Executive summary

Ethiopia is endowed with diverse agro-climatic zones that are suitable for beekeeping. However, the
benefit the country gets from honey and beeswax export is insignificant compared to the huge potential
it has for earning foreign exchange as well as generating income to many smallholder beekeepers and
other actors in the subsector. Honey is traditionally a very precious product and plays an important role
in generating cash income for farmers.

The company establishes for the processing of honey with a capacity of 90 tons per annum. The present
demand for the proposed product in Ethiopia is estimated at 8,457 tons per annum. The demand is
expected to reach at 12,382 by the year 2022.

The plant will create employment opportunities for 19 persons. The total investment requirement is
estimated at about Birr 8.9 million, out of which Birr 2.4 million is for plant and machinery, 2.8 million
for building and civil works.

The project is financially viable with an internal rate of return (IRR) of 41.75 % and a net present value
(NPV) of birr 23,504,988 birr discounted at 10%. Moreover, the sensitivity analysis for financial
analysis exhibited that the business will be safe to the Extent of more than 5% decrease in price, 10 %
decrease of sales or 8 % increase in operating costs. The initial investment can safely be recovered after
3rd year and 1 month. In general, the projected financial results justify the acceptance of the intended
business.

The project economic analysis shows that it has a great contribution in generating national income. The
Economic internal rate of return (EIRR) is 55.54% & its present value is birr 30,367,624. The benefit
cost ratio is 1.5.This shows high contribution to the national economy besides its financial viability.

The main socio-economic benefits that company is going to generate Livelihoods and food security of
the area via being source of income/market for the surrounding farmers and generation of employment,
enhancing the productivity of honey production in the region ,can be considered as elements of
contribution as a whole.

0
1. Introduction
1.1 Background and Justification
Ethiopia, having the highest number of bee colonies and surplus honey sources of flora, is the leading
producer of honey and beeswax in Africa. On a world level, Ethiopia is fourth in beeswax and 9 th in
honey production. Honey and beeswax also play a big role in the economic, cultural and religious life
of the people. The annual production of Ethiopian honey is estimated at 45,000 tons per annum and that
of beeswax 3600 tons per annum. (MORAD, Dec. 2008)

Despite Ethiopia’s significant position in the world, the honey sector is faced with many issues. Low
production capacity, inconsistent production data, changes in weather patterns and poor hive
management are the common challenges. According to a USAID report26, more than 95% of the
country’s honey is produced using traditional hives (these types of hives deliver low yields and poor
quality of honey). Current honey production per annum represents only 11% of Ethiopia’s honey
production potential. According to recent government data, only 1% of the honey produced in Ethiopia
is exported. But honey exports have grown at an average of 9% per year from 2010 to 2014. Even if the
production looks large enough, only a small amount of this produce is delivered as an export market
item. This is because; the country itself has a huge local market demand for the honey and bees wax
produced. Accordingly, among its production, more than 70% is used for making local beer called
“Tej” and only 10% of the produce is used as table honey (Tessega Belie, 2009). The share of this sub-
sector to the national GDP has never been commensurate with the huge honey bee colony number and
the country’s potential. However, today, many table honey processing plants are flourishing and some
has started to produce table honey for local and export markets. Hence, even if production technology
is still far behind, hive products (honey and bees wax) are being well commercialized. In line with this,
the ten year average annual estimated demand for hive products export in Ethiopia (2013-2022) is
expected to reach 90,357 tons (ERCA,2011).

Ethiopia has immense natural resources for beekeeping activity. However, this sub Sector has been
seriously devastated by complicated constraints. The major constraints that affect beekeeping sub-
sector in Ethiopia are: lack of beekeeping knowledge, shortage of skills man power, shortage of bee
equipments, pests and predators, pesticide threat, poor infrastructure development, shortage of bee
forage and lack of research extension Kerealem et al, (2009).

1
The apiculture sector in Ethiopia, however, is far from realizing its potential for earning foreign
exchange, as well as generating income for smallholder beekeepers and other actors in the value chain.
Honey is not only seen as a source of supplemental income, but also as a potential principal means of
living. From a developmental perspective, honey production is aimed to empower women and
vulnerable communities. Less than 10% of the honey and wax potential have been tapped, and the
commercialization of bee products through processing and supplying quality honey to the market is
very crucial.
The honey produced in Ethiopia is expected to become a major commodity for acquiring foreign
currency to improve the Ethiopian economy. Although Ethiopia does not have sufficient infrastructure
for transporting and storing goods, the long shelf life of honey makes it an attractive export for the
country Honey production is also expected to provide an opportunity for low-income farmers to
supplement their earnings. Honey production requires little investment,
land, and labor, and individuals can attain significant production levels. Unlike many other
commodities, honey products generate multiple market opportunities, and are also nutritious foods. In
addition, the process of production is not in competition with any other form of agriculture
(Aravindakshan et al., 2011; Gallmann & Thomas, 2012).
Generally, Ethiopian honey is known for its low moisture and high nutrition content. But the qualities
and prices differ between regions. For instance, Tigray Region honey is known for its highest quality in
terms of nutritional benefits and is the most expensive of all varieties. With regard to good opportunity
to investment the project will be implemented is Mekele town. Mekele’s annual population growth rate
is approximately 2.6 percent per annum. People migrate to Mekele for better opportunities like, job,
health and education. One of its most unique and flavorful honeys is produced only in the very northern
part of the country, in the Mountains of Tigray, at an elevation of 2,300 meters above sea level. Tigray
honey is considered to be of superior quality, and it has a moderate climate due to its highland position,
which is favorable for honey production. The Mekelle region has a large bee population (about 37
thousand bee colonies; 20 percent of the Tigray total). Tigray honey has a special aroma that would
provide a competitive advantage in niche markets.

2
 1.2 Objectives of the project;
To maximize profit
To increase market share
To produce quality of honey
To create job opportunities and enable communities improve their income.
1.2.2 Problem tree, objective tree and alternative tree

low financial support to producers

Poor government
control

Better financial support to producers

Strong government
control

3
 inve
st men
t

1.2.3 Logical framework

Narrative Summary Objectively verifiable Means of Verification Important assumptions

indicators

Goal: - Quality and yeild of • Field observation • increase in income and market
raw honey/hive/year • quality standerd share
-production of high quality increased specification • High community participation
honey - supply of quality • Commitment from management of
proccessed honey invreased the factory and gov’t

Purpose: - Modern bekeeping & honey • Field observation - Community and the mangement will
processing system in place • Periodic reports take care of the system established
- Promote modern beekeeping & of the management
honey processing practices
through technical and financial
support beekeepers and &
through establishing processing
plant.

Outputs: - 90 tones of honey produced • Field observation - Availabilities of adequate &

- increased production of
processed honey & honey
waxes
- Technical assistances for
farmers & employees
per year • Sample survey machineries
- Skilled labor increased • production and - technical and financial constraints
- technical knowledge of financial reportes of farmers reduced reduced
farmers & income increased

Inputs: -Industry Sites - Organisation report - loan available on time

- plantation site identified
- Labor organised
- Nursery established
- Family planning and
awareness creation introduced
1.3 justifications
Employees (staff ,skilled & - farmers commitment and participation
unskilled workers) -active labor force are available
- Honey collecting centers -site available for building the
processing industry

4
Ethiopia is believed to possess high potential in producing the honey. even though there is diversified fauna and flora
in the country with significant amount of bee colonies, The production potential is not properly utilized and due to the
current demand of high quality processed honey. This project will have positive outcome to the economy and to the
societies.

1.4 scope of the project proposal

The project will be located in Tigray region , Mekele city Kebele 18 in the vicinity commonly called
Adishindihun. The project area has suitable infrastructure such as access for transportation, and it is
assumed that necessary utilities like electric power, water, telephone and accessible road are there. The
raw materials like crude honey and other inputs for the production process are readily available in the
Mekele region market. Quality honey and wax will have market in urban cities across Ethiopia and also
after few years, the company will start exporting in the foreign countries including Norway, UK and
Saudi.
2. Product Description
Honey consists essentially of different sugars, predominantly glucose and fructose. Besides, honey
contains protein, amino acids, enzymes, organic acids, mineral substances etc. The colour of honey
varies from nearly colorless to dark brown. The flavor and aroma vary but are usually derived from its
plant origin. Tigray (white) honey is one of the world's most refined honeys and the most praised in
Ethiopia, it is bright white, with good consistency and large grains with homogeneity. It has a very
intense flavor. Its color comes from the blossom of the labiates family. Honey is used as a nutrient food
and commonly used also in pharmaceutical. In Ethiopia, honey is widely employed for the preparation
of favorite national drink called "tej" and for food in the form of bread spread or as a sweetener in
home baking and medication.
Beeswax is one of the most valuable and an oldest bee product to be used by man-kind. It is a complex
mixture of hydrocarbons (sugars) and lipids (fats). Beeswax is primarily used for the formation of comb
foundation sheet to enhance the development of beekeeping industry. Besides
beeswax is used for the production of the candle, locally (t-wife), for the development of new products
in various fields such as cosmetics, foods, pharmaceuticals and other industrial applications.

3. The implementing organization/promoter

5
  Name of the project; ………………. Ethio honey Processing Company
 Manager (would be); ……………….Ato Berhane w/selassie
 Qualification ………………………. Ba degree in Business management
 Work experience …………………….5 year experience as manager on MH honey
processing company
 Address; ……………………… Mekele city administration, Kebele. 18, H.No, 456
 Telephone number…………………... 0914356758
 Business; ……………………………..Honey processing company
 Form Of organization; ……………… Private limited company
 Registration; …………………………on progress
 Business license; …………………… on progress
 Investment permit; ……….. by Ethiopian investment Authority on first of january 2018
 Status of project; ……………………. New

4. Market or demand Assessment

4.1. Demand Analysis for honey

At present supermarkets, grocery shops and hotels are some of the major buyers of processed honey.
According to the information obtained from supermarkets, the foreign community is also expected to
constitute significant consumer of the product. Though there is no comprehensive consumption data for
processed products in the country, an attempt has been made to arrive at an estimate of present demand.
Processed honey is considered to be a commodity whose demand arises from urban population.
According to CSA (2011), the population is 82 million out of which 13.75 million is urban dwellers. On the
other hand, the per capita natural honey consumption is 60 grams. The apparent consumption of the product will
therefore be 825, 000 kgs (or 825 tons). the target population in these market analysis will be the urban people
across the country.
Demand for processed honey is influenced by population growth, income, and the export potential.
Population is growing at a rate of 3% and GDP in the past five years has increased by 10%.

Table 4.1 Projected Demands for Honey in Ton at National Level

6
 Year Quantity
2018 8,457

2019 9,303

2020 10,233

2021 11,257

2022 12,382

The demand projection shows that a number of plants can be established in various parts of our country
up to absorb the market.
4.2. Supply Analysis
The past five years some enterprises have been active to introduce table honey to Super markets in
Addis Ababa and other regional states. The average price of the processed honey was birr 140 /k.g. But
currently the average price increases to 160 birr per kilo gram.In the past five years Productivity of
traditional honeybees is very low and only an average of 8-10 kg of honey could be cropped per hive
per year. However, in areas where improved technology and box hives have been introduced, an
average of 25 – 30 kg/hive/harvest has been recorded. According to CSA (2016), House Hold Income,
Consumption and Expenditure survey, the per capital consumption of processed honey is about 60
grams. This indicates a national consumption of about 4,340 tons.
4.2.1 Projected supply
Supply for honey currently estimates about 7660 tons/year, then according to MOARD, 2017
production honey processing increases by 10% annually.
Table 4.2 Projected supply of honey in ton
Year Quantity
2018 8,360
2019 8,960
2020 9,980
2021 11,213
2022 12,334

In general, besides the favorable situation to the existing honey processing company, the market
prospect for honey processing is still wide open for new investors. But the question is that demand is

7
one thing and purchasing power of the consumers is the other which is the most important factor to
maximize profit. Hence accessing market would be important in this regard.

4.3 Export experience of processed honey in Ethiopia

The Ethiopian honey didn’t yet capture a significant market share in the export market due to the
traditional way of production which hardly meets the quality requirements of exotic markets as well as
the price of honey in Ethiopia is increasingly becoming less competitive with that of the international
price, especially when compared with those of China, and some Latin American countries. In the last
four years Ethiopia exports an average amount of 321 tons/year.
Table 4.3: Export of Honey and value generated (2013-2016)
Year Quantity Value in birr
2013 250 7,500,000
(Tons)
2014 280 8,960,000
2015 312 10,606,000
2016 442 14,832,000
Average 321 10,474,000
Source: MOARD 2017

4.4 Price Determination

It would important to examine the possible level of price based on the purchasing power of the
consumers and competitors’ action. The price of honey varies according to its colour, purity and
season. Processed Quality honey that produced from improved hives has on the average price of 150-
200 birr /kg in the domestic market depends on honey type and season. And the crude honey average
price of 80-100 birr in based on location and season.
4.5 Marketing Strategies
Grading, labeling, quality packaging and advertising will be key elements of the marketing strategy.
The company also wants to have an innovative approach of marketing by displaying its quality
products at the market. And the price of processed honey will be set at 150 birr/kg in order to be
competent. Delivering special quality honey with special flavor and taking new small markets through
snitching will be the strategy to penetrate the market at lower price, after building strong capacity the
company will start exporting to the foreign countries after subsequent years.
4.6 Opportunities in Sub-sector industry

8
The government and community commitment on mass watershed development along all apiculture
potential regions has a great contribution on boosting honey and other bee products. There is a market
demand for Ethiopian organic honey and beeswax on abroad market destinations and Ethiopia is
already entered in EU market on honey and beeswax as well. Have minimal enter cost in relative to
other sub sector industry and it is affordable to invest by middle level investee. Honey and beeswax
have long shelf life this is an advantage and possibility to establish the processing industry in product
potential and distance areas from central part of the country.
4.7. Expected threats and Challenges
Even though there are a wide potentials and opportunities to invest on the sub sector industry there are
still some challenges among others limitation of international accredited laboratory service to test
quality and safety of honey and beeswax. In order to address these gaps, the government and concerned
development partners were working aggressively to establish and functionalize standard laboratories at
national level and also at potential regions. Even though currently there are about 29 honey processing
companies in the country, however the Free entry at lower cost will initiate other investors to join the
subsector and severe competition will be expected in the future.
In general, currently there is demand and supply gap need to be filled with honey production companies
and the product of these project will gain consumers taste and satisfaction with reasonable price the
project at the first year will be expected to have market share in mekelle and Addis Ababa and then
expanding to urban areas across the country and it also start exporting in foreign countries.

5. Technical Analysis

5.1 Location of the Project

The honey processing company is situated at Mekele city administration, Kebele 18 in vicinity called
Adishindihun. According to the resource potential study of the region, the raw material is identified in
most parts of the Tigray region. The honey producers of the region especially the eastern, southern and
south eastern zones are well suited for the production of quality honey.

The Tigray region is nationally considered high quality producer of honey (white & butter colour)
when compared to other Regions of our country, and also based on the availability of raw material
(crude honey). Mekele region Produces 20% of the Tigray region honey production. According to the
availability of infrastructure, based on the utility and market availability Mekele town is selected and
recommended to be the location of the company (project).

9
 5.2 Land, Buildings and Civil Works
The plant requires a total area of 600 meter square (20x30) of land out of which 300 meter square is
built-up area which includes Processing area, raw material stock area, offices etc and the remaining will
be parking and other areas. This building has 8 classes which are used for production process, store
house, offices and other purpose. The construction cost of buildings and civil works is estimated at Birr
2.89 million. .

Table 5.2: Estimated cost of land, Building and civil works (in Birr)
S/N Description Unit Quantity Unit Cost Total Cost

1 land lease value M2 400 2400 960000

2
2 land and site development M 400 500 200000
2
3 Processing shed M 1200 700 840,000
4 Office M2 150 900 135,000
5 Store for Raw materials M2 120 700 84,000
6 store for proccessed honey and wax M2 110 700 77,000
2
7 store for proccessed wax M 110 700 77,000
2
8 Guard House M 9 800 7,200
9 Toilet and Shower M2 22 750 16,500
10 out door works L.Sum L.Sum L.Sum 300,000
11 Fencing L.Sum L.Sum L.Sum 200,000
  TOTAL 2,896,700

5.3 Machinery, Equipment, Furniture and Fixtures

The honey processing company will fully equip with the standard that it can serve and facilitate for
production process. Major machineries and equipments would be installed in the appropriate rooms.
The machinery and equipment required by the project will be procured from foreign sources. Fixture,
furniture and other necessary office equipments like; Liquefier, Filter press, Evaporator, Vacuum
pump, Storage/settling tank, Water circulation pump, Pre heating tank, Processing tank etc will also be
fulfilled.

Table5.3.1 : Estimated Cost of Machinery and Equipment (in Birr)

10
S/ Description Uni Quantity Unit Total Cost
N t Cost

1 Vehicle 4WD Double Cabin Pick up & accessories No 1 900,000 900,000

2 Liquefier No 1 300,000 300,000

3 Filter press No 1 60,000 60,000

4 Falling film Evaporator No 1 24,000 24,000

5 Vacuum pump No 1 250,000 250,000

6 Storage/settling tank No 1 300,000 300,000

7 Water circulation pump M 2 12,000 24,000

8 Pre heating tank No 1 21,000 21,000

9 Processing tank No 1 200,000 200,000

10 Cooling tank/condenser No 1 90,000 90,000

11 Moisture condensing tank No 1 102,000 102,000

12 Honey circulation SS gear pump No 2 9,000 18,000

13 Insulation (Optional) No 1 62,000 62,000

14 Control panel and Level indicators No 1 52,000 52,000

15 pressure gauges, temperature gauge No 1 45,000 45,000

16 SS pipes and fittings. M 30 400 12,000

TOTAL       2,460,000

Table 5.3.2 : Estimated cost of Office Furniture (in Birr)

S/ Description Unit Quantity Unit cost Total cost
N
1 Single Pedestal Desk No 5 2100 10,500
2 Arm chair No 9 800 7,200
3 Shelf No 4 2500 10,000
4 Conference Table No 1 12000 12,000
5 Cash safe No 1 10,000 10,000
6 furniture Set 1 15,000 15,000
7 Computers No 2 14,000 28,000
8 printers No 2 6,000 12,000
9 Others L.Sum L.Sum L.Sum 2,300
10 TOTAL       107,000

11
 5.4. Equipment and Material Supplies
The company would supply processed packed honey and wax for beneficiaries. The company would
also facilitate uniforms masks, gloves and other necessary materials, for the operational workers per
need. Raw materials like crude honey and chemicals are sufficiently available on time for the purpose
of facilitating the production.

Table 5.4 Estimated Annual raw material and input requirement

S/ Description Unit measure Quantity Unit cost Total cost

N
1 Crude honey Kg 91,000 80 7,280,000
Total raw material 7,280,000
2 Sanitary chemicals Kg 100 110
3 Glass jars pc 6,300 10 11,000
4 Plastic containers pc 50 200 63,000
5 Cartons pc 4,340 5 10,000
6 Labels pc 45,000 0.1 21,700
4,500
Total input 110,200
    Total 107,000

5.5 Other Utilities

Electricity, water and telephone are already available in the vicinity and will be easily installed to the
project. The raw materials (inputs) like crude honey and other inputs are available in the city market.

Table 5.5 Utilities expense

  Annual cost
No. Description Measure Consumptio Unit cost Total cost
n
1 Electric power kWh 18,025 0.27 4,867
3
2 Water M 18,000 2 36,000
4 Furnace oil Liter 10,500 12 126,000
Utility for plant     166,867
3 Communication minute 15,000 0.35 5,250
  Utility for staff     5,250
  Total utility     166,867

12
5.6 Production Process and Engineering

5.6.1, Production Process

Honey contains pollen, dust and air bubbles, which tend to include granulation (crystallization).
0
Heating the honey to 45 C to dissolve the crystals present in honey can retard the granulation.
Filtration then removes part of pollen, foreign particles and wax.
0 0
To prevent fermentation and to destroy yeasts, honey is heated to a temperature of 65 C -70 C for
specified time. Proper temperature and control and heating time is a most important factor in honey
processing activity.
The Process of Honey is Divided in to three Steps
0
 Filtration to remove wax, foreign particles after heating honey to 45 C . It may be noted that
0
heating up to 45 C (below the melting point of bee wax) is required to decrease the viscosity
of honey.
0 0
 Honey is then heated to 60 C -65 C for 10 to 15 min and passed in to a falling film
evaporator. Vacuum is simultaneously applied to boil the water in honey at a lower temperature
so that moisture is separated which can be collected separately. This procedure also helps in
destroying yeasts.
 Cooling the honey to atmospheric temperature and storing in closed vessel for 24-48 hours is
the next step. Storing honey for period of 24-28 hours is necessary to allow air bubbles to go
out. Honey is then packed and sealed immediately.

5.6.2, Engineering

A. Machinery and Equipment

The plant, machinery and equipment required by the project will be procured from foreign sources. The
total cost of machinery and equipment is estimated to be Birr 2.46 million. (see previous Table 11.2 ).

B. Plant Capacity and Production Program

Plant Capacity; According to the market study, the demand of honey in the year 2018 will be 8,457 tones,
whereas this demand will grow to 12,382 Tones by the year 2022. The envisaged plant will have an annual
production capacity of 90 tones of honey will be installed. Production capacity is based on a schedule of
300 working days per annum.

13
Production Program; The project is assumed to start operation at 70% of its rated capacity, which reaches
90% of the capacity production, will be attained in the 3 rd year and thereafter.

6. Organizational or Management capability

6.1. Organization and Management

The organizational structure should be in a way that the company able to achieve its objectives as well
as to the satisfaction of standard requirement.
The project will have the following main functional units: The major functions of the units in the
organizational structure are presented in the next sections. The detailed job descriptions, qualifications
shall be worked of out during implementation of the project

Under the company there will be 3 departments;

The Administrative staff, which deals in general the company shall undertake planning, coordination,
and control of the overall activities of the project.
The Technical staffs will hold responsibilities of running Operations and technique Assistant: this unit
has responsible for the technical activities, purchasing and collection and processing and logistics
operations.
The Finance department is responsible for overall accounting and financial management of the
company.

6.2, Man Power

Ethio’s honey processing PLC is in the category of medium scale manufacturing industry known in the
ministry of trade at high standard. Therefore, ministry of trade criteria have been taken to plan man
power requirement of the company. Technical workers are categorized in their area of study
(specialties) and assumed to be 6 in number. Administrative staff are considered as supportive
personnel and expected to be 8, finance staff is also assumed to be 5.Therefore, the total number of
workers is assumed to be about 19 persons which is shown in the table below. In general the
organizational and manpower arrangement is expected to provide good working atmosphere in the
company’s day to day activities.

14
 Table 6.2 Technical; Administrative accounting and finance staffs man power and
salaries
S/N Position No. of persons Salary ( Birr)
Monthly Annual
Direct labor No
1 Plant manager 1 6250 75,000
2 Chemist 1 3750 45,000
3 Quality controller 1 3000 36,000
4 Production workers 3 7500 90,000
5 Operator-mechanics 1 3500 42,000
Sub total 24000 288,000
Workers benefit (10% of Basic salary) 2400 28,800
Total Direct labor salary& wages   26,400 316,800
indirect labor
6 Secretary 1 2500 30,000
7 Purchaser 2 5000 60,000
8 Sales man 1 2000 24,000
9 Casher 1 2500 30,000
10 Guards 2 2000 24,000
11 Cleaner 1 1000 12,000
12 Personnel 1 3000 36,000
13 Accountant 1 3500 42,000
14 Drivers 2 5000 60,000
subtotal   26,500 318,000
Workers benefit (10% of Basic salary) 2,650 31,800
Total indirect labor salaries and wages 29,150 349,800
Grand total 19 55,550 666,600

6.3 Organizational Structure of the company

General Manager

Secretary

Technical staff Finance staff Administration staff

15
 7. Financial Analyses
7.1 Financial assumptions
The financial analysis of the honey processing project is based on the data presented in the previous
sections and the following assumptions:-
Construction period 1 year
Source of finance 51 % equity
49 % loan
loan interest rate 13%
Discount rate 10%
Loan payment duration 36 months
Corporate tax 30% of net income
Sales tax 15%
Repair & maintenance 2 % of the fixed assets
Insurance 1% of the fixed investment
Annual Depreciation Straight Line Method

7.2 Investment Costs and Sources of Finance

TABLE 7.2 Investment Costs and Sources of Finance
  Total Cost Own contribution Bank loan

No Cost Items   Amount % Amount %

.
1 Building and Civil Work 2,896,700 - - 2,896,700 100
2 Plant Machinery and Equipment 2,460,000 1,101,046 44.75 1,358,954 55.2
3 Office Furniture and Equipment 107,000   _ 107000 100
Total initial fixed investment 5,463,700 1,101,046 20 4,362,654 80
4 Working Capital and 3,439,675.0 3,439,675 100 - -
other initial costs 0
16
Total Investment cost 8,903,375.00 4,540,721 51 4,362,654 49

7.3 Loan
Based on the overall assessments of the project, the medium processing industry requires a loan of birr
4.3 million from external sources to half cover for the machineries and equipment and fully cover the
building construction that would be located in Tigray region in Mekele city, Kebele 18. As the detail
assessment results shows the Loan will be settled without any problem

Terms of Loan
 Disbursement: The loan is proposed to be transferred to the account of the company in three
phases (installment).
 Loan repayment
A, principal repayment
The principal amount of birr 4.3 million shall be repaid in 36 equal monthly installments.
B, interest payment: 13 % of the loan per annum on the outstanding balance is payable on monthly
basis together with the principal repayment amount.
C, other bank charges: 0.5 % of the loan per annum outstanding balance payable on monthly basis.( see
in the annex table 12.a.1 for detail)
7.4 Production cost and other expenses
The annual operating cost at first year is estimated at Birr 8.2 million (see Table 11.14) within these
cost of raw material is 7.28 million 9 ( see table11.7) and the over head cost will be 425,687.( see table
11.15) The other major components of the production cost are utility, depreciation and total salary cost,
which account for 166,867, 400,035 and 666,600 respectively, cost of repair and maintenance is
estimated 109,274.

Table 7.4.1 Repair and maintenance 2 % of the fixed assets

No. Cost Items Value in birr Repair and maintenance

1 Building and Civil Work 2,896,700 2% 57,934

2 Plant Machinery and 2,460,000 2% 49,200

Equipment
3 Furniture and fixture 107,000 2% 2,140

Total fixed Investment cost 5,463,700   109,274

17
 7.4.2 Annual Depreciation Straight Line Method

No. Cost Items Original salvage value Estimated Depreciation Depreciated value
values(a) (b) useful life(c) rate(d) per year(a-b)*d
1 Building and Civil 2,896,700 96,000 20 5% 144,835
Work
2 Plant Machinery and 2,460,000 60,000 10 10% 246,000
Equipment
3 Office Furniture and 107,000 7,000 5 20% 21,400
fixture
Total Fixed Investment 5,463,700  163,000    400,035
cost

18
 7.4.3 Operating expense projection
Description/year 1 2 3 4 5 6 7 8 9 10
operating expenses                    
Salary and wages for
production workers 316,800 348,480 383,328 421,661 463,827 510,210 561,231 617,354 679,089 746,998
raw material 7,280,000 8,840,000 10,530,000 11,115,000 11,700,000 12,285,000 12,870,000 13,455,000 14,040,000 14,625,000
inputs 110,200 121,220 133,342 146,676 161,344 177,478 195,226 214,749 236,223 259,846
Repair and
maintenance 109,274 120,201 132,221 145,443 159,987 159,987 159,987 159,987 159,987 159,987
Utilities for plant 166,867 183,553 201,909 222,100 244,310 268,741 295,615 325,176 357,694 393,463
Fuel and lubricant 113,400 124,740 137,214 150,935 166,029 166,029 166,029 166,029 166,029 166,029
Gowns and uniforms 2,200 2,420 2,662 2,928 3,221 3,221 3,221 3,221 3,221 3,221
Package costs 110,000 121,000 133,100 146,410 161,051 161,051 161,051 161,051 161,051 161,051
9,861,61 11,653,77 14,412,35
Total operating costs 8,208,741 4 6 12,351,153 13,059,768 13,731,716 9 15,102,566 15,803,294 16,515,595
tota unit of production 91,000 104,000 117,000 117,000 117,000 117,000 117,000 117,000 117,000 117,000
COP per unit=(Total 90 95 100 106 112 117 123 129 135 141
operating cost/total
unit production)                    

Table 7.4.4 over head cost projection

Description/year 1 2 3 4 5 6 7 8 9 10
operating expenses                    
Salary and wages for indirect labor 349,800 384,780 423,258 465,584 512,142 563,356 619,692 681,661 749,827 824,810
Supplies 10,000 11,000 12,100 13,310 14,641 16,105 17,716 19,487 21,436 23,579
Utilities for staff 5,250 5,775 6,353 6,988 7,687 8,455 9,301 10,231 11,254 12,379
Insurance 54,637 54,637 54,637 54,637 54,637 54,637 54,637 54,637 54,637 54,637
Miscellaneous 6,000 6,300 6,615 6,946 7,293 7,293 7,293 7,293 7,293 7,293
547,46 596,40
Total overhead costs 425,687 462,492 502,963 5 0 649,847 708,639 773,309 844,447 922,698

19
 Table 7.4.5 Estimated cost of crude honey/raw material

  1 2 3 4 5 6 7 8 9 10
annual crude honey required 91,000 104,000 117,000 117,000 117,000 117,000 117,000 117,000 117,000 117,000
unit price of crude honey 80 85 90 95 100 105 110 115 120 125
cost of crude honey/ raw 7,280,00 10,530,00 11,115,00 11,700,00 12,285,00 12,870,00 13,455,00 14,040,00
material 0 8,840,000 0 0 0 0 0 0 0 14,625,000

Table 7.4.5 Other expenses

No Items Total(Birr)
450 liter per 12 no of 21 unit
1 Fuel & lubricant month month cost 113,400.00
2 supplies 10,000.00
fixed
  % investment
3 insurance 1% 5,463,700.00 54,637.00

7.5 Sales and Revenue

At the first year with 70% capacity utilization ,the company will produce 84 tons of honey per year with unit selling price of 150 which
is 12.6 million birr and also it will produce 7 tons of waxes per year with unit selling price of200 which is 1.4 million birr and total sale
of 14 million.

20
 Table 7.5 Estimates of sales and production
Year   1 2 3 4 5 6 7 8 9 10
Installed capacity(%) 100% 70% 80% 90% 90% 90% 90% 90% 90% 90% 90%
No of working days 300 300 300 300 300 300 300 300 300 300 300
Estimated output of Honey as % of 400 280 320 360 360 360 360 360 360 360 360
plant capacity (kg) per day
Estimated annual honey production 120,000 84,000 96,000 108,000 108,000 108,000 108,000 108,000 108,000 108,000 108,000
(Qty)
unit selling price 150 150 160 170 180 190 200 210 220 230 240
12,600,00 15,360,00 18,360,00 19,440,00 20,520,00 21,600,00 22,680,00 23,760,00 24,840,00
Value of honey sales (SP * Qty) 18,000,000 0 0 0 0 0 0 0 0 0 25,920,000

Estimated output of Waxes as % of

plant capacity (kg) per day 33 23 27 30 30 30 30 30 30 30 30
Estimated annual wax production
(Qty) 10,000 7,000 8,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000
unit waxes selling price 200 200 210 220 230 240 250 260 270 280 290
Value of waxes sales (SP * Qty) 2,000,000 1,400,000 1,680,000 1,980,000 2,070,000 2,160,000 2,250,000 2,340,000 2,430,000 2,520,000 2,610,000
Total No of unit produced 130,000 91,000 104,000 117,000 117,000 117,000 117,000 117,000 117,000 117,000 117,000
14,000,00 17,040,00 20,340,00 21,510,00 22,680,00 23,850,00 25,020,00 26,190,00 27,360,00
total sales values 20,000,000 0 0 0 0 0 0 0 0 0 28,530,000
Total No of unit produced 130,000 91,000 104,000 117,000 117,000 117,000 117,000 117,000 117,000 117,000 117,000

7.6 Financial evaluations

7.6.1 Profitability
The projected income statement revels that the project is profitable all throughout its life. The annual net profit of about birr
3,130,638in the first year will steadily increase through time and reaches about nominal cumulative of birr 59,609,291 in year 10.

21
 Table 7.6.1 Income Statement
Year   1 2 3 4 5 6 7 8 9 10
sales in unit for honey a 84,000 96,000 108,000 108,000 108,000 108,000 108,000 108,000 108,000 108,000
sales in unit for Wax b 7,000 8,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000
Total sale unit c 91,000 104,000 117,000 117,000 117,000 117,000 117,000 117,000 117,000 117,000
unit price for honey d 150 160 170 180 190 200 210 220 230 240
unit price for wax e 200 210 220 230 240 250 260 270 280 290
Sales revenue for 12,600,00
Honey(Unit price d x a ) f 0 15,360,000 18,360,000 19,440,000 20,520,000 21,600,000 22,680,000 23,760,000 24,840,000 25,920,000
Sales Revenue for wax
(Unit price e x b ) g 1,400,000 1,680,000 1,980,000 2,070,000 2,160,000 2,250,000 2,340,000 2,430,000 2,520,000 2,610,000

total sale Revenue (f+g) h 14,000,000 17,040,000 20,340,000 21,510,000 22,680,000 23,850,000 25,020,000 26,190,000 27,360,000 28,530,000
unit cost(TOPC/TSU) i 90 95 100 106 112 117 123 129 135 141
OperatingCosts (i*c) j 8,208,741 9,861,614 11,653,776 12,351,153 13,059,768 13,731,716 14,412,359 15,102,566 15,803,294 16,515,595
10,118,28 11,087,43 11,556,70
Gross profit (h – j) k 5,791,259 7,178,386 8,686,224 9,158,847 9,620,232 4 10,607,641 4 6 12,014,405
overhead cost l 425,687 462,492 502,963 547,465 596,400 649,847 708,639 773,309 844,447 922,698
Depreciation m 400,035 400,035 400,035 400,035 400,035 260,000 260,000 260,000 260,000 260,000

Operating Income (EBIT) n 4,965,537 6,315,859 7,783,227 8,211,348 8,623,797 9,208,437 9,639,002 10,054,125 10,452,259 10,831,707
(k- (l+ m))
loan interest o 493,197 317,793 118,177

Earning Before Tax (EBT) p 4,472,340 5,998,066 7,665,050 8,211,348 8,623,797 9,208,437 9,639,002 10,054,125 10,452,259 10,831,707
( n – o)
IncomeTaxes (30 % of p ) q 1,341,702 1,799,420 2,299,515 2,463,404 2,587,139 2,762,531 2,891,701 3,016,237 3,135,678 3,249,512

Earning After Tax (EAT) r 3,130,638 4,198,646 5,365,535 5,747,943 6,036,658 6,445,906 6,747,301 7,037,887 7,316,581 7,582,195
( p – q)

Cumulative EAT 3,130,638 7,329,284 12,694,819 18,442,762 24,479,420 30,925,326 37,672,628 44,710,515 52,027,096 59,609,291

22
 7.6.2 Financial Position
A project balance sheet of the company with bank additional financing shows quite good financial position. The total worth, birr
10,763,270 at the end of first year will increase to about birr 64,150,012 at the end of project years.

Table 7.6.2 Balance sheet for the year 1 -10

ASSETS 1 2 3 4 5 6 7 8 9 10
Cash 1,059,929 4,212,462 8,332,268 14,480,246 20,916,939 27,622,845 34,630,147 41,928,034 49,504,615 58,709,810
Inventory 2,344,400 2,344,400 2,344,400 2,344,400 2,344,400 2,344,400 2,344,400 2,344,400 2,344,400 2,344,400
Prepaid Expenses 1,200,000                  
29,967,24
Total Current Assets 4,604,329 6,556,862 10,676,668 16,824,646 23,261,339 5 36,974,547 44,272,434 51,849,015 61,054,210
Fixed Assets                    
Real Estate -- Buildings 2,896,700 2,896,700 2,896,700 2,896,700 2,896,700 2,896,700 2,896,700 2,896,700 2,896,700 2,896,700
Equipment 2,460,000 2,460,000 2,460,000 2,460,000 2,460,000 2,460,000 2,460,000 2,460,000 2,460,000 2,460,000
Furniture and Fixtures 107,000 107,000 107,000 107,000 107,000 107,000 107,000 107,000 107,000 107,000
Total Fixed Assets 6,558,975 7,758,976 7,758,977 7,758,977 7,758,977 7,758,977 7,758,977 7,758,977 7,758,977 6,395,977
(Less Accumulated
Depreciation) 400,035 800,070 1,200,105 1,600,140 2,000,175 2,260,175 2,520,175 2,780,175 3,040,175 3,300,175
35,466,04
Total Assets 10,763,270 13,515,768 17,235,540 22,983,484 29,020,141 7 42,213,349 49,251,236 56,567,817 64,150,012
LIABILITIES & EQUITY                    
Commercial Loan
Balance 3,091,910 1,645,763                
Total Liabilities 3,091,910 1,645,763                
Equity                    
Common Stock 4,540,721 4,540,721 4,540,721 4,540,721 4,540,721 4,540,721 4,540,721 4,540,721 4,540,721 4,540,721
Retained Earnings 3,130,638 7,329,284 12,694,819 18,442,762 24,479,420 30,925,326 37,672,628 44,710,515 52,027,096 59,609,291
35,466,04
Total Equity 7,671,359 11,870,005 17,235,540 22,983,484 29,020,141 7 42,213,349 49,251,236 56,567,817 64,150,012
Total Liabilities and 10,763,270 13,515,768 17,235,540 22,983,484 29,020,141 35,466,04 42,213,349 49,251,236 56,567,817 64,150,012
23
 Equity 7

7.6.3 Liquidity
The cash flow projection indicates an overall liquidity of the project. The cumulative cash balance at the end of the project years would
be about birr 58,709,810.

Table 7.6.3 cash flow statement for the year 1 -10

Year 0 1 2 3 4 5 6 7 8 9 10
    1,059,929 3,152,533 4,119,806 6,147,978 6,436,693 6,705,906 7,007,301 7,297,887 7,576,581
begnning balance
4,540,721                    
Capital
4,362,654                    
Loans
                    163,000
Salvage Value
0 14,000,000 17,040,000 20,340,000 21,510,000 22,680,000 23,850,000 25,020,000 26,190,000 27,360,000 28,530,000
Sales Revenue
Annual cash 8,903,375 14,000,000 17,040,000 20,340,000 21,510,000 22,680,000 23,850,000 25,020,000 26,190,000 27,360,000 28,693,000
inflow (a )
8,903,375                    
Investment
  8,208,741 9,861,614 11,653,776 12,351,153 13,059,768 13,731,716 14,412,359 15,102,566 15,803,294 16,515,595
operating cost
0 1,200,000                 -1,200,000
Working Capital
0 425,687 462,492 502,963 547,465 596,400 649,847 708,639 773,309 844,447 922,698
overhead cost
0 1,763,941 1,763,941 1,763,941              
loan payment
0 1,341,702 1,799,420 2,299,515 2,463,404 2,587,139 2,762,531 2,891,701 3,016,237 3,135,678 3,249,512
Tax
Annual Cash 8,903,375 12,940,071 13,887,467 16,220,194 15,362,022 16,243,307 17,144,094 18,012,699 18,892,113 19,783,419 19,487,805
Outflow (b)

24
Annual Cash Flow
Balance 0 1,059,929 3,152,533 4,119,806 6,147,978 6,436,693 6,705,906 7,007,301 7,297,887 7,576,581 9,205,195
(a-b)
cumulative   1,059,929 4,212,462 8,332,268 14,480,246 20,916,939 27,622,845 34,630,147 41,928,034 49,504,615 58,709,810
cash balance
7.6.4 Financial internal rate of return and net present value
This indicator measures the power of the project to generate return by comparing the result either with opportunity cost of capital or the
bank interest rate. The projected discount cash flow has resulted in 41.75 % IRR and the net present value at 10% discount rate is Birr
23,504,988 and the benefit cost ratio is 1.22. This result indicates a very attractive rate of return and implies the capacity of the business
to accommodate any adverse situation and the project is financially feasible.

Table 7.6.4 financial internal rate of return, NPV and BCR

Undiscounted Discounted
  1 2 3 4     5
Year(t Costs Benefit Net benefits (Cash Discount factors (10%)= cost(1)*(4) benefit(2)*4 Discounted Net Benefits
) flow) (2) – (1) 1/(1+0.10)-t (Net Cash Flow) (3)*(4)
0 8,903,375 (8,903,375) 1/(1+0.10)0 = 1.000 8,903,375 (8,903,375)

1 12,940,071 14,000,000 1,059,929 1/(1+0.10)1 = 0.909 11,762,524 12,726,000 963,476

2 13,887,467 17,040,000 3,152,533 1/(1+ 0.10)2 = 0.826 11,471,048 14,075,040 2,603,992

3 16,220,194 20,340,000 4,119,806 1/(1+0.10)3 = 0.751 12,181,366 15,275,340 3,093,974

4 15,362,022 21,510,000 6,147,978 1/(1+0.10)4 = 0. 683 10,492,261 14,691,330 4,199,069

5 16,243,307 22,680,000 6,436,693 0.621 10,087,094 14,084,280 3,997,186

6 17,144,094 23,850,000 6,705,906 0.564 9,669,269 13,451,400 3,782,131

7 18,012,699 25,020,000 7,007,301 0.513 9,240,514 12,835,260 3,594,746

8 18,892,113 26,190,000 7,297,887 0.467 8,822,617 12,230,730 3,408,113

9 19,783,419 27,360,000 7,576,581 0.424 8,388,170 11,600,640 3,212,470

10 19,487,805 28,693,000 9,205,195 1/(1+0.10)10 = 0.386 7,522,293 11,075,498 3,553,205

25
 Total 176,876,565 226,683,000 49,806,435 å1/(1+0.10)t = 6.144 108,540,530 132,045,518 23,504,988

BCR 1.22 NPV 23,504,988

IRR 41.75 %
7.6.5 Payback Period
The investment cost and cash flow statement projection are used to project the pay-back period. The project’s initial investment will be
fully recovered within 3 years and 1 months
Table 7.6.5 payback period
year 0 1 2 3 4 5 6 7 8 9 10
(8,903,375 1,059,929 3,152,533 4,119,806 6,147,978 6,436,693 6,705,906 7,007,301 7,297,887 7,576,581 9,205,195
net cash inflow )
Cumulative Cash (7,843,446) (4,690,913) (571,107)              
Saving  
payback period = 3years + 571,107/6,147,978 *12= 3 years and 1 months
7.6.6 Discounted Payback Period
The investment cost and cash flow statement projection are used to project the discounted pay-back period. The project’s initial investment will
be fully recovered within 3 years and 6 months. discounted payback period = 3years + 2,241,933/4,199,069*12= 3 years and 6months

Table 7.6.6 discounted payback period

Project Year Cash In flow PV of $1 at 10% PV of cash inflow Cumulative cash savings

0 (8,903,375) 1.00 (8,903,375) (8,903,375)

1 1,059,929 0.91 963,476 (7,939,899)
2 3,152,532 0.83 2,603,992 (5,335,907)
3 4,119,805 0.75 3,093,974 (2,241,933)
4 6,147,978 0.68 4,199,069 1,957,136
5 6,436,692 0.62 3,997,186 5,954,323
6 6,705,905 0.56 3,782,131 9,736,453
7 7,007,301 0.51 3,594,746 13,331,199
8 7,297,887 0.47 3,408,113 16,739,313
26
 9 7,576,581 0.42 3,212,470 19,951,783
10 9,205,194 0.39 3,553,205 23,504,988

7.7 Sensitivity Analysis

The sensitivity analysis shows what will happen to the profitability of a project when there are changes in the most sensitive parameters
that have an influence on the results of the project. Hence, it also shows the risks of the investments that have to be done.The factors that
will cause the highest risks for the profitability of the project are: Reduction in demand, increase in Investment cost, reduction in price
and increase in operating cost. The sensitivity analysis carried out with the effect of these four factors on the NPV of the project is
shown table below.
Table7.7 Summary of Results for sensitivity analysis
% Change Rank for
in Factor % decrease in Management
Factor (a) (b) NPV (c) Sensitivity /c/b/ Attention

Decrease in Demand by 10% -10.00% -20.00% 2 3

Increase in Investment Cost
by 1 Million 10.00% -5.00% 0.5 4

Decrease in Price by Birr10 -5.00% -32.00% 7.04 1

Increase in Operating Cost by
Birr 10 8.00% -37.00% 4.63 2
7.8 Financial Ratios
In financial analysis, profitability ratios, efficiency ratios and Creditworthiness ratio 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, income statement and other relevant data, the most important ratios such as return on sales which is computed by dividing
net income by revenue, return on assets (operating income divided by assets), return on equity (net profit divided by equity) and return

27
 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.

Table 7.8 Financial Ratios

Year   1 2 3 4 5 6 7 8 9 10
Efficiency ratio                      
12,870,00 14,040,00
CGS   7,280,000 8,840,000 10,530,000 11,115,000 11,700,000 12,285,000 0 13,455,000 0 14,625,000
inventory   2,344,400 2,344,400 2,344,400 2,344,400 2,344,400 2,344,400 2,344,400 2,344,400 2,344,400 2,344,400
inventory turn over CGS/Inventory 3.11 3.77 4.49 4.74 4.99 5.24 5.49 5.74 5.99 6.24
14,412,35 15,803,29
operating expense   8,208,741 9,861,614 11,653,776 12,351,153 13,059,768 13,731,716 9 15,102,566 4 16,515,595
25,020,00 27,360,00
revenue   14,000,000 17,040,000 20,340,000 21,510,000 22,680,000 23,850,000 0 26,190,000 0 28,530,000
operating
operating ratio exp/Revenue 0.59 0.58 0.57 0.57 0.58 0.58 0.58 0.58 0.58 0.58
Income (Profitability)
ratio                      
10,321,42
net income   4,460,140 5,985,866 7,652,850 8,199,148 8,611,597 9,077,602 9,508,167 9,923,290 4 10,700,872
Net income/
return on sale Revenue 0.32 0.35 0.38 0.38 0.38 0.38 0.38 0.38 0.38 0.38
net income after tax   2,899,091 3,890,813 4,974,352 5,329,446 5,597,538 5,900,441 6,180,309 6,450,138 6,708,925 6,955,567
39,312,71 52,471,77
equity   7,439,812 11,330,625 16,304,977 21,634,423 27,231,961 33,132,403 1 45,762,850 5 59,427,342
Net income after
Return on Equity tax/ Equity 0.39 0.34 0.31 0.25 0.21 0.18 0.16 0.14 0.13 0.12
average net income   8,444,095 8,444,095 8,444,095 8,444,095 8,444,095 8,444,095 8,444,095 8,444,095 8,444,095 8,444,095
total investment   8,903,375 8,903,375 8,903,375 8,903,375 8,903,375 8,903,375 8,903,375 8,903,375 8,903,375 8,903,375
Average net
income/Total
return on investment investment 0.95 0.95 0.95 0.95 0.95 0.95 0.95 0.95 0.95 0.95
10,321,42
operating income   4,953,337 6,303,659 7,771,027 8,199,148 8,611,597 9,077,602 9,508,167 9,923,290 4 10,700,872
39,312,71 52,471,77
asset   10,531,723 12,976,388 16,304,977 21,634,423 27,231,961 33,132,403 1 45,762,850 5 59,427,342
28
 operating
Return on asset Income/Asset 0.47 0.49 0.48 0.38 0.32 0.27 0.24 0.22 0.20 0.18
Creditworthiness ratio                      
total liability   3,091,910 1,645,763 0              
39,312,71 52,471,77
total equity   7,439,812 11,330,625 16,304,977 21,634,423 27,231,961 33,132,403 1 45,762,850 5 59,427,342
Total
liabilities/Total
debt equity ratio equity 0.42 0.15 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

29
 8. Economic analysis
8.1 economic benefits
The project can create employment for 19 persons. In addition to supply of the domestic needs, the
project will generate money in terms of tax revenue. The establishment of such plant will have foreign
exchange saving and earning effect by substituting the current import as well as exporting the processed
honey. The project will also create backward linkage with the apiculture sub sector also generates
income for the Government in terms of payroll tax.
8.2 Estimating economic value
Financial values do not reflect all the distortions that are present in the economy (taxes, duties, etc.).
To show the true picture of the Ethiopian economy using shadow price, the economic values have been
adjusted by multiplying financial values by appropriate conversion factors. If no distortion is observed,
the market price has been used in the economic analysis. the project have limitation on reliable
estimation of the economic value since some factors will not be taken into consideration during
estimation due to lack of data .

8.2.1 Economic value of initial investment cost

S.N. Type of Expense financial costs conversio economic

n factor price
1 Building and civil work 2,896,700 0.71 2,056,657.00
2 Plant Machinery & equipment 2,460,000 1.02 2,506,740.00
3 Office Furniture and Equipment 107,000 0.92 98,440.00
4 Total Fixed Initial Investment Cost 5,463,700 4,661,837.00
Operating Capital
1 skilled labor 528,000.00 0.81 427,680.00
2 unskilled labor 138,600 0.61 84,546.00
3 inventory 2,344,400.00 0.82 1,931,785.60
4 Supplies 10,000 0.88 8,800.00
5 Utilities Deposit 103,075 1.43 147,397.25
6 Fuel & Lubricant 113,400 1.05 119,070.00
7 Uniforms & Gowns 2,200 0.70 1,535.60
8 other start up initial costs 200,000 1.00 200,000.00
TotalWorking capital 2,911,675.00 2,920,814.45
Total Initial Investment Cost 8,375,375.00 7,582,651.45

30
 8.2.2. Economic value of operating cost for the first year of the project

  operating expenses financial costs conversion factor economic price

Salary and wages for direct skilled 202,200.00 0.81 163,782.00
1 labor
Salary and wages for direct 99,000.00 0.61 60,390.00
2 unskilled labor
3 raw material 7,280,000.00 0.88 6,406,400.00
4 inputs 110,200.00 0.80 88,160.00
5 Repair and maintenance 109,274.00 1.00 109,274.00
6 Utilities for plant 166,866.75 1.43 238,619.45
7 Fuel and lubricant 113,400.00 1.05 119,070.00
8 Gowns and uniforms 2,200.00 0.68 1,496.00
9 Package costs 110,000.00 0.88 97,130.00
  Total operating costs 8,193,140.75 7,284,321.45

8.2.3. Economic value of over head cost for the first year of the project

  overhead expenses financial costs conversion factor economic price

Salary and wages for indirect
1 skilled labor 310,200.00 0.81 251,262.00
Salary and wages for indirect
2 unskilled labor 39,600.00 0.61 24,156.00
3 Supplies 10,000.00 0.88 8,800.00
4 Utilities for staff 5,250.00 1.43 7,507.50
5 Miscellaneous 6,000.00 1.00 6,000.00
  Total overhead costs 371,050.00   297,725.50

8.2.3. Economic value of Revenue for the first year of the project

conversion
sales products financial costs economic price
  factor

1 Value of honey sales (SP * Qty) 12,600,000 0.81 10,206,000

2 Value of waxes sales (SP * Qty) 1,400,000 0.90 1,260,000

  Total sale revenue(Birr) 14,000,000   11,466,000

31
 8.3 Economic NPV, BCR and IRR

The net present value at 8.34% economic discount rate is Birr 30,367,624 and the Benefit cost ratio is
1.5 and economic internal rate of return is 55.54%. This result indicates the project is economically
feasible and accepts the project.

Table Economic NPV, BCR and IRR

Year(t Costs Benefit Net Discount factors cost(1)*(4 benefit(2)*4 Discounted Net
) benefits (10%)= 1/(1+0.10)-t ) Benefits (Net
(Cash Cash Flow)
flow) (3)*(4)
(2) – (1)
0 7,582,651 (7,582,651) 1/(1+0.0834)0 = 1.000 (7,582,651)

1 8,662,047 11,466,000 2,803,953 1/(1+0.0834)1 = 0.923 7,995,069 10,583,118 2,588,049

2 8,340,252 12,612,600 4,272,348 1/(1+ 0.0834)2 = 0.852 7,105,894 10,745,935 3,640,041

3 9,174,277 13,873,860 4,699,583 1/(1+0.08343 = 0.786 7,210,982 10,904,854 3,693,872

4 10,091,704 15,261,246 5,169,542 1/(1+0.0834)4 = 0. 726 7,326,577 11,079,665 3,753,087

5 11,100,875 16,787,371 5,686,496 0.667 7,404,284 11,197,176 3,792,893

6 12,210,962 18,466,108 6,255,145 0.618 7,546,375 11,412,055 3,865,680
7 13,432,059 20,312,718 6,880,660 0.57 7,656,273 11,578,250 3,921,976
8 14,775,265 22,343,990 7,568,726 0.527 7,786,564 11,775,283 3,988,718
9 16,252,791 24,578,389 8,325,598 0.486 7,898,856 11,945,097 4,046,241
10
10 16,798,070 27,199,228 10,401,158 1/(1+0.10) = 0.448 7,525,535 12,185,254 4,659,719

Total 128,420,953 182,901,510 54,480,557 å1/(1+0.10)t = 6.144 75,456,411 113,406,686 30,367,624

BCR 1.50 NPV 30,367,624

IRR 55.54%
9. Socially desirability of the project

Ethio honey processing company is economical in that it is profitable to the society in many ways.

 The project will have also a distributional effect on income in the society as it buys crude honey
from local farmers. This would enhance savings in the society initiating further investments.

 It will also creates employment for at least 19 persons just at the beginning of the first phase of the
project with many more potential employment opportunities for citizens which in turn ensures self-
sufficiency and better social order. these will create jobs that will contribute to the reducing of
32
 alarming unemployment growth rate in the country. The employees will benefit from salaries and
wages, while the project owner and Government shall gain revenue from the project.

 At the same time it will be an important lesson for communicating modern technologies and know-
how to the surrounding farmers on modern bee keeping practices.

Therefore, the project is profitable from the view point of the society as a whole.

10. Other components

10.1 Environmental aspects

First and foremost, honey production and processing are not only environmentally friendly economic
activity; rather it is an agent of environmental rehabilitation through its pollination services. One day
upon a time the world scientist eminent scientist Albert Einstein said that if bees disappear from this
world no human being lives long. Honey and wax processing industries were not having more
industrial residues like smoky, fluids and chemicals that released to the environment.
10.2 Cross cutting issues
The project has given high emphasis for the HIV/AIDS, Gender issues mainstreams. The project gives
attention for to protecting the diseases and creates the awareness of gender mainstreaming by giving the
chance to discuss monthly within the employees.

11. Conclusion and Recommendations

As it is known Ethiopia has huge investment potentials for honey processing industry
subsector, and the climatic condition is favorable for growing different vegetation and crops which
are an excellent source of nectar and pollen that are used as a raw material for beekeeping
industries. Tigray region have great opportunities to promote honey bee industry and to boost bee
hive products. The financial and economic analysis of this honey processing investment shows that
the project is worth profitable and acceptable as the discounted measures of the project worth
shows positive trend if investors are engaged in the area .

33
 12. Appendices
12.a Annexes for Financial analysis
Table 12.a.1 Loan Payment schedule

 
Principal Amount 4362653.75
Interest Rate 0.13
Loan Term in
Months 36

Monthly Payment 146995.046

Amount 1
Month Month Month
  Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 10 11 12 Totals
Year One                          
Interest 47,262 46,182 45,089 43,986 42,870 41,742 40,601 39,449 38,284 37,106 35,915 34,712 493,197
Principal 99,733 100,813 101,906 103,010 104,125 105,253 106,394 107,546 108,711 109,889 111,080 112,283 1,270,744
Loan Balance 4,262,921 4,162,107 4,060,202 3,957,192 3,853,067 3,747,813 3,641,420 3,533,873 3,425,162 3,315,273 3,204,193 3,091,910 3,091,910
Year Two                          
Interest 33,496 32,266 31,023 29,767 28,497 27,213 25,916 24,604 23,278 21,938 20,583 19,213 317,793
Principal 113,499 114,729 115,972 117,228 118,498 119,782 121,080 122,391 123,717 125,057 126,412 127,782 1,446,147
Loan Balance 2,978,411 2,863,682 2,747,710 2,630,482 2,511,984 2,392,202 2,271,122 2,148,731 2,025,014 1,899,957 1,773,544 1,645,763 1,645,763
Year Three                          
Interest 17,829 16,430 15,015 13,586 12,140 10,679 9,203 7,710 6,201 4,676 3,134 1,575 118,178
Principal 129,166 130,565 131,980 133,409 134,855 136,316 137,792 139,285 140,794 142,319 143,861 145,420 1,645,763
Loan Balance 1,516,597 1,386,032 1,254,052 1,120,642 985,788 849,472 711,680 572,394 431,600 289,281 145,420 (0) (0)

i
 12.b Annexes for Economic analysis
Table 12.b.1 Over head cost projection for economic analysis

Description/year 1 2 3 4 5 6 7 8 9 10
overhead expenses                    
Salary and wages for 334,43
indirect skilled labor 251,262 276,388 304,027 0 367,873 404,660 445,126 489,639 538,602 592,463
Salary and wages for
indirect unskilled labor 24,156 26,572 29,229 32,152 35,367 38,903 42,794 47,073 51,781 56,959
Supplies 8,800 9,680 10,648 11,713 12,884 14,172 15,590 17,149 18,864 20,750
Utilities for staff 7,508 8,258 9,084 9,992 10,992 12,091 13,300 14,630 16,093 17,702
Miscellaneous 6,000 6,600 7,260 7,986 8,785 9,663 10,629 11,692 12,862 14,148
396,27
Total overhead costs 297,726 327,498 360,248 3 435,900 479,490 527,439 580,183 638,201 702,021
Table 12.b.2 Operating cost projection for economic analysis
Description/year 1 2 3 4 5 6 7 8 9 10
operating costs                    
Salary and wages for direct
skilled labor 163,782 180,160 198,176 217,994 239,793 263,773 290,150 319,165 351,081 386,189
Salary and wages for direct
unskilled labor 60,390 66,429 73,072 80,379 88,417 97,259 106,985 117,683 129,451 142,396
raw material 6,406,400 7,047,040 7,751,744 8,526,918 9,379,610 10,317,571 11,349,328 12,484,261 13,732,687 15,105,956
inputs 88,160 96,976 106,674 117,341 129,075 141,983 156,181 171,799 188,979 207,877
Repair and maintenance 109,274 120,201 132,222 145,444 159,988 175,987 193,586 212,944 234,239 257,662
Utilities for plant 238,619 262,481 288,730 317,602 349,363 384,299 422,729 465,002 511,502 562,652
Fuel and lubricant 119,070 130,977 144,075 158,482 174,330 191,763 210,940 232,034 255,237 280,761
Gowns and uniforms 1,496 1,646 1,810 1,991 2,190 2,409 2,650 2,915 3,207 3,527
Package costs 97,130 106,843 117,527 129,280 142,208 156,429 172,072 189,279 208,207 229,027
9,695,43
Total operating costs 7,284,321 8,012,754 8,814,029 2 10,664,975 11,731,473 12,904,620 14,195,082 15,614,590 17,176,049
ii
 Table 12.b.3 cash flow for economic analysis
Year 0 1 2 3 4 5 6 7 8 9 10
Cash in flow                      
  163,000
Salvage Value                  
Sales Revenue   11,466,000 12,612,600 13,873,860 15,261,246 16,787,371 18,466,108 20,312,718 22,343,990 24,578,389 27,036,228
Annual cash
inflow (a ) 0 11,466,000 12,612,600 13,873,860 15,261,246 16,787,371 18,466,108 20,312,718 22,343,990 24,578,389 27,199,228

Cash outflow                      

Investment 7,582,651                    

operating cost   7,284,321 8,012,754 8,814,029 9,695,432 10,664,975 11,731,473 12,904,620 14,195,082 15,614,590 17,176,049
Working
Capital   1,080,000                 -1,080,000
overhead cost   297,726 327,498 360,248 396,273 435,900 479,490 527,439 580,183 638,201 702,021
Annual Cash
Outflow (b) 7,582,651 8,662,047 8,340,252 9,174,277 10,091,704 11,100,875 12,210,962 13,432,059 14,775,265 16,252,791 16,798,070
Annual Cash
Flow Balance
(a-b) -7,582,651 2,803,953 4,272,348 4,699,583 5,169,542 5,686,496 6,255,145 6,880,660 7,568,726 8,325,598 10,401,158
Cumulative
cash balance   2,803,953 7,076,301 11,775,885 16,945,426 22,631,922 28,887,067 35,767,727 43,336,452 51,662,051 62,063,209

iii
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