171.

PROFILE ON CONCRETE BATCHING PLANT

171-2

TABLE OF CONTENTS
PAGE
I.

SUMMARY

171-3

II.

PRODUCT DESCRIPTION & APPLICATION

171-3

III.

MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY
B. PLANT CAPACITY & PRODUCTION PROGRAMME

171-4
171-4
171-11

IV.

MATERIALS AND INPUTS

A. RAW MATERIALS
B. UTILITIES

171-11
171-11
171-12

V.

TECHNOLOGY & ENGINEERING

171-12

A. TECHNOLOGY
B. ENGINEERING

171-12
171-13

MANPOWER & TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT
B. TRAINING REQUIREMENT

171-17
171-17
171-18

VI.

VII.

I.

FINANCIAL ANLYSIS
A. TOTAL INITIAL INVESTMENT COST
B. PRODUCTION COST
C. FINANCIAL EVALUATION
D. ECONOMIC BENEFITS
SUMMARY

171-19
171-19
171-20
171-21
171-23

This profile envisages the establishment of a plant for the production of prefabricated
concrete with a capacity of 140,000 m3 per annum.
The major raw materials required are gravel, sand and cement which are available locally.
The present demand for the proposed product is estimated at 142,888 m 2 per annum. The
demand is expected to reach at 359,816 m2 by the year 2020.

171-3
The total investment requirement is estimated at about Birr 37.64 million, out of which
Birr 1.9 million is required for plant and machinery. The plant will create employment
opportunities for 32 persons.
The project is financially viable with an internal rate of return (IRR) of 19.28 % and a
net present value (NPV) of Birr 30.09 million, discounted at 8.5%.
The project creates backward linkage with cement, gravel and sand producers and
forward linkage with the construction sector.
II.

PRODUCT DESCRIPTION AND APPLICATION

Concrete is a combination of aggregates and paste. The aggregates consist of fine and
coarse aggregates. The paste is a combination of cement, water and entrained air.
Aggregates make up about 75 85% of the volume of concrete; and the paste 15 25%.
Concrete is used in the construction of buildings, roads, bridges and other structural
requirements.

171-4
III.

MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Past Supply and Present Demand

Concrete is a composite building material made from the combination of aggregate

(composite) and a binder such as cement. The most common form of concrete is portland
cement concrete, which consists of mineral aggregate (generally gravel and sand),
portland cement and water. After mixing, the cement hydrates and eventually hardens
into a stone-like material.
For a concrete construction of any size, as concrete has a rather low tensile strength, it is
generally strengthened using steel rods or bars (known as rebars). This strengthened
concrete is then referred to as reinforced concrete. In order to minimize any air bubbles,
that would weaken the structure, a vibrator is used to eliminate any air that has been
entrained when the liquid concrete mix is poured around the ironwork. Concrete has been
the predominant building material in this modern age.
Major advantage of concrete construction for buildings is the material's inherent
properties of heaviness and mass, which create lateral stiffness, or resistance to horizontal
movement.
The source of supply for pre fabricated concrete is essentially from the domestic
producers. Although the expanding building and construction sector has given rise to
demand for concrete, official statistics is not available. Failing to assess the demand for
prefabricated concrete based on the supply, end use approach is applied.
One of the factors that indicate housing construction activity is trend in the provision of
land by the city administration. In this regard the city administration has provided a total
of 11, 387 plots of land with a total land area of 7 million m 2 during the period 1998

171-5
2005 to private residential quarters, commercial buildings and real estate developers. (See
Table 3.1).
From the total land provided during the period of analyses the largest share in terms of
number of plots is accounted by private residential quarter (93.9%). However, in terms of
land area the largest (52.79 %) is provided to real estate developers followed by
commercial buildings (24%) and private residential quarter (23%).

Table 3.1
LANDS PROVIDED BY THE CITY ADMINISTRATION FOR HOUSING AND
REAL ESTATE DEVELOPMENT (1998 - 2005)
Year

Purpose, Number of Plot and Land Area in m2

Commercial
Real Estate
Private
buildings
# of
Plot

1998
1999
2000
2001
2002
2003
2004
2005
Total
% Share

Land

Area
5
3,000
53
28,000
27
21,000
65
83,000
61
40,000
98
162,000
186 1,199,000
177
133,000
672 1,669,000
5.9
23.84

Total

Residential
# of
Plot

Land

Area
2 1,951,000
0
2
356,000
0
0
1
58,000
5
670,000
15
661,000
25 3,696,000
0.22
52.79

Quarter
# of
Land
Plot
Area
184
28,000
689
103,000
1,690
268,000
2,173
326,000
4,131
619,000
1,451
218,000
359
47,000
13
27,000
10,690 1,636,000
93.9
23

# of

Land

Plot
Area
191 1,982,000
742
131,000
1,719
645,000
2,238
409,000
4,192
659,000
1,550
438,000
550 1,916,000
205
821,000
11,387 7,001,000
100
100

Source: Land Administration Bureau of the Addis Ababa City Administration, 2006
During the period under review provision of land by the city administration for housing
construction activity has registered an average annual growth rate of 49.63% indicating

171-6
the high magnitude of housing demand and construction activity in the city both for
commercial and residential purpose.
Pre fabricated concretes are mainly used by high rise buildings. Accordingly, in order to
estimate the present demand for concrete based on end users method the present level of
commercial building construction is estimated first.
As can be seen from Table 3.1 during the period 1998 2005 the maximum number of
plots provided by the city administration for the construction of commercial buildings
was 186 in year 2004 while the minimum was 5 in year 1998. However, during the period
under consideration on average 84 plots were annually granted for commercial building
construction.
Even though during the same period plot of land provided for the construction of
commercial buildings shown a 172 % average growth rate, in order to estimate the
present (2008) level of commercial building construction it is conservatively assumed
that commercial building construction in Addis Ababa grows by 4% annually which is
equivalent to the growth rate of urban population.
Accordingly, by taking the average of 1998 - 2005 as a base and employing a 4% growth
rate the number of commercial building construction in Addis Ababa in the year 2008 is
estimated at 94.
Moreover, in order to estimate the size of the commercial buildings, data on construction
permits in Addis Ababa is collected and analyzed. Table 3.2 shows the average building
construction permits given during the period 2000 2002 by type of building.

Table 3.2

171-7
AVERAGE BUILDING CONSTRUCTION PERMITS GIVEN DURING THE
PERIOD 2000 2002 BY TYPE OF BUILDING.
Types of Building

3 Storeys
4 Storeys
5 Storeys
6 Storeys
7 Storeys
8 Storeys
9 Storeys
10 Storeys and above

Average
No. of Plots

% share

( 2000- 2002)
53
32
10
9
3
2
2

46.90
28.32
8.85
7.96
2.65
1.77
1.77

2
113

1.77
100

Total

Source Statistical Abstract CSA.

As can be seen from the above Table the highest number of permits were for three storey
type of buildings followed by four storeys and five storeys.
Accordingly, assuming that the past trend in the type of commercial building construction
in Addis Ababa will also currently apply , out of the total 94 commercial buildings
estimated to be constructed in year 2008, the estimated share of building types is shown
in Table 3.3.

Table 3.3
NUMBER OF COMMERCIAL BUILDINGS ESTIMATED TO BE
CONSTRUCTED IN YEAR 2008 BY BUILDING TYPE

171-8
Types of Building

% Share

Estimated
Number of
Commercial

3 Storeys
4 Storeys
5 Storeys
6 Storeys
7 Storeys
8 Storeys
9 Storeys
10 Storeys and above
Total

46.90
28.32
8.85
7.96
2.65
1.77
1.77
1.77
100

Buildings
44
27
8
7
2
2
2
2
94

In order to estimate pre-fabricated concert requirements by the above buildings, it is

assumed that 50% of the commercial buildings will utilize concert.
Moreover, the determination of current demand is based on specifying consumption
requirement of concrete by the end users. Accordingly, the following consumption
coefficients were developed in consultation with knowledgeable professionals and by
reviewing Building Construction Manuals (see Table 3.4).

Table 3.4
CONSUMPTION COEFFICIENT BY BUILDING TYPE AND THE
CORRESPONDING DEMAND FOR CONCRETE

171-9

Building
Type

Floor
Area

3 Storeys
4 Storeys
5 Storeys
6 Storeys
7 Storeys
8 Storeys
9 Storeys
10 Storeys
and above
Total

(m2)
900
1,200
1,500
1,800
2,100
2,400
2,700
3,000
15,600

Estimated
Houses
Demand
Prefabricated
2
2
that
For
Wall Area (m )
Concrete Demand ( m )
Use
Concert
External Internal Concrete Flooring External Internal
486
812
22
19,800
10,692
17,864
48,356
648
1,083
14
16,200
8,748
14,621
39,569
810
1,354
4
6,000
3,240
5,416
14,656
972
1,625
4
6,300
3,402
5,688
15,390
1,134
1,896
1
2,100
1,134
1,896
5,130
1,296
2,167
1
2,400
1,296
2,167
5,863
1,458
2,438
1
2,700
1,458
2,438
6,596
1,620
8,424

2,709
14,084

1
47

3,000
58,500

1,620
31,590

2,709
52,798

Accordingly, as can be seen from the Table 3.4 the present (2008) demand for prefabricated concrete in Addis Ababa is estimated at 142,888 m2.
2.

Projected Demand

The rapid development of high-rise buildings has created high demand for pre fabricated
concrete. The demand for pre fabricated concrete is directly related with the growth in the
construction sector which in turn depends on the overall economic development of the
country. Therefore, demand is projected at the annual average GDP growth rate achieved
in the past few years i.e. 8.%. The projected demand is presented in Table 3.5.

7,329
142,888

171-10
Table 3.5
PROJECTED DEMAND FOR PRE FABRICATED CONCRETE
Year

Projected
Demand (m2)

2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
3.

154,319
166,665
179,998
194,398
209,949
226,745
244,885
264,476
285,634
308,484
333,163
359,816

Pricing and Distribution

Based on current retail price of prfabricated concrte and allowing a profit margin for
retailers and distribution costs, factory-gate price of Birr 1,750 per m3 is recommended.
The products could be distributed to the end-users directly.

B.

PLANT CAPACITY AND PRODUCTION PROGRAMME

171-11

1.

Plant Capacity

The capacity of the plant is envisaged to be 144,000m 3 per year. This is made on the
basis of the projected demand for concrete and the technology recommended.
2.

Production Programme

Concrete batching is based on straight forward and familiar technology. The plant can
therefore start operation at full capacity in the first year.
Accordingly, on the basis of single shift of 8 hours, the plant would produce about
144,000 m3 of concrete per year.

IV.

MATERIAL AND INPUTS

A.

RAW MATERIALS

The raw material requirement of the plant at full capacity operation is provided in Table
4.1 below. Gravel can be sourced from Quarry and Gravel establishments; sand from
Modjo, Koka, etc; and cement can be acquired from cement factories or imported.

Table 4.1
RAW MATERIAL REQUIREMENT AND COST

171-12

Material

Unit of
Measure
m3
m3
Quintal

1. Gravel
2. Sand
3. Cement
Total
B.

Qty/Year
122,400
64,800
518,400

Cost (Birr)
18,360,000
10,692,000
181,440,000
210,492,000

UTILITIES

Electricity and water are the utility requirements of the plant. These are outlined in Table
4.2 below.
Table 4.2
UTILITIES REQUIREMENT AND COST
Utility
Electricity (kWh)
Water (m3)
Total

Qty/Year
Unit Rate
240,000 0.4736
28,800 3.25

V.

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Production Process

Cost (Birr)
120,000
115,200
235,200

The aggregates-sand and cement-are poured out of the respective tanks onto bins in
accordance with predetermined proportions. These are conveyed into the mixer where
water is added. After the pre set of mixing, the resultant mix the final product- is poured
onto mixer trucks for use. The process has no negative impact on the environment.
2.

Source of Technology

Address of Machinery Supplier is given below;

171-13
Sany Industry Town,Economic and Technological
Development Zone,Changsha,Hunan,China
Zip Code: 410100
Fax 0086 731 4031527

B.

ENGINEERING

1.

Machinery and Equipment

The list of machinery and equipment required for concrete batching plant is given in table
5.1.The cost of machinery is estimated to be Birr 1.9 million, out of which Birr 1.615
million is required in foreign currency.
Table 5.1
MACHINERY AND EQUIPMENT REQUIREMENT AND COST
Sr.
Description
No.
1 Aggregate filler
2 Weighing filler
3 Aggregate temporary
storage/hopper/filler
4 Cement weighing equipment
5 Mixer
6 Water supply and measuring
system
7 Compressor
8 Electric control system
Grand Total

2.

Qty.
3
3
1
1
1
1
2
1

Cost(Million Birr)
LC
FC
37,500
212,500
27,000
153,000
36,000
13,500
136,500

204,000
76,500
773,500

9,000
15,000
10,500
285,000

51,000
85,000
59,500
1,615,000

TC
250,000
180,000
240,000
90,000
910,000
60,000
100,000
70,000
1,900,000

Land, Building and Civil Works

The production process would be carried out in open air and the total land requirement
would be about 2,500 m2. About 2400 square meter would be open area for the batching

171-14
plant and open storage area. Built up area for office and warehouse would take up about
40m2 and 60m2, respectively. The construction cost is estimated to be about Birr 250,000
( at Birr2500/m2).

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,
however, the time and condition of applying the proclamation shall be determined by the
concerned regional or city governments depending on the level of development.
In Addis Ababa the citys Land Administration And Development Authority is directly
responsible in dealing with matters concerning land. Accordingly, the initial land lease
rate in Addis Ababa set by the Authority based on the location of land is as shown in
Table 5.2.

Table 5.2
INITIAL LAND LEASE RATE IN ADDIS ABABA
Sr.

Location of the Land

Land

Initial Price in

171-15
No
1

Central Business zones

Places that are Under

Transit

Expansion Zones

Grade
1
2
3
4
5

m2
1167.3
1062.9
916.2
751.5
619.2

1
2
3
4
5
1
2
3
4

716.4
647.1
559.8
472.5
384.3
245.7
207
150.3
132.3

Source; Addis Ababa City Land Administration Authority.

As can be seen from Table 5.2, the initial land lease rate ranges from Birr 1,167.3 to
132.3 per m2 .
Currently, in Addis Ababa most of the housing construction activities are carried in
places under transit and expansion zones. Therefore, the recommended site for this
project are places under transit and expansion zones. Accordingly, the average of the
highest land lease rates in places under transit and expansion zones which is Birr 481.05
m2 is adopted.

The Federal Legislation on the Lease Holding of Urban Land legislation has also set the
maximum on lease period and the payment of lease prices (see Table 5.3 and Table 5.4).

Table 5.3
LEASE PERIOD

171-16
Lease Period
( Years)

Type of Service
Residential area
Industry
Education, cultural research
NGO and religious
Trade
Urban Agriculture
Other service

99
80
health, sport,
99
70
15
70
Table 5.4

LEASE PAYMENT PERIOD

Sr.
No.
1
2
3
4
5
6
7

Service Type
Private residential are obtained
through tender or negotiation
Trade
Industry
Real estate
Urban Agriculture
Trade and social service
Others

Period of Payment
According to the Grade of
Towns
50 - 60 years
40 - 50 years
40 - 50 years
40 years
8 - 10 years
40 - 50 years
40 years

Moreover, advance payment of lease based on the type of investment ranges from 5% to
10%. 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. The lease price is payable after the grace
period annually.

Regarding, the terms and conditions of land lease the Addis Ababa City Government have
adopted Article 6 of the Federal Legislation with very minimal changes. Therefore, for

171-17
the purpose of this project profile since the project is engaged in social service , 99 years
lease period, 50 years lease payment completion period, 5% down payment and seven
years grace period is used.
Accordingly, the land lease cost of the project, at rate of Birr 481.05 per m 2 for 99 years
of holding is estimated at Birr 119.06 million. Assuming 5% of the total cost ( Birr 5.95 )
will be paid in advance as down payment and the remaining Birr 113.11 million will be
paid in equal installments with in 50 years, the annual lease payment is estimated at Birr
2,262,138.

VI.

MANPOWER AND TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

The manpower requirement of the plant is 32 and the annual labour cost is Birr
339,000.The details are shown in Table 6.1 below.

Table 6.1
MANPOWER REQUIREMENT & ANNUAL LABOUR COST

171-18
Sr.
No.
1
2
3
4
5
6
7
8
9
10
11
12

B.

Description
General manager
Secretary
Production and technical head
Finance & administration head
Accountant
Clerks
Purchases/sales
Store keeper
Supervisor
Operator
Technician
Laborer
Sub-Total
Employees benefit ( 25% of
basic salary)
Total

Req.
No.
1
1
1
1
1
2
1
1
1
1
1
20

32

Salary (Birr)
Monthly
3,000
1,000
2,200
2,000
1,500
600
1,500
700
1,500
800
800
7,000

Annually
36,000
12,000
26,400
24,000
18,000
7,200
18,000
8,400
18,000
9,600
9,600
84,000
271,200
67,800
339,000

TRAINING REQUIREMENT

No separate training would be required; as training during commissioning would suffice.

171-19
VII.

FINANCIAL ANALYSIS

The financial analysis of the concrete batching 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

Bank interest

8.5%

Discount cash flow

8.5%

Accounts receivable

30 days

Raw material local

30 days

Work in progress

2 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
37.64 million, of which 4 per cent will be required in foreign currency. The major
breakdown of the total initial investment cost is shown in Table 7.1.

171-20

Table 7.1
INITIAL INVESTMENT COST ( 000 Birr)
Sr.
No.

Cost Items

Foreign
Cost

Total
Cost

5,950.00

5,950.00

250.00

250.00

Land lease value

Building and Civil Work

Plant Machinery and Equipment

285.0

1,615.00

1,900.00

Office Furniture and Equipment

100.00

100.00

Vehicle

450.00

450.00

Pre-production Expenditure*

684.07

684.07

Working Capital

28,315.64

28,315.64

Total Investment cost

*

Local
Cost

N.B

36,034.71 1,615.00

37,649.71

Pre-production expenditure includes interest during construction ( Birr

584.07

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 211.92
million (see Table 7.2).

The raw material cost accounts for 99.33 per cent of the

production cost. The other major components of the production cost are financial cost.
depreciation and utility which account for 0.20% 0.16% and 0.11% respectively. The
remaining 0.20% is the share of repair and maintenance, direct labour and other
administration cost.

171-21
Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)
Items
Raw Material and Inputs
Utilities
Maintenance and repair
Labour direct
Labour overheads
Administration Costs
Land lease cost
Total Operating Costs
Depreciation
Cost of Finance

Cost

210,492.00
235.20

99.33
0.11

95.00
162.72

0.04
0.08

67.80
108.48

0.03
0.05

211,161.20
332.50

99.64

426.08

0.20

211,919.78

100

0.16

Total Production Cost

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 11.13 million to Birr
11.20 million during the life of the project. Moreover, at the end of the project life the
accumulated cash flow amounts to Birr 133.27 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
dividing net income by revenue, return on assets ( operating income divided by assets),

171-22
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 breakeven 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

27 %

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
projects initial investment will be fully recovered within 7 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
in a bank account. Accordingly, the IRR of this porject is computed to be 19.28 %
indicating the vaiability of the project.

171-23
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 30.09 million which is acceptable.
D.

ECONOMIC BENEFITS

The project can create employment for 32 persons. In addition to supply of the domestic
needs, the project will generate Birr 20.92 million in terms of tax revenue. The project
creates backward linkage with cement, gravel and sand producers and forward linkage
with the construction sector.