Professional Documents
Culture Documents
Study
[ FOOD PROCESSING PROJECT ]
Nekemte Locality of Oromiya Region
By DICT
Submitted to: MoFED/UNDP
October 2010
1
Executive Summary
With the support of UNDP, the Government of Ethiopia (GoE) has been implementing a project,
entitled “Local Economic Development” (LED) in 7 municipalities of 4 Big Regions (Oromiya,
Amhara, SNNPR and Tigray). These 7 municipalities are as follows: Oromiya: Asella and
Nekemte; Amhara: Bahir Dar; SNNPR: Awassa and Sodo; and Tigray: Mekele and Adigrat. The
main objective of the project is to enhance the capacities of Regions and Woredas to promote
pro-poor economic growth and sustainable livelihoods, through investments, employment
creation and targeted economic interventions. The project has 2 main intervention areas to
achieve the objectives, these are: (1) local capacity development for creating enabling
environment; and (2) creating jobs opportunities. The project, which is being implemented since
June 2009, has already made several achievements, such as developing LED strategies of the
Regions and localities; setting up an inclusive microfinance system, providing employment
opportunities to over 5,000 unemployed youth and women, providing job-related skills
development training to over 3,000 youth, construction of infrastructure (road and sewage
system), and others. In line with the GTP (5 year National Development Plan), the project has
been supporting the local governments for pro-poor growth and economic development at local
levels, by creating enabling environment and promoting jobs creation.
In view of the above background, participatory assessment of the locality’s LED potential was
conducted and a five year LED strategy and viable interventions were developed for harnessing
the potentials. In this regard, six micro viable projects, which are geared towards improving the
income and employability of vulnerable youth and women groups, were identified for the year
2010 based on results of a pre-feasibility study conducted by the LED team for Nekemte. In fact,
Nekemte Food Processing Project is one of the viable projects that are identified and endorsed
by the LED stakeholders in Nekemte.
Nekemte Food Processing Project is mainly engaged in the production of food processing
products including the injera baking, bread bakeries, food items preparation, vegetable sales,
poultry products sales, milk and diary products sales, and others and will mainly use the Internet
to communicate with its clients, doo-to-door selling, word of mouth, catalogs, broker’s
incentives, as well as local newspapers.
Nekemte Food Processing Project is owned by about hundred forty (30 males and 110 females)
unemployed youths and women vulnerable groups that will be organized in association so as to
pledge their time, labor, and financial resource so as to create jobs for themselves. These youths
and women will operate the business and that relevant training will be given to the members
about production and management of the food processing as well the training of the ways of
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Feasibility Study Nekemte Food Processing Project
handling customers, and courses on business management like record keeping, and marketing
will be provided. It is expected that Nekemte Food Processing Project will start its operation in
the year 2010/2011.
The business investment is financially viable with an internal rate of return of 25.9584%, net
present value of birr 384,151.45 discounted at 15%, benefit/cost ratio of 1.280, and payback
period of three years. These financial analysis criterions, all confirms the feasibility of the
business investment and their results indicate a promising investment opportunity. Further, the
investment sensitivity analysis, conducted under various conditions, results confirm that the
business investment is attractive to undertake.
Similarly, if we looked at the forecasted income statement, the Nekemte Food Processing
Project investment will generate a total sales of birr 1,328,000 in the year 2010/2011 and birr
1,944,325 in the year 2015, indicating a more than 45% increase in the sales in the operating
period of the business and ensuring that the business start generating profit in the first year of
operation. Important ratios such as profit margin (net profit to total sales), net profit to equity
(return on equity), and net profit to total assets or investment (return on total investment) show
an increasing trend during the life-time of the project. In general, the Forecasted Income
Statement and the other indicators of profitability show that the investment is viable.
As an economic benefit the investment can create employment for 140 Ethiopian in the year
2010/2011 and the job opportunities for our citizens and will increase in the successive years. In
addition to supply of the domestic needs, the investment will generate birr 954,479 in terms of
tax revenue to the government. Lastly, by enhancing the potential to increase productivity and,
managing or minimizing the various costs such as material cost, labor cost, supplies expense,
and others, the business will implement its investment profitably.
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Feasibility Study Nekemte Food Processing Project
Contents
Executive Summary………………………………………………………………………………………………………………………2
1. Description of the Business and Impact Flow..........................................................................................5
2. Industry Analysis......................................................................................................................................9
3. Production Plan....................................................................................................................................10
4. Marketing Strategy...............................................................................................................................11
7. Sensitivity Analysis..............................................................................................................................21
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Feasibility Study Nekemte Food Processing Project
Meanwhile, Nekemte City Administration is one of the localities in Oromiya that is endowed with
huge but untapped potentials. Its natural resource base, accessibility to market, better infrastructure
and service, human resource as well as existence of institutions are among the most prominent
potentials for generating growth and creating gainful employment to the residents. Moreover, the
growth and development of Nekemte is believed to stimulate the rapid transformation of
surrounding rural communities. Nevertheless, a significant proportion (35 to 40%) of the residents
is below poverty line of birr 1,075 for Ethiopia. Women headed households in Nekemte, estimated
to reach 40% of the households, are mostly suffering from poverty. Moreover, out of the total
46,426 people that are economically active, 8,706 or 19% are found to be registered job seekers.
The situation of unemployment is so rampant when considering the growing number of unskilled
and unregistered youth groups in the locality.
Furthermore, HIV/AIDS, disability and poor support to elders are increasingly threatening the
city’s socio-economic development. Finally, revenue base of the city administration has been
undiversified and inadequate to respond to the needs and priorities of the residents. Albeit positive
developments in the local business enabling environment, the level of private investment and Micro
and Small Enterprises development has been far below expectation. Support provided to Micro and
Small Enterprises has been very limited and women’s involvement in the enterprises has been
marginal. Besides, the number of youth, women, elders and other groups looking for support,
mainly.
The combined effect of these problems has been perpetuating the problems of poverty,
unemployment and weak capacity to finance public expenditures. In addition, the vulnerability
situation is adding to social problems that include crime/deviance, beggary, prostitution etc.
In a nutshell, Nekemte town is not currently in a position to respond to the needs and priorities of
vulnerable groups by relying on its potentials. Among the leading causes is limited access to
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Feasibility Study Nekemte Food Processing Project
finance, business premises, and trainings for skills development. The present undeveloped
partnership and collaboration among Local Economic Development actors is also a bottleneck in
initiating successful Local Economic Development interventions geared towards creating more jobs
and revenue. This Local Economic Development project of Nekemte is, therefore, developed with
due recognition of the gravity of problems of unemployment, abject poverty and welfare among
vulnerable groups viz., youth, women, elders, the disabled and others in the town.
Nekemte Food Processing Project initially will focus on injera baking, bread bakeries, food items
preparation, vegetable sales, poultry products sales, milk and diary products sales, and others. Later
the project will expand to a small scale food processing factory focusing on food processing and
packaging, the preparation of pasta and macaroni, etc. Nekemte Food Processing Project have an
overall objective of satisfying customers by producing quality injera baking, bread bakeries, food
items preparation, vegetable sales, poultry products sales, milk and diary products sales, and others
and maintain a steady growth in sales volume that will sustain the business for long period.
Nekemte Food Processing Project is owned by about hundred forty (30 males and 110 females)
unemployed youths and women vulnerable groups that will be organized in association so as to
pledge their time, labor, and financial resource so as to create jobs for themselves. These youths
and women will operate the business and that relevant training will be given to the members about
food processing and management as well the training of the ways of handling customers, and
courses on business management like record keeping, and marketing will be provided. It is
expected that Nekemte Food Processing Project will start its operation in the year 2010/2011.
The business will operate in Nekemte town, Oromiya Regional State, East Wollega zone. The site
is selected because it is located at the center of the town and is becoming a conference town for the
Western part of Oromiya that has created a huge demand for various food items. Moreover, the
processed food items are currently transported from Addis Ababa and that sometimes there is a
critical shortage of these food items. Therefore, this project will start from small to address basic
shortage of food items locally and later will grow to process and produce various food items in
large quantity at the factory level for the national and international market maintaining high quality
standards.
In addition, Nekemte town is one of the leading towns of Western Oromiya and that it has Wollega
University and other private colleges. The University is going to outsourcers its services to micro
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Feasibility Study Nekemte Food Processing Project
and small enterprise operators as well as unemployed youth and women. For example the
university requires the sustainable supply of foodstuffs, spices, meat, powdered red pepper, grinded
beans for making sauce etc. The food staff, spices, powdered red pepper; grinded beans for making
sauce can be outsourced to marginalized women.
In order to produce and sale injera, bread, and others, the Nekemte Food Processing Project will
acquire batira, mixer, axe, water tanker, boxes, container, cleaner, table, baldi, glass(plastic),
cooker, serving dish, stove electrical, shelf, bread machine, sieve, stove, and others, and other all
essential equipment to carryon its activities from the Nekemte Town and its surroundings. As well,
the Nekemte Food Processing Project will purchase essential raw materials such as teff, bread flour,
and others from Nekemte town and its surroundings, Addis Ababa and Micro and Small Enterprises
already organized on grain and cereal trade in the town.
Objectives: The overall objective of the project is to contribute to the reduction of poverty and
unemployment as well as growth generation endeavors in Nekemte. Specifically the project is
intended to improve living standard of 90 youth and women vulnerable groups, create job
opportunity, and to increase the quality of food processing in the town.
Outputs: The project is expected deliver outputs including increased employment opportunities,
increased purchasing power of target beneficiaries, and increased Production
Input/Activities: Important project inputs include financial support in the form of loan, technical
support. Business plan preparation, providing training to targets, provision of business premises
and political support, establishment of business association, provision of technical and business
information support.
The project’s impact flow is briefly presented herein below in the diagram that shows the logical
connection of the input/process, outputs, and outcome and impact.
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Feasibility Study Nekemte Food Processing Project
customers, and courses on business management like record keeping, and marketing.
Business remises, licensing and registration services provided
Association established, coordination undertaken
Professional/technical assistant provided
Information on business opportunities, marketing and apprenticeships provided
Leading to…
Outputs (results relating to short-term change effects and results sought)
Improved technical capacity (knowledge and skill) to start and run businesses
Stimulated VGs to engage in businesses
Improved production and sale of processed food
Increased purchasing power of beneficiaries
Decreased business failures
Increased emergence new business/investment in food processing
Leading to…
2. Industry Analysis
Nekemte is one of the best naturally endowed town in the country. Assessment results for the 2009
Local Economic Development initiative indicated that the Nekemte town is endowed with fertile
soil, water resources, forest, sufficient precipitation, hotel and resorts, abundant and cheap labor
force, livestock and animal husbandry and above all, it has abundant minerals and raw materials. In
addition, the town is uniquely favorable to open and develop food processing industries.
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Feasibility Study Nekemte Food Processing Project
Moreover, The Local Economic Development Strategy of Oromiya confirms the competitive
advantage of Nekemte town and suggested that urban agriculture (such as dairy processing, food
processing, horticulture, livestock fattening, beautification and gardening, Coffee and Honey
processing), industry and construction as the main areas of investment, Local Economic
Development intervention and sustainable development (Local Economic Development Strategy of
Oromiya , September 2009).
According to Central Statistic Agency, 2007, Nekemte has a total population of above 76,817
(39,167 male 37,650 female). The population of the town is increasing due to rural–urban influx,
that is, people migrate from rural to urban seeking for job opportunity and suitability of the town
for work and living condition. The rapid population growth is a potential market for food
processing products. This implies that there exists huge market demand for injera, bread, food
items, vegetable, poultry products, diary products, and others in the city. It also creates employment
opportunities for a number of youth and women. Hence, running the Nekemte Food Processing
Project business shall be feasible, lucrative and fast income generating.
There are few food processing businesses in Nekemte town at the current period, for instance
Lalistu Injera Catering, Sena Injera Catering, Nuf-Sin Bread Making, Top Bread Making, and
others. Though the Nekemte Food Processing Project will gradually involve in the production of
quality injera, bread, food items, vegetable, poultry products, diary products, and others and will
operate in Nekemte town the presence of few food processing businesses in Nekemte town is an
opportunity by not having strong computational effects on the business.
Moreover, by producing quality injera, bread, food items, vegetable, poultry products, diary
products, and others at low costs, satisfying customers, using the advertizing, and others the
Nekemte Food Processing Project is planning to gain and maintain the market share and become
strong competitor.
3. Production Plan
Food Processing Project is an important source of income in Ethiopia and is one of the most
suitable interventions to improve the livelihood of the poor. Nekemte Food Processing Project is
planning to participate in modern food processing system and to achieve a better yield by initially
focusing on the production of quality injera, bread, and others.
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Feasibility Study Nekemte Food Processing Project
In the year 2010/2011, Nekemte Food Processing Project has a plan to produce and sale various
quantities of injera, bread, and others at various costs as provided in Table 1 below:
In order to produce injera, bread, and others, the Nekemte Food Processing Project will purchase
essential raw materials such as teff, bread flour, and others, which are summarized in Table 2
below.
Table 2 Raw Material Requirements and Cost for the Year 2010/2011
No Type of Raw Material Unit of Measure Qty Unit Cost Total Costs
1. Teff
quintal 402 690 Birr 277,380
2. Bread Flour
quintal 87 780 67,860
Total Yearly Raw Material Birr 345,240
4. Marketing Strategy
Food processing is a labor intensive activity that could help to enhance the employability of jobless
youths. Given the potential of Nekemte town and its vicinity for agricultural production, value
adding on food commodities through semi-processing activities will improve the marketability of
food commodities and creates synergy with the agricultural sector. Since, the town is inhibited by
increasing population size; those who are going to engage in this activity will definitely get market
for their products. It is with this premise that this project activity is designed.
Nekemte Food Processing Project will mainly use the Internet to communicate with its clients, doo-
to-door selling, word of mouth, catalogs, broker’s incentives, and others. As well, in the future it
will also advertise in the local newspapers including Capital, Reporter, Fortune, and Addis Zemen.
In a given year, the business has a plan to spend up to birr 2,000 on advertising and promotion and
it is planning to spend more in the future.
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Feasibility Study Nekemte Food Processing Project
Nekemte Food Processing Project follows a low pricing strategy to attract large numbers of
customers and benefit from the large numbers. In comparison with others, the price of the business
will be low and it will charge low prices by minimizing its costs to the minimum yet, the business
is planning to have average prices and compete on quality and service in the future.
Even though there are few competitors in the market like Lalistu Injera Catering, Sena Injera
Catering, Nuf-Sin Bread Making, Top Bread Making, and others, there is a potential market for
Nekemte Food Processing Project products in the Nekemte town. that the Nekemte Food
Processing Project is targeting Wollega University, private colleges, local societies, grain and
cereal trade micro and small enterprises, grinder mill micro and small enterprises, and others that
are considered to be the consumers of food processing products.
Regarding the personnel requirement, the business will operate with efficient and effortful
participation of the beneficiaries and hire a total of 140 youths and women vulnerable groups only
from beneficiaries, specifically 7 accountants, 7 cashiers, 7 janitors, 7 storekeepers, 7 guards, and
55 clerical workers. Correspondingly, total labor cost is estimated at birr 361,200 for the year
2010/2011. Table 3 provides the list of manpower required and the estimated monthly as well as
annual labor costs.
Table 3 Manpower Requirement and Labor Cost for the Year 2010/2011
No. Positions Req. No. Monthly Salary Yearly Salary
1. Accountant 7 400 Birr 33,600
2. Cashier 7 250 21,000
3. Janitor 7 200 16,800
4. Store keeper 7 250 21,000
5. Guard 7 200 16,800
6. Clerical Workers 105 200 252,000
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Feasibility Study Nekemte Food Processing Project
Even though the employment of a manager who run the business profitability, enable the business
pay the loan it borrows, generate more income to the owner, and others is a necessary condition,
his/her employment is not incorporated in the feasibility study. It is the consultant’s strong believe
that the business is managed by one experienced and qualified manager.
The financial feasibility study that incorporate the capital investment, financing plan, the
Forecasted Income Statement, the Forecasted Balance Sheet, and the Forecasted Cash Flow
Statement are provided in the parts that follow.
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Feasibility Study Nekemte Food Processing Project
The business will acquire bread machine at a total cost of birr 300,000 at the beginning of
the year 2010/2011. It is assumed that the bread machine will have 5 years useful life and
estimated salvage value of birr 30,000.
The business will acquire stove at a total cost of birr 452,000 at the beginning of the year
2010/2011. It is assumed that the stove will have 5 years useful life and estimated salvage
value of birr 42,000.
The business will acquire other assets such as serving dish, glass(plastic), container, cleaner,
and others at a total cost of birr 16,250 at the beginning of year 2010/2011. It is assumed
that the other assets will have 5 years useful life and zero estimated salvage value.
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Feasibility Study Nekemte Food Processing Project
business needs money. Since customers are very receptive and if they do not obtain quality
products and service and timely, they may not be interested to come again, the business shall need
funds to provide quality service and satisfy its customers.
The Nekemte Food Processing Project generally requires a total of birr 1,370,000 to meet estimated
capital requirements as well as to cover various costs incurred to start and run the operation. Hence,
to meet estimated capital requirements as well as to cover various costs incurred to start and run the
operation, the business expects to borrow birr 1,370,000 from financial institutions (such as
microfinance or banks) at the beginning of year 2010/2011, at 10% interest rate that will be
repayable in five years on monthly basis.
In the year 2012 and successive years, the business expects a 10% increase in the total sales.
The forecasted costs and expenses for the year 2010/2011 and successive years for the business are
provided in the parts that follow. Note that, for the purposes of various analyses, the costs and
expenses are treated in the same way.
1. Material cost. In the year 2010/2011, the business estimated to incur a total of birr 345,240
material cost and that the material cost is expected to increase by 2% per year for the
successive years.
2. Labor cost. In the year 2010/2011, the business estimated to incur a total of birr 361,200
labor cost and that the labor cost is expected to increase by 2% per year for the successive
years.
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Feasibility Study Nekemte Food Processing Project
3. Transportation cost. In the year 2010/2011, the business estimated to incur a total of birr
2,000 transportation cost and that the transportation cost is expected to increase by 2% per
year for the successive years.
4. Repair and maintenance. In the year 2010/2011, the business estimated to incur a total of
birr 2,000 repair and maintenance of business facilities and that the repair and maintenance
is expected to increase by 2% per year for the successive years.
5. Utility expense. In the year 2010/2011, the business estimated to incur a total of birr 15,000
utility expenses for the electricity, water, and telephone and that the utility expense is
expected to increase by 2% per year for the successive years.
6. Advertising and promotion. In the year 2010/2011, the business estimated to incur a total
of birr 2,000 advertising and promotion and that the advertising and promotion is expected
to increase by 2% per year for the successive years.
7. Insurance expense. In the year 2010/2011, the business estimated to incur a total of birr
1,000 insurance expenses to insure the business properties and that the insurance expense is
expected to increase by 2% per year for the successive years.
8. Supplies expense. In the year 2010/2011, the business estimated to incur a total of birr
13,700 supplies expenses (powder at birr 800, sugar at birr 700, working close at birr 5,200,
fire wood at birr 1,000, gomanzer at birr 100, packing plastic at birr 500, suck at birr 600,
oil at birr 1,700, salt at birr 600, yeast at birr 2,000, and sefed at birr 500) and that the
supplies expense is expected to increase by 2% per year for the successive years.
9. Rent expense. In the year 2010/2011, the business estimated to incur a total of birr 5,000
rent expenses and that the rent expense is expected to increase by 2% per year for the
successive years.
10. Other costs and expenses. Other costs and expenses including the compensation and
severance, stationery and office supply, professional fee, legal fee, consultancy fee, cleaning
and sanitation, revenue stamp, uniform expense, per-diem, license and renewal fee, and
others are assumed to be birr 5,000 in the year 2010/2011 and expected to increase by 2% in
the successive years.
11. Depreciation. The depreciation expense is computed for the year 2010/2011 and coming
years using the deprecation rate of Federal Inland Revenue Authority on the book value of
the assets.
12. Interest expense. From the birr 1,370,000 bank loan that the business will request, interest
expense of birr 137,000 in the year 2010/2011, birr 123,300 in the year 2012, birr 94,530 in
the year 2013, birr 64,253 in the year 2014, and birr 33,825 in the year 2015.
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Feasibility Study Nekemte Food Processing Project
13. Income taxes. Since we expect no changes in either tax law or tax position, we will use the
same tax rate as last year; that is income taxes of 30%.
The Forecasted Income Statement for the five years (2010/2011 to 2015) depending on the
Forecasted revenue/sales and the costs of sales and expenses provided in the earlier parts are
prepared and presented as follows:
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Feasibility Study Nekemte Food Processing Project
38,470 in the year 2012, birr 68,312 in the year 2013, birr 92,186 in the year 2014, and birr
111,285 in the year 2015.
╬ Bank loan balance. It is assumed that, from the loan balance of birr 1,370,000, the business
expects to pay a total of the principal and interest of birr 411,000 in the year 2010/2011, birr
397,300 in the year 2012, birr 368,530 in the year 2013, birr 338,253 in the year 2014, and
birr 307,825 in the year 2015. As a result, the outstanding bank loan balance is birr
1,096,000 in the year 2010/2011, birr 822,000 in the year 2012, birr 548,000 in the year
2013, and birr 274,000 in the year 2014.
╬ Paid-up-capital is equal to birr 0 and remain the same in the coming years.
╬ In the year 2010/2011, the estimated retained earning will increase by the net profit and no
dividend will be paid, while in the successive years, the retained earning will increase by
60% and the remaining 40% will be paid as dividend.
Hence, using these assumptions, the Forecasted Balance Sheet for the five years (2010/2011 to
2015) are prepared as shown below:
The Forecasted Cash Flow Statement for the five years (2010/2011 to 2015) is provided as follows:
Nekemte Food Processing Project
Forecasted Cash Flow Statement
December 31, 2010/2011 – 2015 (in birr)
Cash Inflows: 2010/2011 2012 2013 2014 2015
Beginning Cash Balance 0 567,408 649,988 776,152 957,220
Sales 1,328,000 1,460,800 1,606,880 1,767,568 1,944,325
Depreciation Tax Shield 49,878 39,902 31,922 25,538 20,430
Borrow from Bank 1,370,000 - - - -
Total Cash Inflows 2,747,878 2,068,110 2,288,790 2,569,257 2,921,975
Cash Outflows:
Material cost 345,240 352,145 359,188 366,371 373,699
Labor cost 361,200 368,424 375,792 383,308 390,974
Transportation cost 2,000 2,040 2,081 2,122 2,165
Repair and maintenance 2,000 2,040 2,081 2,122 2,165
Utility expense 15,000 15,300 15,606 15,918 16,236
Advertising and promotion 2,000 2,040 2,081 2,122 2,165
Insurance expense 1,000 1,020 1,040 1,061 1,082
Supplies expense 13,700 13,974 14,253 14,539 14,829
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Feasibility Study Nekemte Food Processing Project
Moreover, note that, the business is expected to operate for five years and that the business
assumed a 15% rate of return to evaluate the business investment. Hence, the payback period, net
present value, internal rate of return, and the benefit/cost ratio are calculated using the Forecasted
Cash Flow Statement provided in the prior parts as follows:
1. The payback period was estimated at three years, which is shorter than the five years that
the business will operates, indicating that the business will return its investments in the
shorter period.
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Feasibility Study Nekemte Food Processing Project
2. The net present value at discount factor of 15% was estimated to be a positive value of birr
384,151.45. The birr 384,151.45 net present value is positive; therefore based on the net
present value rule; we should accept the business investment.
3. The internal rate of return reached about 25.9584%. The internal rate of return of 25.9584%
is far greater than the prevailing market rate of return of 15%, again implying that, it is
advisable to undertake the business investment.
4. The benefit/cost ratio at discount factor of 15% was estimated to be 1.280. Since the
benefit/cost ratio of 1.280 is greater than one, we can argue that the business investment is
estimated to provide a positive net return implying that the business investment is attractive
to undertake.
If we looked at the four criterions: the payback period, net present value, internal rate of return, and
the benefit/cost ratio, all confirms the feasibility of the business investment and the results indicate
a promising investment opportunity, and such business investment could be a great success if well
managed.
Moreover, according to the Forecasted Income Statement, the Nekemte Food Processing Project
will start generating profit in the first year of operation. Important ratios such as profit margin (net
profit to total sales), net profit to equity (return on equity), and net profit to total assets or
investment (return on total investment) show an increasing trend during the life-time of the project.
In general, the Forecasted Income Statement and the other indicators of profitability show that the
investment is viable.
7. Sensitivity Analysis
Risk and uncertainty are the most common features of business activities. These features make it
difficult to know exactly what will be the Nekemte Food Processing Project, its costs, and returns
levels, even in the near future. There are risks and uncertainties about the food processing the
business is planning to operate due to many factors such as unexpected changes in cost of input,
input availability and quality, electric power blackouts, and others.
Moreover, the business may face other risks while striving to achieve its objectives including
frequent price fluctuations of goods and services, low commitment of the targets beneficiaries, high
competitiveness of the surrounding market, willingness and readiness of line departments to give
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Feasibility Study Nekemte Food Processing Project
support, funds from the external sources might have their own conditions which may affect the
implantation of projects, and others.
All of these risks and uncertainties and others could affect the business profitability. If the changes
in business profit are positive, as a result of these risks and uncertainties, then there is no need to
recalculate the feasibility measures, but if they are negative, business investment feasibility must be
retested, and this is the role of the sensitivity analysis. Hence, to conduct the sensitivity analysis of
the business investment, three scenarios are taken into consideration to test business profitability:
the increase of total revenue by 5% rather than a 10% increase assumed earlier, the increase of
costs and expenses by 3% rather than a 2% increase assumed earlier, and both occurring together.
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Feasibility Study Nekemte Food Processing Project
4. The benefit/cost ratio is 1.260, which is greater than one that indicates that the business
investment is estimated to provide a positive net return and that the investment is attractive
to undertake.
Furthermore, if the Nekemte Food Processing Project takes place, it is expected to result in
decrease in unemployment, increase the purchasing power of target groups, increase the inward
investment to the town, increased contribution of the private sector to the municipal budget and
local economy, and improved business enabling environment (favorable to new investments). In
short, the business is expected to have a positive impact on the lives of the target group, families of
thereof and on the community at large.
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Feasibility Study Nekemte Food Processing Project
Specifically, the investment in the Nekemte Food Processing Project will result in an increased
income of the partners resulting from the sales of food processing products that will ultimately
result in increased purchasing power of the local societies mainly the direct and indirect
beneficiaries. Moreover, the proposal enhances and promotes peace, harmonies and good team
spirit and relationship between the partners and other indirect beneficiaries. Indirectly, the town
residents also get the benefit of consuming value added food products, and hence enjoy better
health through improved consumption. The agricultural sector also enjoys better market price
through increased shelf life of perishable food products, and increased forward linkage effect.
In addition, it encourage other private enterprises which are currently involved in food processing
to go for producing quality products as they will be in competition with the newly established
enterprise. Success of this project will encourage other unemployed individuals for establishing
new enterprise. Also, the business has little or no negative effect on environment. Finally, the
business investment will enhance trust and confidence between the local authorities and
communities. In a nutshell, the project is with far reaching implications to the success of the
country’s/region’s five year GTP by way of meaningfully contributing towards reducing
unemployment and poverty as well as through generating growth at various levels.
The business investment is financially viable with an internal rate of return of 25.9584%, net
present value of birr 384,151.45 discounted at 15%, benefit/cost ratio of 1.280, and payback period
of three years. These financial analysis criterions, all confirms the feasibility of the business
investment and their results indicate a promising investment opportunity. As an economic benefit
the investment can create employment for 140 Ethiopian in the year 2010/2011 and the job
opportunities for our citizens and will increase in the successive years. In addition to supply of the
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Feasibility Study Nekemte Food Processing Project
domestic needs, the investment will generate birr 954,479 in terms of tax revenue to the
government.
Making the most out of the recently active business and other factors, Nekemte Food Processing
Project will achieve the estimated revenue as well as the profit. As well, by enhancing the potential
to increase productivity and, managing or minimizing the various costs such as material cost, labor
cost, supplies expense, and others, the business will implement its investment profitably. In
addition, the business recognizes the fact that by differentiating its products, it can strongly
compete with established industry players and will be successful if it pursues the proposed
investment.
Generally, the project contributes to the development of the industry sector which ally with the
ongoing equity and efficiency-oriented growth and transformation plan of the country.
Considering the earlier conclusions and others, the following sets of recommendations should be
taken into considerations:
1. The cost of the business should properly be identified and managed as the excess or
uncontrolled costs result in failing to achieve the proposed investment. Specifically, the
material cost, labor cost, supplies expense, and others with large amount should be managed
and controlled to achieve the proposed investment.
2. A statistical system for business data used in the feasibility study should be designed and
implemented for monitoring, evaluation, and planning purposes. More attention should be
paid to accurate economic data collection, preparation, and analysis.
3. Integrated, customized, and quality products that will satisfy business’s customers at
competitive prices should be considered and pursued.
4. Maintaining open communication between Nekemte Food Processing Project and its
customers as well as employees and other stakeholders in order to ensure the highest level
of customer satisfaction and long lasting reputation within the community.
5. To continue to expand the volume of food processing products and packages, while also
increasing the level of profits for Nekemte Food Processing Project as well as the owner.
6. Last but not least, the business management must ensure the risk management by taking a
proactive approach to identifying possible risks, weighing up the costs and benefits of
different actions and developing a range of adaptation and responses.
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Feasibility Study Nekemte Food Processing Project
Annex
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Feasibility Study Nekemte Food Processing Project
FOOD PROCESSING
NEKEMTE _2010
Project: # 3 Program Type(s): Level Two
Food Processing
Short Description of the Project:
Nekemte has become a conference town for the Western part of Oromyia. This has created a huge demand for various food
items. Processed food items are currently transported from Addis Ababa. Sometimes there is a critical shortage of these food
items. Therefore, this project will start from small to address basic shortage of food items locally and later will grow to
process and produce various food items in large quantity at the factory level for the national and international market
maintaining high quality standards.
Nekemte town is one of the leading towns of Western Oromyia. It has Welega University and other private colleges. The
University is going to outsourcers its services to micro and small enterprise operators as well as unemployed youth and
women. For example the university requires the sustainable supply of food staffs, spices, meat, powdered red pepper,
grinded beans for making sauce etc. The food staff, spices, powdered red pepper; grinded beans for making sauce can be
outsourced to marginalized women.
Food Processing project initially will focus on injera baking, bakeries, food preparation, food items preparation, vegetable
sales, poultry and egg business, milk and diary product sales, dairy farming. Later the project will expand to a small scale
food processing factory focusing on food processing and packaging, the preparation of pasta and macaroni etc.
Expected Results:
140 target beneficiaries and over 500 family members Target Group(s): Direct :
of the beneficiaries improve their livelihood.
30 men
140 target beneficiaries skilled on animal fattening,
110 women
dairy farming and poultry farming
Total= 140
sub city residents access to dairy, poultry and related by
products
Reduce unemployment
Possible Contributions to the Project:
Increased contribution of the private sector to the local Material contribution:_ equipment &/or expertise
economic
Financial support from government & NGO’s (UNDP)
Technical assistance
Possible Stakeholders:
Contribution of technical & practical through experts
Local government agencies
The town give them job opportunities after they are
Non government organizations:
started their activities
Micro and small enterprise agencies
The public
International organizations
Wollega University
Banks
Nekemte TVET College
Prerequisites: management of the project Risk Factors:
Available raw materials to be used as input Lack of business awareness
Available location and tools Some members may shift to other business
Available financial resources Limited financial or other resources for business
Frequent price escalations of goods and services
Estimated Costs: 1,550,000 birr
UNDP: Birr 1,370,000 Low commitment of the targets beneficiaries
Locality : birr 180,000 High competitiveness of the surrounding market
Willingness and readiness of line departments to give
support
Funds from the external sources might have their own
conditions which may affect the implantation of
projects.
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Feasibility Study Nekemte Food Processing Project
Outputs:
employment opportunity is created for marginalized Time for Implementation:
women
Income of the members of the cooperative increased Minimum duration at least 5 years within which the
Casual employment opportunity is created for enterprise grow up to industry
marginalized and unemployed women Start-up in less than 3 months(September 20-december 20)
180,000 1,550,000
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