Profile for the Production of Fibre From Kenaf and Sisal - SNNPR ...

223. PROFILE FOR THE PRODUCTION OFFIBRE FROM KENAF AND SISAL

223-2TABLE OF CONTENTSPAGEI. SUMMARY 223-3II. PRODUCT DESCRIPTION & APPLICATION 223-3III. MARKET STUDY AND PLANT CAPACITY 223-4A. MARKET STUDY 223-4B. PLANT CAPACITY & PRODUCTION PROGRAMME 223-7IV. RAW MATERIALS AND INPUTS 223-8A. RAW & AUXILIARY MATERIALS 223-9B. UTILITIES 223-9V. TECHNOLOGY & ENGINEERING 223-10A. TECHNOLOGY 223-11B. ENGINEERING 223-11VI. MANPOWER & TRAINING REQUIREMENT 223-11A. MANPOWER REQUIREMENT 223-12B. TRAINING REQUIREMENT 223-12VII. FINANCIAL ANALYSIS 223-13A. TOTAL INITIAL INVESTMENT COST 223-13B. PRODUCTION COST 223-14C. FINANCIAL EVALUATION 223-15D. ECONOMIC BENEFITS 223-16

223-3I. SUMMARYThis profile envisages the establishment of a plant for the production of fibre from kenafand sisal with a capacity of 10,000 tones per annum.The present demand for the proposed product is estimated at 13,571 tones per annum.The demand is expected to reach 19,930 tones by the year 2020.The plant will create employment opportunities for 70 persons.The total investment requirement is estimated at about Birr 8.91 million, out of whichBirr 687,500 is required for plant and machinery.The project is financially viable with an internal rate of return (IRR) of 30 % and a netpresent value (NPV) of Birr 8.75 million discounted at 8.5%.II.PRODUCT DESCRIPTION AND APPLICATIONSisal and kenaf fibre is an important raw material required for production of ropes, cords,door mats, industrial matting and various articles like shopping bags, coasters etc. Thedemand for the product is met by local production and import.Extraction of fibre from sisal leaves and kenaf tree is largely done by retting process.The production process is free from any negative impact to the environment.

223-4III.MARKET STUDY AND PLANT CAPACITYA. MARKET STUDY1. Current Demand and SupplyThe current local industrial suppliers of sisal fiber are Meher and Ethiopia FiberFactories. Meher Fiber produces sisal fiber and ropes and clothing for variousapplications. There is no disaggregated data on production of sisal fiber. However sisalfiber and twin ropes are complementary to sisal sacks. The demand for sisal fiber andropes on the other hand, can emerge from various sources. Sisal twin ropes can bedemanded for rural and urban households. Rural household use twin ropes to controllivestock at home or in specific place. It can also be used in housing construction to tietogether.The fiber is used in water supply system to give strength and tight at joining parts. It isalso used in complementary with sacks to join together tips, after products are filled in toit. SNNPRS is reach in livestock and the demand for twin rope to control livestock, forbinding materials and to load goods on load animals is very high.In the absence of data on quantity of sisal fiber demand and supply the followingassumption were used to estimate the current effective demand. The assumption wasbased on the discussing held with experienced people and observation where everpossible.− There are 2,654,225 rural households in SNNPRS in 2006.− According to SNNPRS Regional Bureau of Finance and Economic Developmentduring the period 2000 – 2004 the average annual production of agriculturalproducts including cereals, pulses, oil seeds, vegetables, fruits, spices and rootand tubers is 33,067,208 quintal which means about 33 million sacks arerequired annually to handle agricultural products.

223-5− One kg of sisal fiber rope can be used to mend 10 pieces of sacks when filledwith products.− Each rural household in the Region will use at least 5 kg of sisal ropes perannum.Accordingly− For 30,000,000 pieces of sacks = 50,000,000 - 300,000 kgs10− For 2,654,225 house hold X 5kg sisal fiber consumption = 13,271,125 kgs− ∴Total demand = 300 tones + 13,271 tones = 13,571 tones of sisal fiberaccordingly the current effective demand for sisal and kenaf fiber in SNNPRSis estimated at about 13,571 tones.2. Demand ProjectionThe future demand for sisal fiber is related to population growth which is 3% per annum.Accordingly the projected demand is shown in Table 3.1

223-7that the envisaged plant will have market share with an annual production capacity of10,000 tones. Production shall be carried out in two shifts 16 hours a day, for 300 days ayear.2. Production ProgrammeProduction will start at lower capacity (75%) during the initial period of plant operationto give provisions for operational skill development and create adequate opportunity forestablishing potential market out lets. Then production will rise to 85% and 100%during the second and third year, respectively. The production programme of the planttogether with percentage capacity utilization over the production building-up period isgiven in Table 3.2 below.Table 3.2PRODUCTION PROGRAMMEYear 1 2 3 and aboveCapacity utilization (%) 75 85 100Production (tone) 7500 8500 10,000IV.MATERIALS AND INPUTSA. RAW AND AUXILIARY MATERIALSThe basic raw materials for the production of sisal and kenaf fibers are sisal leaves andstems of kenaf plant. These raw materials are grown in SNNPRS, particularly in AwassaZuria,The fibrous materials expected to be extracted are 77.2% for sisal and about 66% forkenaf by weight. Thus, to produce 10,000 tons of sisal and kenaf fibers, the average rawmaterial requirement is estimated to be 13505 tons, assuming that 7500 tons of sisal fiber

223-8and 2500 tons of kenaf fibre will be annually produced. It is estimated that the raw sisalleave and kenaf stalk will cost Birr 1.75 per kg. Thus, the annual raw material cost at fullcapacity production is estimated to be Birr 23,633,750.B. UTILITIESElectricity and water are required in sisal and kenaf production, electricity is required forrunning production equipment and lighting purposes. Water is required for washing thefibres, for sanitation and human consumption. It is estimated that annual electricityconsumption will be 24,000 kWh, where as annual water consumption will be Birr 2000.Thus, the total expenditure on water and electricity will be Birr 13,376.V. TECHNOLOGY AND ENGINEERINGA. TECHNOLOGY1. Sisal FibreThe fibres are extracted from the leaves of the plant (Agave sisalana) normally grown inSNNPRS. The agaves have rosettes of fleshy leaves, usually long and narrow, whichgrow out from a central bud. As the leaves mature they gradually spread out horizontallyand are 1-2 meters long, 10-15 cms wide, with a thickness of about 6 mm at the centre.The fibres are embedded longitudinally in the leaves, and are most abundant near the leafsurfaces. The leaves contain about 90% moisture, but the fleshy pulp is very firm and theleaves are rigid. The fiber is removed when the leaves are cut because dry fibers adhereto the pulp. The fiber is removed by scraping away the pulpy material, generally by amechanical decortications process.In decortications, the leaves are fed through sets of fluted crushing rollers. The crushedleaves are held firmly at their centers and both ends are passed between pairs of metaldrums on which blades are mounted to scrape away the pulp, and the centers are scraped

223-10Table 5.1LIST OF PLANT MACHINERY AND EQUIPMENTNo. Description Qty Cost (‘000 Birr)LC FC TCA. Sisal Fibre Production1 Fluted crushing rollers (with motor 4 sets - 320 320& control panel)2 Metal drums (with mounted 4 paris - 80 80(blades) (Revolving)3 Washing basins (stainless steel) 2 pcs 20 - 204 Revolving metal drums (with 2 pcs - 50 50motor and control panel)5 Tables, hand tools, etc. Reqd. - 17.5B. Kenaf fibre production1 Cutting knife 10- 20 20sets2 Mechanical stripping device 5 sets - 15 153 Washing basin (stainless steel) 4 pcs 40 - 404 Tables, hand tools, etc. Reqd. - 15 15FOB price 60 517.50 577.50Freight, Insurance, customs, bank110 - 110chargesCIF landed cost 170 517.50 687.502. Land, Building and Civil WorksLand is required for factory building and for annex buildings that comprise of offices,cafeteria, guard houses and buildings for utilities. Spare land for future expansion is alsorequired. Thus, the total land requirement is estimated to be 3000 m 2 . Of this built-uparea will be 1500 m 2 . At the rate of Birr 1.0 per m2 for a period of 80 years the total

223-11land lease value will be Birr 240,000. For built-up area of 1500 m 2 , and at the rate of Birr2000 per m 2 , the total investment on buildings will be Birr 3 million. Thus, the total coston land, buildings and civil works will be Birr 3.24 million.3. Proposed LocationLocation of a plant is determined on the basis of proximity to raw material, availability ofinfrastructure, and distance from potential market outlets. Moreover, consideration isgiven to fair distribution of projects among SNNPRS woredas. Accordingly, Hadiya,Sidama and Awassa Zurea are identified. The four woredas where kenaf and sisal plantgrow are Badawacho, Aleta Dale and Awassa Zuria. Of these Badawacho woreda isselected. It is therefore appropriate to establish the proposed fibre production plant inshone town.VI.MANPOWER AND TRAINING REQUIREMENTA. MANPOWER REQUIREMENTThe envisaged fibre production plant requires both administration staff and productionworkers. The details of manpower are shown in Table 6.1 below.B. TRAINING REQUIREMENTThe production of fibre from sisal leaves and kenaf plant does not require specializedtraining workers having experience in machinery operation in other factories and withqualification in technical studies from TVETS can handle the production process.

223-12Table 6.1MANPOWER REQUIREMENTNo. Job Title Nos Monthly Annual SalarySalaryA. Administration1 Plant manager 1 2000 240002 Secretary 1 800 96003 Personnel officer 1 1000 120004 Accountant 1 1000 120005 Store keeper 1 750 90006 Sales man 1 750 90007 Cashier 1 600 72008 Driver 2 500 60009 Cleaner 2 250 300010 Messenger 2 350 420011 Guards 4 250 3000Sub total 17 - 99,000B. Production1 Production head 2 1200 288002 Mechanic / electrician 4 700 336003 Skilled operators 30 500 1800004 Unskilled labor 15 250 450005 Production clerk 2 500 12000Sub-total 53 - 299.400Workers benefit (25 % BS) - - 99,600Total 70 - 497,600

223-13VII. FINANCIAL ANALYSISThe financial analysis of the fiber from kenaf and sisal project is based on the datapresented in the previous chapters and the following assumptions:-Construction period1 yearSource of finance30 % equity70 % loanTax holidays3 yearsBank interest 8%Discount cash flow 8.5%Accounts receivable30 daysRaw material local30daysWork in progress5 daysFinished products30 daysCash in hand5 daysAccounts payable30 daysA. TOTAL INITIAL INVESTMENT COSTThe total investment cost of the project including working capital is estimated at Birr8.91 million, of which 29 per cent will be required in foreign currency.The major breakdown of the total initial investment cost is shown in Table 7.1.

223-14Table 7.1INITIAL INVESTMENT COSTSr.No.Cost ItemsTotal Cost(‘000 Birr)1 Land lease value 2402 Building and Civil Work 3,000.003 Plant Machinery and Equipment 687.504 Office Furniture and Equipment 755 Vehicle 2006 Pre-production Expenditure* 373.417 Working Capital 4343.59Total Investment cost 8,919.5Foreign Share 29* N.B Pre-production expenditure includes interest during construction (Birr273,410 ) and Birr 100 thousand costs of registration, licensing and formation of thecompany including legal fees, commissioning expenses, etc.B. PRODUCTION COSTThe annual production cost at full operation capacity is estimated at Birr 24.89 million(see Table 7.2). The material and utility cost accounts for 95.12 per cent, while repairand maintenance take 0.30 per cent of the production cost.

223-15Table 7.2ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)Items Cost %Raw Material and Inputs23,633.75 95.07Utilities13.38 0.05Maintenance and repair75 0.30Labour direct298.56 1.20Factory overheads99.52 0.40Administration Costs199.04 0.80Total Operating Costs24,319.25 97.82Depreciation286.25 1.15Cost of Finance254.48 1.02Total Production Cost 24,859.98 100C. FINANCIAL EVALUATION1. ProfitabilityAccording to the projected income statement, the project will start generating profit in thefirst year of operation. Important ratios such as profit to total sales, net profit to equity(Return on equity) and net profit plus interest on total investment (return on totalinvestment) show an increasing trend during the life-time of the project.The income statement and the other indicators of profitability show that the project isviable.

223-162. Break-even AnalysisThe break-even point of the project including cost of finance when it starts to operate atfull capacity (year 3) is estimated by using income statement projection.BE = Fixed Cost = 19 %Sales – Variable Cost3. Payback PeriodThe investment cost and income statement projection are used to project the pay-backperiod. The project’s initial investment will be fully recovered within 4 years.4. Internal Rate of Return and Net Present ValueBased on the cash flow statement, the calculated IRR of the project is 30 % and the netpresent value at 8.5% discount rate is Birr 8.75 million.D. ECONOMIC BENEFITSThe project can create employment for 70 persons. In addition to supply of the domesticneeds, the project will generate Birr 5.93 million in terms of tax revenue.