107.

PROFILE ON AEROSOL INSECTICIDE

 107 -2

TABLE OF CONTENTS

PAGE

I. SUMMARY 107-3

II. PRODUCT DESCRIPTION & APPLICATION 107-3

III. MARKET STUDY AND PLANT CAPACITY 107-4

A. MARKET STUDY 107-4
B. PLANT CAPACITY & PRODUCTION PROGRAMME 107-6

IV. MATERIALS AND INPUTS 107-7

A. RAW MATERIALS 107-7
B. UTILITIES 107-8

V. TECHNOLOGY & ENGINEERING 107-9

A. TECHNOLOGY 107-9
B. ENGINEERING 107-11

VI. MANPOWER & TRAINING REQUIREMENT 107-14

A. MANPOWER REQUIREMENT 107-14
B. TRAINING REQUIREMENT 107-15

VII. FINANCIAL ANLYSIS 107-15

A. TOTAL INITIAL INVESTMENT COST 107-15
B. PRODUCTION COST 107-16
C. FINANCIAL EVALUATION 107-17
D. ECONOMIC BENEFITS 107-19

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.
 107 -3

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.
 107 -4

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 country’s 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.
 107 -6

Table 3.2
PROJECTED DEMAND FOR AEROSOL INSECTICIDES (TONNES)

Year Projected
Demand
2008 243
2009 253
2010 263
2011 274
2012 284
2013 296
2014 308
2015 320
2016 333
2017 346
2018 360
2019 374
2020 389

3. 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.
 107 -7

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 Year of Production

1 2 3-10
No.
1 Capacity utilization rate (%) 80 90 100
2 Production(tonnes) 210.4 236.7 263

IV. MATERIALS AND INPUTS

A. RAW AND AUXILIARY MATERIALS

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.
 107 -8

Table 4.1
ANNUAL OF RAW AND AUXILIARY MATERIALS & COST

Sr. Description Unit Qty Unit Cost (Birr)

No Of Cost
. Meas. (Birr) L.C F.C Total
1 Insecticide, active ingredient Kg 13,150 83.64
(Allethrin, Reametrhin,
dichlrovos,etc) 824,899. 1,099,866
5 274,966.5 .0
2 Perfume Kg 2,660 66.94 133,545. 178,060
3 44,515.1 .4
3 Propellants (LPG, Freon gas, Liter 65,750 21 1,380,750
etc) - 1,380,750.0 .0
4 Refined kerosene Liter 246,56 9 2,219,067
3 - 2,219,067.0 .0
5 Cans, Valves, Caps Pcs 12,500   164,080. 54,690.0 218,770
0 .0
  Grand Total    
1,122,524.8 3,973,988.6 5,096,513.4

B. 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.
 107 -9

Table 4.2

ANNUAL REQUIREMENT OF UTILITIES & COST

Sr. Description Unit of Qty. Cost

No. Measure (Birr)

2 Electricity kWh 72,000 34,099

3 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
 107 -10

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.
 107 -11

B. ENGINEERING

1. 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. Description Qty Cost in ‘000 Birr

No. FC LC Total
1 Automatic aerosol filling line 1 set 34.50 34.50
2 Pump unit for gas filling machine 1 set 138.00 138.00
3 Vacuum pump unit for gas filling machine 1 set 69.00 69.00
4 Compressor unit 1set - 133.00 133.00
5 Hot water bath 1 unit 34.50 - 34.50
6 Ventilation fan system 1 set 69.00 69.00
7 Filtration system 1 set 138.00 138.00
8 Insecticide solution mixing tank with agitator 1 set 103.50 103.50
9 Insecticidal solution storage tank 1set - 38.00 38.00
10 Spray test conveyor 1set 103.50 103.50
11 Packing conveyor 1 set 19.00 19.00
Grand Total 690.00 190.00 880.00

2. 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 200m2 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.

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,
 107 -12

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 City’s 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 City’s Investment Authority. However,
if the land request is above 5,000 m2 the request is evaluated by the City’s Investment
 107 -13

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 /m 2 in Akakai-Kalti and Birr
341/ m2 in Lebu and recently the city’s 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

Payment
Grace Completion Down
Scored Point Period Period Payment
Above 75% 5 Years 30 Years 10%
From 50 - 75% 5 Years 28 Years 10%
From 25 - 49% 4 Years 25 Years 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.

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.
 107 -14

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. Req. Monthly Annual Salary

Description
No No Salary (Birr) (Birr)
1 Plant manager 1 3,500 42,000
2 Secretary 1 900 10,800
3 production supervisor 1 2,800 33,600
4 Quality controllers (checkers) 2 2,400 28,800
5 Operator 1 900 10,800
6 Assistant operator 1 700 8,400
7 Technician 1 900 10,800
8 Cashier 1 600 7,200
9 Purchaser/Sales man 1 1,500 18,000
10 Laborers 3 1,350 16,200
11 Driver 1 500 6000
12 Guard 2 700 8,400
Sub-Total 16 201,000
Employees benefit (25 % of basic
salary) 50,250
Total 251,250

B. TRAINING REQUIREMENT
 107 -15

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)
 107 -16

Sr. Cost Items Local Foreign Total

Cost Cost Cost
No.
1 Land lease value 2,076.00 - 2,076.00
2 Building and Civil Work 840.00 - 840.00
3 Plant Machinery and Equipment 270.00 690.00 960.00
4 Office Furniture and Equipment 100.00 - 100.00
5 Vehicle 450.00 - 450.00
6 Pre-production Expenditure* 386.04 - 386.04
7 Working Capital 858.36 - 858.36
  Total Investment cost 4,980.40 690.00 5,670.40

* 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.
 107 -17

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

Items Cost %
Raw Material and Inputs
5,096.51 84.89
Utilities 42.22 0.70
Maintenance and repair
44.00 0.73
Labour direct 120.60 2.01
Labour overheads
50.25 0.84
Administration Costs 80.40 1.34
Land lease cost
- -
Total Operating Costs 5,433.98 90.51
Depreciation 363.80 6.06
Cost of Finance 206.17 3.43
Total Production Cost
6,003.95 100

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
 107 -18

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
project’s 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
 107 -19

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.