106. PROFILE ON PRODUCTION OF
MOSQUITO NET
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TABLE OF CONTENTS
PAGE
I.
SUMMARY
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II.
PRODUCT DESCRIPTION & APPLICATION
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III.
MARKET STUDY AND PLANT CAPACITY
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A. MARKET STUDY
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B. PLANT CAPACITY & PRODUCTION PROGRAMME
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RAW MATERIALS AND INPUTS
106-8
A. RAW & AUXILIARY MATERIALS
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B. UTILITIES
106-9
TECHNOLOGY & ENGINEERING
106-9
A. TECHNOLOGY
106-9
B. ENGINEERING
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MANPOWER & TRAINING REQUIREMENT
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A. MANPOWER REQUIREMENT
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B. TRAINING REQUIREMENT
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FINANCIAL ANALYSIS
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A. TOTAL INITIAL INVESTMENT COST
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B. PRODUCTION COST
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C. FINANCIAL EVALUATION
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D. ECONOMIC BENEFITS
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IV.
V.
VI.
VII.
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I.
SUMMARY
This profile envisages the establishment of a plant for the production of mosquito net
with a capacity of 44,000 pieces per annum.
The present demand for the proposed product is estimated at 4 million pieces
per annum.
The demand is expected to reach at
13.8 million pieces
by the year 2020.
The plant will create employment opportunities for 21 persons.
The total investment requirement is estimated at about Birr
1.81 million, out of
which Birr 880,000 is required for plant and machinery.
The project is financially viable with an internal rate of return (IRR) of 21 % and a
net present value (NPV) of Birr 1.09 million discounted at 8.5%.
II.
PRODUCT DESCRIPTION AND APPLICATION
A mosquito net which provides people with intelligent protection against malaria and
other vector-borne diseases, is a net or screen used for keeping out mosquitoes. It is
usually suspended from a frame so as to surround a bed.
There is an enormous gap between the supply of long-lasting, impregnated mosquito
nets and the demand from the billions of people at risk of malaria.
III.
MARKET STUDY AND PLANT CAPACITY
A.
MARKET STUDY
1.
Past Supply and Present Demand
Malaria is the cause of 300 Million acute cases globally resulting in more than million
deaths annually. The vast majority of deaths occur in Africa south of the Sahara
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accounting for 40% of public health expenditure, 30-50% of impatient admissions and
up to 50% of outpatient visits. Malaria infections in Africa are severe life threatening
because the region is home of deadly species of mosquitoes which transmit the
disease. Today Malaria is both a disease of poverty and cause of poverty.
In 2003, 53 African states through the Africa Declaration (Abuja) agreed to half
deaths from malaria by 2010 through strengthening their national prevention policies
and plans so that 80 percent of those at risk of malaria will benefit from intervention
by 2010. Roll Back Malaria (RBM) is a global partnership promoting treatment,
prevention and control of Malaria.
In Ethiopia Malaria has been reported as the first cause of morbidity and mortality
accounting for 15.5 % outpatient consultations, 20.4% admissions and 27% inpatient
deaths. Almost 75% of the land is malarious and an estimated 48 Million or 68% of
the population live in malaria epidemic areas.
Mosquito nets are general purpose nets used for protection of mosquitoes. They offer
natural protection from insects while enhancing the bedrooms. Insecticide Treated
Nets (ITN) are more effective in reducing malarial transmission. The use of ITN’s in
low transmission areas is lower due to the low mosquito biting pressure.
Traditionally, the use of ITN’s has been limited and implementation of ITN’s for
malaria prevention is still at an early stage. However, ITN use at scale would have a
significant impact in malaria transmission. Thus, the Ministry of Health (MOH) has
prepared a strategic plan for going to scale with ITN’s.
Untreated nets according to the strategic plan need to be treated with insecticide
before use. This could be done by the seller demonstrating the treatment process to
the buyer at the point of sell thereby introducing the concept of net treatment so that
buyers can treat their net at home.
According to the Insecticide Treated Nets (ITN’s) National Strategic Plan for Going
to Scale with Coverage and Utilization in Ethiopia 2004-2007 prepared by the
Ministry of Health in August 2004, the national effort to prevent and control malaria
is guided by a five year strategic plan.
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The main objective of the ITN’s strategy is to increase household coverage and
correct utilization of ITN’s by 10% per year in highly malaria endemic areas to reach
a target of 60% by the end of the year 2007.
In 2000-2003 UNICEF donated a total of 1.42 million ITN’s. Currently ITN’s , are
being sold at subsidized prices in all regions in highly endemic malaria areas.
Though official statistics on the domestic production is not available there are
domestic producers of mosquito nets.
Among the brands in the market ‘WEBA ALBA’
and Net Mark are available for
sell. Imported mosquito nets supply is presented in Table 3.1.
Table 3.1
SUPPLY OF MOSQUITO NETS (TONNES)
Imported Nets
Year
Cotton
Synthetic
Other
Total
1997
1
4
3
8
1998
19
25
7
51
1999
8
27
5
40
2000
8
10
6
24
2001
31
15
170
216
2002
11
17
92
120
2003
83
45
29
157
2004
489
5
3
197
2005
501
977
36
1514
2006
2704
1374
609
4687
Average
385.5
249.9
96
701.4
Source: Customs Authority.
ITN’s are required to achieve the Abuja target of 60% ITN coverage among
vulnerable groups in target areas.
For the propose of this study a conservative
estimated demand of four million mosquito nets is considered.
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2.
Projected Demand
According to the strategic plan for going to scale, prepared by MOH, the current level
of knowledge concerning ITN’s is relatively low. However experience has shown
that it is relatively easy to create awareness through a demand creation programme.
The majority of the Ethiopian people are under the absolute poverty line, most people
in malaria endemic areas cannot afford for a commercial mosquito net. Thus the
MOH strategy for scale up ITN’s intervention and coordination efforts are expected to
deliver mosquito nets for free through segmenting the market and targeting the most
vulnerable group of the population.
The demand projection for ITN’s is, therefore, made according to the ITN’s National
strategic plan for going to scale with coverage and utilization in Ethiopia. The
strategy indicates a household coverage of 10% more per year in highly malaria
endemic areas. Thus the projected demand for mosquito nets is made at 10% annual
growth rate. Demand Projection is presented in Table 3.2.
Table 3.2
PROJECTED DEMAND FOR MOSQUITO NETS (PIECES)
Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Mosquito Nets
4,400,000
4,840,000
5,324,000
5,856,400
6,442,040
7,086,244
7,794,868
8,574,355
9,431,790
10,374,970
11,412,467
12,553,714
13,809,085
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3.
Pricing and Distribution
As a subsidized product the price of mosquito nets varies from region to region and by
the brand. However the current commercial mosquito nets available in Addis Ababa
is Birr 40. Thus the factory gate price for the envisaged product under this study is
determined assuming markup on the above retail price is calculated to be Birr 30.
The distribution of mosquito nets needs an overall awareness creation of ITN’s and
their use through effective communication strategies that include mass media, local
and community radios, newspapers, leaflets, posters, television as well as commercial
advertisement.
B.
PLANT CAPACITY AND PRODUCTION PROGRAMME
1.
Plant Capacity
According to the market study, the demand of mosquito nets in the year 2008 will be
4,400,000 pieces, whereas this demand will grow to 10,374,970 by the year 2017.
Taking only about 1% of the demand of the year 2008, the envisaged plant will have
an annual production capacity of 44,000 pieces of mosquito nets, based on 300
working days and a single shift of 8 hours per day. Increasing the number of working
hours can increase this capacity.
2.
Production Programme
Table 3.3 shows the production programme of the envisaged project. At the initial
stage of the production period, the plant would require some years to penetrate in to
the market.
Therefore, in the first and second year of production, the capacity
utilization rate will be 80% and 90%, respectively. In third year and thereafter, full
capacity (100%) production shall be attained.
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Table 3.1
PRODUCTION PROGRAMME
Sr.
Product
Production Year
No.
1.
Mosquito net (Pcs.)
2.
Capacity Utilization (%)
IV.
MATERIALS AND INPUTS
A.
MATERIALS
2008
2009
2010-2017
35200
39600
44000
80
90
100
The principal raw materials of the project are nylon threads and cords. Auxiliary
materials required for the production of the assorted net products include sewing
threads and fabric for edges. Taking into account the weight of finished net is in the
range of 500-600gms.and a 10% allowance to consider waste and production errors,
the annual raw and auxiliary material requirement and their costs estimates are
calculated and shown in Tab le 4.1.
Table 4.1
RAW AND AUXILIARY MATERIALS AND COST (KG)
(AT FULL CAPACITY)
Sr.
Raw & Auxiliary
No.
Material
Qty.
Cost (‘000 Birr)
FC
LC
Total
1.
Nylon yarn (kg)
23232
300
153
453
2.
Nylon cord (kg)
5,800
93
50
143
3.
Others
20
20
223
616
Grand Total
393
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B.
UTILITIES
Major utilities of the envisaged project are electricity and water. The annual utilities
requirement and cost are is indicated in Table 4.2.
Table 4.2
UTILITIES REQUIREMENT AND COST
(AT FULL CAPACITY)
Sr.
Utility
No.
Unit of
Qty.
Measure
1
Electricity
2
Water
Unit price
Cost
(Birr)
(‘000 BIRR)
kWh
3600
0.4736
1.705
m3
1000
5.5
5.5
Total
V.
TECHNOLOGY AND ENGINEERING
A.
TECHNOLOGY
1.
Production Process
7.25
The production process of nets usually starts with twisting of yarn and then the
twisted yarn passes to the knitting machine. After the net is produced, it shall be cut
according to a specific design then it is then enters to the sewing unit where edges will
be prepared using fabrics, cords and threads. The impregnating of net is assumed to be
carried just before sale at the distribution outlet.
2.
Source of Technology
K.L. Sharma and Sons,
356/1, Bharat Nagar,
Near, Darpan Studio,
Ludhiama, Punjab, India,
Fax: 91-161-442840,
E-mail: [email protected]
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B.
ENGINEERING
1.
Machinery and Equipment
The list of machinery and equipment of the envisaged project is indicated in Table 5.1
The total cost of machinery and equipment is estimated at Birr 880,000, out of which
Birr 728,200 is required in foreign currency.
Table 5.1
LIST OF MACHINERY AND EQUIPMENT REQUIRED
Sr.
Description
No.
Qty.
(No.)
FC
LC
Total
1.
Yarn Twisting Machinery
3
275
55
330
2.
Knitting Machine (Raschel)
3
275
55
330
3.
Sewing Machine
3
132
33
165
4.
Hand Tools
LS
46.2
8.8
55
728.2
151.8
880
Grand Total
2.
Cost ('000 Birr)
Building and Civil Works
The total land requirement of the project is about 750m2, out of which the built-up
area is 250m2. Assuming unit construction cost rate of Birr 1250 per m2, the total
construction cost is estimated to be Birr 312,500.
Total land lease cost, for a period of 80 years with cost of Birr 0.7 per m2, is estimated
at Birr 42,000. The total investment cost for land, building and civil works, assuming
that the total land lease cost will be paid in advance is estimated at Birr 354,500.
3.
Proposed Location
The location of the anticipated project could be in Arbaminch, where access to
different infrastructure is secured.
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VI.
MANPOWER AND TRAINING REQUIREMENTS
A.
MANPOWER REQUIREMENT
The envisaged project requires 21 work forces. The list of manpower and labour cost
is indicated in Table 6.1. The total annual cost of labour including fringe benefits is
estimated at Birr 216,000.
Table 6.1
MANPOWER REQUIREMENT AND LABOUR COST
Sr.
Description
Req.
Monthly
Annual Salary
No.
Salary (Birr)
(Birr)
No.
1.
General Manager
1
2,500
30,000
2.
Secretary/Cashier
1
700
8,400
3.
Commercial Officer
1
1,500
18,000
4.
Production Head
1
1,800
21,600
5.
Mechanic
1
1,200
14,400
6.
Operators
5
3,250
39,000
7.
Labourers
8
2,400
28,800
8.
Guards
2
500
6,000
9
Driver
1
550
6,600
21
14,400
172,800
Benefits (25% BS)
3,600
43,200
Grand Total
18,000
216,000
Sub-Total
B.
TRAINING REQUIREMENT
The experts of the machinery supplier can carry out short-term on-the-job training
during erection and commissioning for production head and mechanic who in turn can
train operators. Therefore, the total cost of training is estimated to be Birr 15,000.
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VII.
FINANCIAL ANALYSIS
The financial analysis of the mosquito net project is based on the data presented in
the previous chapters and the following assumptions:-
Construction period
1 year
Source of finance
30 % equity
70 % loan
Tax holidays
Bank interest
5 years
8%
Discount cash flow
8.5%
Accounts receivable
30 days
Raw material local
30 days
Raw material, import
90days
Work in progress
2 days
Finished products
30 days
Cash in hand
5 days
Accounts payable
30 days
A.
TOTAL INITIAL INVESTMENT COST
The total investment cost of the project including working capital is estimated at Birr
1.81 million, of which 56 per cent will be required in foreign currency.
The major breakdown of the total initial investment cost is shown in Table 7.1.
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Table 7.1
INITIAL INVESTMENT COST
Sr.
Total Cost
No.
Cost Items
(‘000 Birr)
1
Land lease value
42.0
2
Building and Civil Work
312.5
3
Plant Machinery and Equipment
880.0
4
Office Furniture and Equipment
75.0
5
Vehicle
200.0
6
Pre-production Expenditure*
170.8
7
Working Capital
134.9
Total Investment cost
Foreign Share
1,815.3
56
* N.B Pre-production expenditure includes interest during construction ( Birr 95.83 thousand )
training (Birr 15 thousand ) and Birr 60 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 1.09
million (see Table 7.2). The material and utility cost accounts for 56.79 per cent,
while repair and maintenance take 1.37
per cent of the production cost.
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Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)
Items
Raw Material and Inputs
Cost
%
616.00
56.13
7.25
0.66
15
1.37
103.68
9.45
Factory overheads
34.56
3.15
Administration Costs
69.12
6.30
Total Operating Costs
845.61
77.05
Depreciation
168.22
15.33
83.71
7.63
1,097.54
100
Utilities
Maintenance and repair
Labour direct
Cost of Finance
Total Production Cost
C.
FINANCIAL EVALUATION
1.
Profitability
According to the projected income statement, the project will start generating profit in
the first 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
total investment) show an increasing trend during the life-time of the project.
The income statement and the other indicators of profitability show that the project is
viable.
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2.
Break-even Analysis
The break-even point of the project including cost of finance when it starts to operate
at full capacity ( year 3) is estimated by using income statement projection.
BE =
Fixed Cost
= 31 %
Sales – Variable Cost
3.
Pay Back Period
The investment cost and income statement projection are used to project the pay-back
period. The project’s initial investment will be fully recovered within 5 years.
4.
Internal Rate of Return and Net Present Value
Based on the cash flow statement, the calculated IRR of the project is 21 % and the
net present value at 8.5% discount rate is Birr 1.09 million.
D.
ECONOMIC BENEFITS
The project can create employment for 21 persons.
In addition to supply of the
domestic needs, the project will generate Birr 590,230 in terms of tax revenue. The
establishment of such factory will have a foreign exchange saving effect to the
country by substituting the current imports.