances
1. Loan receipts 764,154 719,545 669,805 614,347 552,510 483,561 406,684 320,965 225,389 118,822
2. Outstanding balance 764,154 719,545 669,805 614,347 552,510 483,561 406,684 320,965 225,389 118,822
at end of year
a. First year loan

Total
A. Debt service
1. First year Loan
a. Interest 87,377 82,747 77,028 70,650 63,539 55,610 46,769 36,911 25,919 13,664
b. Repayment of principal 44,609 49,739 55,459 61,837 68,948 76,877 85,718 95,576 106,567 118,822
 ANNEX VIII
CASH-FLOW STATEMENT
FOR
FINANCIAL PLANING
Table 25 Projected Cash flow statement

Period Start up Full capacity

Capacity utilization 70% 80% 90% 100%
Project year 1 2 3 4 5 6 7 8 9 10

Item description
A. Cash - inflow 10,653,733 9,562,587 10,727,389 11,892,188 11,648,000 11,648,000 11,648,000 11,648,000 11,648,000 11,648,000
1. Financial resource 2,500,133
(total) 244,187 244,189 244,188
2. Sales revenue 8,153,600 9,318,400 10,483,200 11,648,000 11,648,000 11,648,000 11,648,000 11,648,000 11,648,000 11,648,000
B. Cash – outflow 10,206,486 9,036,983 10,123,310 11,209,864 10,968,340 10,971,150 10,976,635 10,984,940 10,988,786 10,993,075
1. Total assets schedule 2,500,133 244,187 244,189 244,188
including replacement
2. Operating costs 7,331,836 8,372,824 9,413,812 10,454,801 10,454,801 10,454,801 10,454,801 10,454,801 10,454,801 10,454,801
3. Debt service (total)
a. Interest 87,377 82,747 77,028 70,650 63,539 55,610 46,769 36,911 25,919 13,664
b. Repayment 44,609 49,739 55,459 61,837 68,948 76,877 85,718 95,576 106,567 118,822
4. Tax 242,531 287,486 332,822 378,388 381,052 383,862 389,347 397,652 401,499 405,788
C. Surplus (Deficit) 447,247 525,604 604,079 682,324 679,660 676,850 671,365 663,060 659,214 654,925
D. Cumulative cash balance 447,247 972,851 1,576,930 2,259,254 2,938,914 3,615,764 4,287,129 4,950,189 5,609,403 6,264,328
 ANNEX XII
TOTAL INVESTMENT COSTS
Table 26 Total investment costs”000”

Period Start up Full capacity

Project year 1 2 3 4 5 6 7 8 9 10 11
Investment Category
1. Fixed investment costs
a. Initial fixed investment costs 735,550
b. Replacement
2. Pre-operational capital expenditure 2,000
3. Working capital increase 354,099 42,979 42,981 42,978
Total investment costs 1,09,649 42,979 42,981 42,978

ANNEX XIII
TOTAL ASSETS

Table 27 Total Assets

Period Start up Full capacity

Project year 1 2 3 4 5 6 7 8 9 10 11 12
Investment Category
1. Fixed investment costs
c. Initial fixed investment costs 735,550
 Cost of land
d. Replacement
2. Pre-operational capital expenditure 2,000
3. Current assets increase 1,762,583 244,187 244,189 244,188
Total assets 2,500,133 244,187 244,189 244,188
 ANNEX XIV
SOURCES OF FINANCE
Table 28 Sources of finance

Period Start up Full capacity

Project year 1 2 3 4 5 6 7 8 9 10 Total
Sources of finance
1. Equity capital 327,495 42,979 42,981 42,978
2. Loan capital 764,154
3. Current liabilities 1,408,484 201,208 201,208 201,210
Total finance 2,500,133 244,187 244,189 244,188

ANNEX XI
SUMMARY OF FINANCIAL EFFECIENCY TESTS
Table 29 Summary of financial efficiency tests

Project year
Project year 1 2 3 4 5 6 7 8 9 10
Capacity utilization 70% 80% 90% 100%
Financial ratio in %
1. Gross profit : Revenue 8% 9% 9% 9% 9% 9% 10% 10% 10% 10%
2. Net profit : Revenue 6% 6% 6% 6% 6% 6% 6% 6% 6% 6%
3. Net profit : initial investment 41% 47% 52% 58% 58% 58% 59% 61% 61% 62%
4. Net profit : Equity 138% 144% 149% 154% 155% 156% 158% 162% 163% 165%
5. Gross profit : Initial investment 63% 72% 81% 89% 89% 90% 91% 93% 94% 95%
6. Operating costs : Revenue 90% 90% 90% 90% 90% 90% 90% 90% 90% 90%
 ANNEX XV
CALCULATIONS OF PAYBACK
Table 30 Calculation of payback period”000” PERIOD

Amount Paid Back Total

Year Net Profit Depreciation Total investment End of year
1 450,416 41,440 1,091,649 -599,793
491,856
2 533,903 41,440 42,979 -67,429
575,343
3 618,098 41,440 42,981 +549,128
659,538
 ANNEX XVI
CALCULATIONS OF NET PRESENT VALUE AT 17% D.F.

Table 31 Calculation of NPV at 17% D.F.

Project Gross Present Project costs

year Revenue 1/(1+i)n At value at Total Operating Total Present value
17% 17% investment costs at 17%
1 8,153,600 0.854701 6,968,890 1,091,649 7,331,836
8,423,485 7,199,561
2 9,318,400 0.730514 6,807,222 42,979 8,372,824
8,415,803 6,147,862
3 10,483,200 0.624371 6,545,406 42,981 9,413,812
9,456,793 5,904,547
4 11,648,000 0.53365 6,215,955 42,978 10,454,801
10,497,779 5,602,140
5 11,648,000 0.456111 5,312,781 10,454,801
10,454,801 4,768,550
6 11,648,000 0.389839 4,540,845 10,454,801
10,454,801 4,075,689
7 11,648,000 0.333195 3,881,055 10,454,801
10,454,801 3,483,487
8 11,648,000 0.284782 3,317,141 10,454,801
10,454,801 2,977,339
9 11,648,000 0.243404 2,835,170 10,454,801
10,454,801 2,544,740
10 11,648,000 0.208037 2,423,215 10,454,801
10,454,801 2,174,985
Total 48,847,679 44,878,901
A. Benefit- cost ratio At 17% D.F. = 1.09
B. NPV At 17% D.F. = 3,968,778,000 Birr