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107.

PROFILE ON AEROSOL INSECTICIDE

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TABLE OF CONTENTS
PAGE
I.

SUMMARY

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II.

PRODUCT DESCRIPTION & APPLICATION

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III.

MARKET STUDY AND PLANT CAPACITY


A. MARKET STUDY
B. PLANT CAPACITY & PRODUCTION PROGRAMME

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107-4
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IV.

MATERIALS AND INPUTS


A. RAW MATERIALS
B. UTILITIES

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107-7
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V.

TECHNOLOGY & ENGINEERING

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A. TECHNOLOGY
B. ENGINEERING

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107-11

VI.

MANPOWER & TRAINING REQUIREMENT


A. MANPOWER REQUIREMENT
B. TRAINING REQUIREMENT

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VII.

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

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107-15
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I.

SUMMARY

This profile envisages the establishment of a plant for the production of aerosol
insecticide with a capacity of 263 tonnes per annum.
The major materials required are active ingredients of insecticides (allethrin, reametrhin,
dichlrovos) perfumes, propellant and refined kerosene which have to be imported.

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The present demand for the proposed product is estimated at 234 tonnes per annum. The
demand is expected to reach at 389 tones by the year 2020.
The total investment requirement is estimated at Birr 5.67 million, out of which Birr 960
thousand is required for plant and machinery. The plant will create employment
opportunities for 16 persons.
The project is financially viable with an internal rate of return (IRR) of 24.50 % and a net
present value (NPV) of Birr 4.19 million, discounted at 8.5%.
The establishment of such factory will have a foreign exchange saving effect to the
country by substituting the current imports.

II.

PRODUCT DESCRIPTION AND APPLICATION

Aerosol insecticides are those which are bottled under pressure inside sprayer cans and
are mainly used to kill mosquitoes, flies and cockroaches from residences,
bars, hotels and offices.

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III.

MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Present Supply and Demand

Aerosol insecticides are those which are bottled under pressure inside sprayer cans. They
are mainly used to kill mosquitoes, flies and cockroaches from residences, bars, hotels
and offices.
Currently, the countrys requirement of aerosol insecticides is entirely met through
import. However, data from Customs Authority lumps up all types of insecticides
together. A discussion with knowledgeable persons reveals that from the total insecticide
the country imports about 10% is aerosol insecticides. Accordingly Table 3.1 shows
annual imports of insecticide and the share of aerosol insecticides.
Table 3.1
IMPORT OF INSECTICIDE AND THE SHARE OF AEROSOL
INSECTICIDES (TONNES)

Share of
Total
Aerosol
Year
Insecticide
Insecticide
1997
1,092
109
1998
736
74
1999
976
98
2000
690
69
2001
1,224
122
2002
908
91
2003
1,254
125
2004
2,358
236
2005
2,501
250
2006
2,155
216
Source:-Customs Authority

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As could be seen from Table 3.1, import of aerosol insecticides fluctuates from year to
year although the general trend is upward. This could be evidenced from the fact that the
average imported quantity during the period 2001 - 2003 has increased by 40% when
compared with the previous three years ( 1998 2000) average. Moreover, the average
imported quantity during the period 2004-2006 is about 234 tons which is higher by
107% compared to the average level of import during 2001-2003. During the period
under consideration (1997 2006), import of aerosol insecticides has registered an
average annual growth rate of 15.63%.
Since import has been generally rising in the past 10 years the average annual imported
quantity during the recent three years (2004- 2006) is taken as current effective demand.
Accordingly current effective demand for aerosol insecticides is estimated at 234 tonnes.
2.

Projected Demand

Aerosol insecticides are highly demanded by hotels, restaurants, super markets, offices
and urban households. Therefore, a 4% growth rate is used which is equivalent to the
growth rate of urban population. Table 3.2 depicts the projected demand for the product.

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Table 3.2
PROJECTED DEMAND FOR AEROSOL INSECTICIDES (TONNES)
Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
3.

Projected
Demand
243
253
263
274
284
296
308
320
333
346
360
374
389

Pricing and Distribution

Prices of aerosol insecticide vary due to the type and origin. The average retail price of
aerosol insecticides in Addis Ababa is about Birr 20 per 0.5 liter. Allowing 40% profit
margin for distributors and retailers, an ex-factory price of Birr 12 per 0.5 liter is
proposed.
B.

PLANT CAPACITY AND PRODUCTION PROGRAMME

1.

Plant Capacity

The market study shows that there is no local producer and the country's requirement is
totally met through import. Based on the market study and growth rate of the product
users, the proposed plant capacity for the envisaged plant is 263 ton (328,750lt) per
annum, working 300 days a year.

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2.

Production Programme

The production programme considers that for the first production year the plant will
utilize 80% of its capacity, and 90% in the second year. The plant will operate at full
capacity on the third year and thenafter.

Table 3.3
PRODUCTION PROGRAMME
Sr.

Product

No.
1

Capacity utilization rate (%)

Production(tonnes)

IV.

MATERIALS AND INPUTS

A.

RAW AND AUXILIARY MATERIALS

Year of Production
1

80

90

210.4

236.7

3-10
100
263

The main raw materials are various types of insecticide, perfume and propellant. The active
ingredient that kills the insect and perfume will be imported while the rest of the raw
materials will be available from the oil companies operating in the country. The total cost of
raw and auxiliary materials, is estimated Birr 5,096,513 of which Birr 3,973,989 will be
required in foreign currency.

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Table 4.1
ANNUAL OF RAW AND AUXILIARY MATERIALS & COST

Sr.
No
.
1

2
3

Description

Insecticide, active ingredient


(Allethrin, Reametrhin,
dichlrovos,etc)
Perfume

Unit
Of
Meas.
Kg

Kg

Qty

Unit
Cost
(Birr)
13,150 83.64

2,660 66.94

Liter

65,750 21

Propellants (LPG, Freon gas,


etc)
Refined kerosene

Liter

Cans, Valves, Caps

Pcs

246,56 9
3
12,500

Cost (Birr)
L.C
824,899.
5
133,545.
3
164,080.
0

F.C

Total
1,099,866
.0
178,060
.4
1,380,750
.0
2,219,067
.0
218,770
.0

274,966.5
44,515.1
1,380,750.0
2,219,067.0
54,690.0

Grand Total
1,122,524.8 3,973,988.6

B.

5,096,513.4

UTILITIES

Utilities required for manufacturing Aerosol insecticide include electric power and water.
The annual utilities requirement of the plant and their respective cost is given in Table 4.2.

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Table 4.2
ANNUAL REQUIREMENT OF UTILITIES & COST
Description

Sr.

Unit of

Qty.

Measure

No.

Cost
(Birr)

Electricity

kWh

72,000

34,099

Water

m3

2,500

8,125

Total

42,224

V. TECHNOLOGY AND ENGINEERING


A. TECHNOLOGY
1.

Process Description

The insecticide is prepared by dosing the required amount of the active ingredient,
perfume and solvent into the mixing tank and mixing until a homogeneous solution is
obtained. The homogeneous insecticidal solution after being filtered to remove the
impurities is temporarily transferred to the storage tank. From storage tank, it is pumped
to the filling machine where it is filled in fixed volume to the cans which expelled from
the pneumatic can cleaners. Filled cans are sampled at random from time to time to
check the insecticidal solution filling condition. These valves are mounted on the mouths
of aerosol cans which have been filled with insecticide. Propellant is charged under
pressure from cans filled with propellant and passed through a hot water to check against
cans pressurized gas leakage. At this stage, the valves of cans are depressed for an
instant to confirm spraying is achieved satisfactorily, and faulty cans are discarded. The
cans are next wiped clean to remove residual water, oil and other impurities. The cans
are then weighed to confirm they contain the prescribed volume of insecticide. The cans

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are given final inspection to confirm the gas volume, insecticidal solution volume and gas
pressure. The cans are finally packed for market.
2.

Source of Technology

The technology and machineries can be obtained from Turkey and the supplier address is
given below
Hitit Makina Plc
Bagdat cad.
Karakas Sok. Coskun Is
Merkezi 3/23 Maltepe
Istanbul/Turkey

3.

Environmental Impact

The aerosol type insecticide making plant should be situated fairly well away from any
densely populated region, and no public or private building or housing
should be located anywhere within a distance of about 20 m from the
plant compounds. No fire should be used in the plant itself, in the plant
compounds or in the surrounding areas. The production technology is
conducted in a closed system and the vapors that could be generated
during the production process will be sucked by vacumm pump and
filtered with activated charcoal before releasing it to the atmosphere. The
liquid waste to be generated during production process and cleaning of
the production floor will be collected in a concrete containment vessel
lined with rubber mat to avoid infiltration to the soil and as a result
pollution of ground water. The solid waste that remains after evaporation
of the liquid is land filled in a properly selected and prepared site. The
cost of this containment vessel for the plant capacity envisaged is
estimated at Birr 80,000.

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B.
1.

ENGINEERING
Machinery and Equipment

The list of production machinery and equipment required for the plant is provided in Table
5.1. The total cost of plant machinery and equipment is estimated at Birr 880 thousand out
of which Birr 690 thousand will be required in foreign currency.
Table 5.1
MACHINERY AND EQUIPMENT REQUIREMENT AND COST
Sr.
No.
1
2
3
4
5
6
7
8
9
10
11

2.

Description

Qty

Automatic aerosol filling line


Pump unit for gas filling machine
Vacuum pump unit for gas filling machine
Compressor unit
Hot water bath
Ventilation fan system
Filtration system
Insecticide solution mixing tank with agitator
Insecticidal solution storage tank
Spray test conveyor
Packing conveyor
Grand Total

1 set
1 set
1 set
1set
1 unit
1 set
1 set
1 set
1set
1set
1 set

Cost in 000 Birr


FC
LC
Total
34.50
34.50
138.00
138.00
69.00
69.00
133.00
133.00
34.50
34.50
69.00
69.00
138.00
138.00
103.50
103.50
38.00
38.00
103.50
103.50
19.00
19.00
690.00
190.00
880.00

Land, Building and Civil Works

The total land requirement for the envisaged plant is estimated at 1,000 m 2. Out of this,
350 m2 is built-up area. The production hall covers an area of 200m 2 and the store 100m2
and the office building 50m2.Cost of building construction with at rate of Birr 2400 per
m2 amounts to Birr 840,000.

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According to the Federal Legislation on the Lease Holding of Urban Land (Proclamation
No 272/2002) in principle, urban land permit by lease is on auction or negotiation basis,
however, the time and condition of applying the proclamation shall be determined by the
concerned regional or city government depending on the level of development.
The legislation has also set the maximum on lease period and the payment of lease
prices. The lease period ranges from 99 years for education, cultural research health,
sport, NGO , religious and residential area to 80 years for industry and 70 years for trade
while the lease payment period ranges from 10 years to 60 years based on the towns
grade and type of investment.
Moreover, advance payment of lease based on the type of investment ranges from 5% to
10%.The lease price is payable after the grace period annually. For those that pay the
entire amount of the lease will receive 0.5% discount from the total lease value and those
that pay in installments will be charged interest based on the prevailing interest rate of
banks. Moreover, based on the type of investment, two to seven years grace period shall
also be provided.
However, the Federal Legislation on the Lease Holding of Urban Land apart from setting
the maximum has conferred on regional and city governments the power to issue
regulations on the exact terms based on the development level of each region.
In Addis Ababa the Citys Land Administration and Development Authority is directly
responsible in dealing with matters concerning land.

However, regarding

the

manufacturing sector, industrial zone preparation is one of the strategic intervention


measures adopted by the City Administration for the promotion of the sector and all
manufacturing projects are assumed to be located in the developed industrial zones.
Regarding land allocation of industrial zones if the land requirement of the project is
blow 5000 m2 the land lease request is evaluated and decided upon by the Industrial Zone
Development and Coordination Committee of the Citys Investment Authority. However,

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if the land request is above 5,000 m 2 the request is evaluated by the Citys Investment
Authority and passed

with recommendation to the Land Development and

Administration Authority for decision, while the lease price is the same for both cases.
The land lease price in the industrial zones varies from one place to the other. For
example, a land was allocated with a lease price of Birr 284 /m2 in Akakai-Kalti and Birr
341/ m2 in Lebu and recently the citys Investment Agency has proposed a lease price of
Birr 346 per m2 for all industrial zones.
Accordingly, in order to estimate the land lease cost of the project profiles it is assumed
that all manufacturing projects will be located in the industrial zones. Therefore, for this
profile, which is a manufacturing project a land lease rate of Birr 346 per m2 is adopted.
On the other hand, some of the investment incentives arranged by the Addis Ababa City
Administration on lease payment for industrial projects are granting longer grace period
and extending the lease payment period. The criterions are creation of job opportunity,
foreign exchange saving, investment capital and land utilization tendency etc.
Accordingly, Table 5.2 shows incentives for lease payment.
Table 5.2
INCENTIVES FOR LEASE PAYMENT OF INDUSTRIAL PROJECTS

Scored Point
Above 75%
From 50 - 75%
From 25 - 49%

Grace
Period
5 Years
5 Years
4 Years

Payment
Completion
Period
30 Years
28 Years
25 Years

Down
Payment
10%
10%
10%

For the purpose of this project profile the average i.e. five years grace period, 28 years
payment completion period and 10% down payment is used. The period of lease for
industry is 60 years.

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Accordingly, the total lease cost, for a period of 60 years with cost of Birr 346 per m 2, is
estimated at Birr 20.76 million of which 10% or Birr 2,076,000 will be paid in advance.
The remaining Birr 18.68 million will be paid in equal installments with in 28 years, i.e.,
Birr 667,286 annually.
VI. MANPOWER AND TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT
In order to run the envisaged plant efficiently, it needs 16 employees. The estimated
annual cost of manpower is Birr 148,320. The detail of which is shown in Table 6.1.
Table 6.1
MANPOWER REQUIREMENT AND ESTIMATED ANNUAL LABOUR COST
Sr.

Description

Req.

Monthly

Annual Salary

No
1
1
1
2
1
1
1
1
1

Salary (Birr)
3,500
900
2,800
2,400
900
700
900
600
1,500

(Birr)
42,000
10,800
33,600
28,800
10,800
8,400
10,800
7,200

No
1
2
3
4
5
6
7
8
9

Plant manager
Secretary
production supervisor
Quality controllers (checkers)
Operator
Assistant operator
Technician
Cashier
Purchaser/Sales man

10

Laborers

1,350

16,200

11

Driver

500

6000

12

Guard

700

8,400

Sub-Total

16

18,000

201,000

Employees benefit (25 % of basic


salary)
Total
B.

TRAINING REQUIREMENT

50,250
251,250

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The training of operators and technician would be essential. It has to be arranged during
the erection and commissioning period by machinery suppliers. The cost of training is
estimated at Birr 30,000.
VII.

FINANCIAL ANALYSIS

The financial analysis of the aerosol insecticide project is based on the data presented in
the previous chapters and the following assumptions:Construction period

1 year

Source of finance

30 % equity
70 % loan

Tax holidays

3 years

Bank interest

8.5%

Discount cash flow

8.5%

Accounts receivable

30 days

Raw material local

30 days

Raw Material import

90 days

Finished products

30 days

Cash in hand

5 days

Accounts payable

30 days

Repair and maintenance

5% of machinery cost

A.

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr
5.67 million, of which 12 per cent will be required in foreign currency. The major
breakdown of the total initial investment cost is shown in Table 7.1.
Table 7.1
INITIAL INVESTMENT COST ( 000 Birr)

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Sr.
No.

Cost Items

Local
Cost

Foreign
Cost

Total
Cost

2,076.00

2,076.00

Land lease value

Building and Civil Work

840.00

840.00

Plant Machinery and Equipment

270.00

690.00

960.00

Office Furniture and Equipment

100.00

100.00

Vehicle

450.00

450.00

Pre-production Expenditure*

386.04

386.04

Working Capital

858.36

858.36

690.00

5,670.40

Total Investment cost

4,980.40

* N.B Pre-production expenditure includes interest during construction ( Birr 236.04


thousand ) training (Birr 30 thousand ) and Birr 100 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 6 million (see
Table 7.2).

The raw material cost accounts for 84.89 per cent of the production cost.

The other major components of the production cost are depreciation, financial cost and
direct labour which account for 6.06 %, 3.43% and 2.01% respectively. The remaining
3.61% is the share of utility, repair and maintenance, labour over head and other
administration cost.

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Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)
Items
Raw Material and Inputs
Utilities
Maintenance and repair
Labour direct
Labour overheads
Administration Costs
Land lease cost
Total Operating Costs
Depreciation
Cost of Finance

Cost

5,096.51
42.22

84.89
0.70

44.00
120.60

0.73
2.01

50.25
80.40

0.84
1.34

5,433.98
363.80

90.51

206.17

3.43

6,003.95

100

6.06

Total Production Cost

C.

FINANCIAL EVALUATION

1.

Profitability

Based on the projected profit and loss statement, the project will generate a profit through
out its operation life. Annual net profit after tax will grow from Birr 805.19 thousand to
Birr 1.21 million during the life of the project. Moreover, at the end of the project life the
accumulated cash flow amounts to Birr 9.47 million.
2.

Ratios

In financial analysis financial ratios and efficiency ratios are used as an index or yardstick
for evaluating the financial position of a firm. It is also an indicator for the strength and
weakness of the firm or a project. Using the year-end balance sheet figures and other
relevant data, the most important ratios such as return on sales which is computed by

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dividing net income by revenue, return on assets ( operating income divided by assets),
return on equity ( net profit divided by equity) and return on total investment ( net profit
plus interest divided by total investment) has been carried out over the period of the
project life and all the results are found to be satisfactory.
3.

Break-even Analysis

The break-even analysis establishes a relationship between operation costs and revenues.
It indicates the level at which costs and revenue are in equilibrium. To this end, 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

24 %

Sales Variable Cost


4.

Payback Period

The pay back period, also called pay off period is defined as the period required to
recover the original investment outlay through the accumulated net cash flows earned by
the project. Accordingly, based on the projected cash flow it is estimated that the
projects initial investment will be fully recovered within 4 years.
5.

Internal Rate of Return

The internal rate of return (IRR) is the annualized effective compounded return rate that
can be earned on the invested capital, i.e., the yield on the investment. Put another way,
the internal rate of return for an investment is the discount rate that makes the net present
value of the investment's income stream total to zero. It is an indicator of the efficiency or
quality of an investment. A project is a good investment proposition if its IRR is greater
than the rate of return that could be earned by alternate investments or putting the money

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in a bank account. Accordingly, the IRR of this porject is computed to be 24.50 %
indicating the vaiability of the project.
6.

Net Present Value

Net present value (NPV) is defined as the total present ( discounted) value of a time
series of cash flows. NPV aggregates cash flows that occur during different periods of
time during the life of a project in to a common measuring unit i.e. present value.

It is a

standard method for using the time value of money to appraise long-term projects. NPV
is an indicator of how much value an investment or project adds to the capital invested. In
principal a project is accepted if the NPV is non-negative.
Accordingly, the net present value of the project at 8.5% discount rate is found to be Birr
4.19 million which is acceptable.
D.

ECONOMIC BENEFITS

The project can create employment for 16 persons. In addition to supply of the domestic
needs, the project will generate Birr 1.85 million in terms of tax revenue.

The

establishment of such factory will have a foreign exchange saving effect to the country by
substituting the current imports.