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Economic Performance Sector

A Feasibility Study on the Business of Producing

Sodium Carbonate (Soda Ash)
Free of Charge Land – (Qena or Assuit or Minya)
Governorate

Prepared by
Economic Performance Sector
Central Department of Feasibility Studies
General Department of Economic Feasibility Studies
March 2021
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I. Basic Information

Project Sodium Carbonate (Soda Ash)

Governorate Qena or Assuit or Minya
Land Area 8000 m2
Land Price Free of Charge
Life Expectancy 5 years
Sodium carbonate – Sodium Bicarbonate
Targeted Products
- Calcium chloride (secondary product).
Expected Labour 125 workers and administrative officers
Expected Investment
EGP 1,812,892,000
Costs
Return on Investment 33%
Payback Period 2.88 years
Date of the Study March 2021
II. Marketing Study
Growth Drivers and Competitive Strength
 The main objective of the project is to close the gap of demand of soda
in the local market, as Egypt ranks 11th in imports from among
(Turkey - Bulgaria - Romania - Bosnia - Herzegovina – Russia).
 Completing the value-added chain for glass industries, detergents and
ceramic in Egypt.
 The raw material of sodium carbonate (calcium carbonate, salt and
ammonia) is available locally in North Sinai, Minya and Fayoum
governorates. Therefore, the raw materials of the project are 100%
locally available.
 The volume of huge imports of soda reached $97.4 million in 2018.
 Global demand for soda ash reached $4 billion in 2018.
 Total demand in the Middle East and North Africa region reached
1.84 million tonnes in 2016.
 This project complements industries related to glass, detergents and
ceramic in Egypt.
 The United Arab Emirates and the Kingdom of Saudi Arabia also
import soda ash from the United States of America that considered
the largest producer of natural soda ash.
 The raw material of sodium carbonate (calcium carbonate, salt and
ammonia) is available locally in North Sinai, Minya and Fayoum
governorates. Therefore, the raw materials of the project are 100%
locally available.

Market Gap:
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 It is clear from the study that the market gap reached $97.4 million
during the year 2018, equivalent to 311,680 tonnes approximately.
The market gap and distribution of Egypt's imports from countries are
shown as follows:

Distribution Outlets
 Export to countries where such industry is not available;
 Glass, soap and detergent manufacturers;
 Companies that use the product as inputs in other industries.
Market Study Conclusion
 In light of the market study, and in accordance with growth drivers and
competitive strength, it is clear that there is a demand for the product
and the presence of a market gap in Egypt and several other countries,
which provides great marketing opportunities in the local market or in
export.
III. Technical Study
1. Project Location: Qena Governorate
2. Land: land surface area of 8000 m2
3. Buildings: construction of buildings on a surface area of 4000 m2 with single
storey building. The building is divided into two sections, where one is
administrative and the other section includes the factory, stores and
production facilities.
4. Final Product: Sodium carbonate - Sodium bicarbonate - Calcium chloride.
5. Labour Required: 125 workers and administrative officers.
6. Main Raw Materials and Supplies:
 Calcium carbonate
 Salt preparation, washing unit
 Coke
 Calcium chloride
 Sodium Sulphide
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 Ammonia
 Chlorides washing (centrifugal) unit
7. Main Machinery and Equipment:
 Carbonization and absorption Unit
 Furnaces unit
 Carbonate bunkers
 Packing units
 Vibrating and product separation unite
 Filters for purification
 Storage area for the final product
8. Production Capacity: 320,000 tonnes/annum
The data mentioned in the technical study are estimated data according to
the data received from the Industrial Development Authority (IDA).
9. Fields of Usage:
 Primarily used in glass industry;
 Manufacture of soap and household detergents;
 Manufacture of pulp (paper);
 Treatment of sewage water;
 Used in sodium chloride saline to relieve pain;
 Used in veterinary medicine as superficial wounds disinfectant.

IV. Financial Study

Financial feasibility study is considered a tool that helps the investor in deciding
on investment issues. To facilitate making such decisions, all costs related to
investment and production must be clearly and accurately determined, taking into
account that profitability of the projects depends on the volume and components
of investment and production costs.
1. Fundamentals and Hypotheses of the Financial Study
 The data used in the study and the expected revenue estimates of the volume and
value of sales have been estimated according to results of the marketing study.
 Investment spending values and other elements of costs and expenses have been
estimated according to results of the technical study.
 The annual depreciation installment for buildings and machinery is estimated
according to results of the technical study, assuming that the sales value at the end
of the period is according to its book value.
 The estimated value of the fixed assets mentioned in this study is related to a
specific period according to the prevailing circumstances at the time of preparing
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this study; and that this value may change with the change of circumstances by
the limitation period of the report or by the change of the economic climate in
general.
 Incorporation and pre-commencement expenditure have been assumed that they
are fully depreciated with the first year of revenue as per the Egyptian Accounting
Standards.
 The estimated income statements have been prepared on the assumption that there
is no fundamental change in the revenue values and expected annual costs during
the study period.
 The annual cash flows were estimated using the indirect estimation method by
making the necessary adjustments to the results of the estimated income
statements for the years under study.
 The study assumed that all purchases include VAT.
2. Annual Sales:

 The annual sales revenue is estimated based on selling all the

planned quantity of production according to the prevailing average
prices.
Sales/ Sale Price/ Annual Sales
# Product
Tonne EGP Revenue
Sodium
1
Carbonate
Total
3. Project Investment Costs:
3.1. Land:
Land with surface area of 8000 m2 – free allocation
3.2. Buildings, Constructions, Finishes, Infrastructure and Facilities:
The cost of buildings, construction, and facilities was estimated at a
construction cost of EGP 3000 per meter, with an area of 4000 meters
at a total cost of EGP 12,000,000 (depreciation period of buildings is
20 years).
3.3.Machinery and Equipment
The cost of the entire production line was estimated at EGP
900,000,000 (depreciation period of machines is 10 years).
3.4. Legal and Incorporation Expenses:
Expenses are estimated at EGP 1000,000 to be spent during the first
year.
3.5. Lorry vehicles:
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Lorry vehicles are estimated at a cost of EGP 5,000,000 (depreciation

period of vehicles is 5 years).
3.6.Cranes, Forklift, etc.:
Cost of cranes, forklift, etc. is estimated at EGP 8,000,000
(deprecation period is 5 years).
1. Running Costs:
The running costs are defined as the costs necessary to complete the operation process
until the production of the final product, passing through the successive stages of the
product. These costs are divided into fixed costs and variable costs, as well as direct costs
directly related to the product and indirect costs that are not directly related to the
product such as, the administrative officers' payroll. The running costs are also divided
into several elements: the cost of materials, the cost of direct and indirect payroll, and
other running costs, where the operating cycle is calculated on one operation per annum
and presented as follows:
4.1. The annual cost of materials is as follows:
The required amount of materials to produce the mentioned quantity
is estimated at EGP 865,000,000.
4.2.Payroll costs is as follows:
Item Number Salary/Month Salary/ Annum
Factory Director
Marketing Director
Financial Manager
Accountant
Personnel Affairs Officer
Quality Supervisor
Industrial Safety Officer
Sales Representative
Production Supervisor
Driver
Security Guard
Storekeeper
Production Worker (trained)
Handler, …etc.
Janitor
Total

4.3. Annual depreciation

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Depreciatio Annual
Depreciatio n Rate
Item Cost Depreciatio
n Years
n
Buildings, Finishes and
Infrastructure
Machinery
Lorry Vehicles
Cranes, forklift, etc.
Incorporation Expenses
Total
4.4. Other Expenses:
Electricity, water, fuel and other expenses that estimated at EGP
10,000,000.
4.5. Based on the foregoing, the value of the running costs for the
operating cycle (not including depreciation of the first year) is as
follows:
Item Total
Buildings 12,000,000
Machinery 900,000,000
Lorry Vehicles 5,000,000
Cranes, forklift, etc. 8,000,000
Incorporation Expenses 1,000,000
Materials 865,000,000
Salaries 11,892,000
Other operation costs 10,000,000
Total 1,812,892,000

4.6. Based on the foregoing, the total investment costs of the first year
amounted to EGP 1,812,892,000.
5. Project Financial Statements and Indicators, and Expected Profitability Ratios:
 The financial statements and indicators, and profitability ratios are among the
most important tools used to assess the economic viability of projects. The
assessment comes upon calculating the net income of the project and the net cash
inflows of the project, as well as the net present value of money resulting from an
increase in the inflation rate using the prevailing interest rate.
 Financial indicators are also used to make a comparison between the available
investment options, and to compare between the average ROI and the payback
period for each project separately.

5.1. Expected Income Statement for the First Five Years of the Activity:
Assuming a 10%-annual-increase in return and costs
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Item Year 1 Year 2 Year 3 Year 4 Year 5

Total sales
Sales cost
(running cost)
Annual usufruct
-
cost
Materials
Payroll
Other running
costs
Depreciation
Total Costs
Profit before tax
(PBT)
Tax
Profit after tax
(PAT)
5.2. Expected Cash Flows Statement for the First Five Years of the Activity:
Item Year 1 Year 2 Year 3 Year 4 Year 5
Cash inflows
Cash outflows
Materials
Payroll
Other running
costs
Tax
Total cash
outflows
Net cash flow

5.3. Net Present Value (NPV) of Cash Inflows:

The net present value is the difference between the present value of the net
cash inflows entered during the operating years and the present value of the
net cash outflows during the construction period and is illustrated by the
following formula:
𝑛𝑒𝑡 𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤𝑠
𝑁𝑒𝑡 𝑝𝑟𝑒𝑠𝑒𝑛𝑡 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑐𝑎𝑠ℎ 𝑖𝑛𝑓𝑙𝑜𝑤𝑠 (𝑁𝑃𝑉) = [ ]
( 1 + 𝑟)𝑖
This is according to the simple interest rate of projects' loans, which is
approximately mounted 10% at the time of preparing the study.
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Year ‫السنة‬
Cash flow ‫التدفق النقدي‬
Discount factor %10 ‫معامل الخصم‬
10%
Net Present ‫صافي القيمة الحالية‬
Value (NPV)
Year 1 ‫السنة األولى‬
Year 2 ‫السنة الثانية‬
Year 3 ‫السنة الثالثة‬
Year 4 ‫السنة الرابعة‬
Year 5 ‫السنة الخامسة‬
Total ‫اإلجمالي‬

5.4. Average ROI Calculation:

𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑒𝑡 𝑎𝑛𝑛𝑢𝑎𝑙 𝑝𝑟𝑜𝑓𝑖𝑡
Ratio of average net accounting profit to investment cost = %
𝑡𝑜𝑡𝑎𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝑐𝑜𝑠𝑡𝑠
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Year ‫السنة‬
Net Annual Profit ‫صاف الرب ح السنوي‬
‫ي‬
Annual Rate of Return ‫معدل العائد سنويا‬
Year 1 ‫السنة األوىل‬
Year 2 ‫السنة الثانية‬
Year 3 ‫السنة الثالثة‬
Year 4 ‫السنة الرابعة‬
Year 5 ‫السنة الخامسة‬
Investment Costs ‫التكاليف االستثمارية‬
Average Return on ‫متوسط العائد عىل االستثمار‬
Investment

6. Payback period
The payback period is calculated as follows:

Year ‫السنة‬
Annual Cash Inflow ‫التدفق السنوي الداخل‬
Cumulative Cash Flow ‫التدفق التراكمي‬

 Based on the previous table the payback period is calculated

according to the following equation:

The absolute value of the

last negative cumulative
=Number of years of cash flow
negative cash flow ÷
Cash inflow during the
following year

610,143,730
2
689,687,027
0.88
2 0.88

payback period = 2.88 years

7. Financial Study Conclusions

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 The project achieves a NPV of positive cash in an amount of EGP

2,591,287,529 according to an interest rate of 10%.
 The project achieves 33% Return on Investment.
 The estimated payback period of the project is 2.8 years.
V. Conclusions and Recommendations
The project is economically viable in light of the following considerations:
 The potentials of setting-up the project are available such as the abundance of raw
materials required for the production of the product in Egypt, ease provision of
packing materials and machinery in addition to the encouraging current climate
of investment in Egypt.
 The project achieves a reasonable rate of return of 33%.
 The investment cost payback period of the project is estimated at 2.88 years.