149.

PROFILE ON PRODUCTION OF
PLYWOOD
 149-2

TABLE OF CONTENTS

PAGE

I. SUMMARY 149-3

II. PRODUCT DESCRIPTION & APPLICATION 149-3

III. MARKET STUDY AND PLANT CAPACITY 149-4

A. MARKET STUDY 149-4
B. PLANT CAPACITY & PRODUCTION PROGRAMME 149-9

IV. MATERIALS AND INPUTS 149-10

A. RAW & AUXILIARY MATERIALS 149-10
B. UTILITIES 149-10

V. TECHNOLOGY & ENGINEERING 149-11

A. TECHNOLOGY 149-11
B. ENGINEERING 149-12

VI. MANPOWER & TRAINING REQUIREMENT 149-14

A. MANPOWER REQUIREMENT 149-14
B. TRAINING REQUIREMENT 149-15

VII. FINANCIAL ANALYSIS 149-15

A. TOTAL INITIAL INVESTMENT COST 149-15
B. PRODUCTION COST 149-16
C. FINANCIAL EVALUATION 149-17
D. ECONOMIC BENEFITS 149-18
 149-3

I. SUMMARY

This profile envisages the establishment of a plant for the production of plywood
with a capacity of 3,800 mt. cub per annum.

The present demand for the proposed product is estimated at 2.37 million mt.cub per
annum. The demand is expected to reach at 4.66 million mt.cub by the year 2017.

The plant will create employment opportunities for 42 persons.

The total investment requirement is estimated at Birr 11.25 million, out of which Birr
7.84 million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 15 % and a net
present value (NPV) of Birr 5.12 million discounted at 8.5%.

II. PRODUCT DESCRIPTION AND APPLICATION

A product obtained as a result of several even numbered boards bonded together is called
plywood. Plywood, thus, produced has the particular features of being a wood with the
least defects, wide size, high length and strength mechanically or physically. It is used for
general construction purposes as interior material for housing, ships, vehicles and
furniture
 149-4

III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

Demand for plywood is met both from domestic production and import. the Ethiopian
plywood Enterprise with a branch in Jimma is the only producer of plywood in Ethiopia.
Domestic production of plywood in the past eight years if shown in Table 3.1.

Table 3.1
DOMESTIC PRODUCTION OF PLYWOOD (MT.CU)

Year Domestic Production

1998 985
1999 375
2000 430
2001 455
2002 677
2003 1,168
2004 -
2005 8,722

Source:- Statistical Abstract of Ethiopia, CSA.

Table 3.1. reveals that the yearly average domestic production of plywood during the
period 1998-2003 was about 682 mt.cub. During 2004 there was no domestic production
of plywood for some reasons probably due to renovation and expansion. In the year 2005
the domestic production has enormously expanded and has reached to a level of 8,722mt.
With regard to import, the Customs Authority has classified plywood into four types as
indicated below.
 149-5

ƒ Plywood with > = 1 outer ply tropical woods each ply =< 6mm thickness ( in
Ton)
ƒ Plywood, veneered panels and similar laminated wood n.e.s. ( in Ton)
ƒ Plywood each = < 6mm thickness ( in mt.cu)
ƒ Plywood > 6 mm with > = 1 ply non coniferous wood ( in mt.cu)
The types and quantity imported in the past nine years is shown in Table 3.2. It has to be
noted that the unit of measure for the first two types is in weight i.e. ton, while for the last
two is in volume i.e. mt.cub. For this reson the analysis is presented separately due to
difficulty of summing different units of measure.

As could be seen from the data the quantity of plywoods of the first two types imported
in the past eight years is highly erratic with out any trend. Nevertheless, it is found that
the total supply of the first two types on yearly average during the period considered was
1,078.7 tons.
 149-6

Table 3.2
IMPORT OF PLYWOOD BY TYPE

Plywood With >= 1 Outer Plywood Veneered Total Of Plywood Each Plywood > 6 M.M Total Of 3 & 4
Year Ply Tropical Woods Each Panels And Similar 1&2 =< 6mm With >=1 Ply Non (Mt.Cu)
Ply =< 6 Mm Thick (Ton)' Laminated Wood N.E.S (Ton) Thickness Coniferous Wood
(Ton)2 (Mt.Cu)3 (Mt.Cu)4
1998 48.0 273.3 321.3 780,017 145 780,162
1999 205.6 302.9 508.5 421,235 11,011 432,246
2000 452.1 810.0 1,262.1 223,515 116 223,631
2001 453.7 2,493.2 2,946.9 415,957 214 416,171
2002 90.3 1,447.0 1,537.3 343,368 381 343,749
2003 93.7 1,693.9 1,787.6 824,256 3,578 828,834
2004 395.8 294.0 689.8 945,281 39,052 984,333
2005 2.3 280.3 282.6 2,147928 1,184 2,149,112
2006 281.7 90.8 372.5 2,404292 174,877 2,579,169
Total 2,023.2 7,685.4 9,708.6
Average 224.8 853.9 1,078.7
Source :- Compiled from Ethiopian Customs Authority.
With regard to the other two types i.e plywood each= 6mm thickness and plywood >6
mm with >=1 ply coniferous wood the general trend is an increasing one although
there are some fluctuation in the first five years (1998- 2002). During the recent four
years the imported quantity has shown a large increase. The imported quantity which
was around 400 thousand mt.cub during 2001/2002 has increased to about 907
thousand mt.cub by the years 2003 and 2004. In the recent two years ( 2005/2006)
the imported quantity has increased tremendously. During these two years the
average imported quantity is about 2,364,140 mt.cub. This is about 2.6 fold compared
to the two previous years. This huge increase is due to the fast expansion of the
construction and the manufacturing sector all over the country in the last 4-5 years.

In general, what can be deduced from Table 3.1. and Table 3.2. is that the supply
emanating from domestic production is extremely very low composed to import
throughout the time covered by the data series. If we take the highest domestic
production which is 8,722 mt.cu and compare only with the last two types of
plywood imported to the country its share is less than one percent. This indicates that
there is a huge market in the country through import substitution using locally
available raw materials.

To determine the current effective demand the following methodology is adopted.

ƒ For the first two types of plywood the average quantity imported in the past
nine years has been taken since the data does not show any trend. Accordingly
current demand is set at 1080 tons.
ƒ For the last two types of plywood the average quantity imported in the past
two recent years plus the domestic production during 2005 is considered to
reflect the current demand. Accordingly current demand is estimated at
2,372,862 mt .cub ( 2,364,140 mt cub from import and 8,722 mt.cub domestic
production).

2. Projected Demand

The demand for plywood is directly related with the growth of the housing
construction sector, household and office furniture's, vehicles assembly and repair
service. Plywood has various uses in housing construction for floors, roots, walls and
 149- 8

doors. Inside a house, plywood often is used in a variety of furnishings, including

cabinetry, shelves, tables and wall paneling. The demand for these items inturn
will depend on income, population growth, urbanization, and the manufacturing
sector. Hence, by considering the recent past growth of the construction and the
manufacturing sector a modest growth of rate of 7% per annum is deemed to be
realistic to project demand for plywood. The projected demand for the two groups of
plywood is shown in Table 3.3.

Table 3.3
PROJECTED DEMAND FOR PLYWOOD

Year Plywood of Group 1 Plywood of Group 2

(Ton) (mt.cub)
2008 1163 2,538,962
2009 1245 2,716,690
2010 1332 2,906,858
2011 1425 3,110,338
2012 1525 3,328,062
2013 1631 3,560,026
2014 1745 3,810,298
2015 1668 4,077,019
2016 1998 4,362,410
2017 2138 4,667,779

Table 3.3. reveals that a number of small to medium and large industries can be
established to satisfy the demand for ply wood.

3. Pricing and Distribution

The current producers price of locally produced plywood is Birr 3,350 per mt. cub.
This envisaged project can adopt a similar price.
 149- 9

Distribution of plywood would be handled through direct delivery to major

construction companies and furniture manufacturing enterprise. In addition, the
existing building materials enterprise can be used to reach for non-bulk purchasers.

B. PLANT CAPACITY AND PRODUCTION PROGRAMME

1. Plant Capacity

According to the market study, the demand of plywood (Group two types) in the year
2008 will be 2,538,962 m3, where as this demand will grow to 4667,779 m3 by the
year 2017. Taking only about 1.5% of the demand of the year 2008, the proposed
plant will have a capacity of 3,800 m3 per annum. This quantity of plywood of 4mm
thickness, which is a product mostly, used for general construction purposes such as
interior materials for housing, ships, vehicles, and furniture, etc. Its demand is ever
on the increase. However, additional market requirement can be met by running the
production unit on a second or third shift.

2. Production Programme

The unit is planned to operate one shift of 8 hours a day for a total working of 300
days a year by taking Sundays and national holidays into considerations.

It is also anticipated to operate at 70% and 80% of installed capacity in the first and
second year, respectively. Full capacity production is expected to be achieved in the
successive years. The low production level at the initial stage is planned to develop
substantial market outlets for the product and to build up production capacity of new
equipment.
 149- 10

IV. MATERIAL AND INPUTS

A. RAW AND AUXILIARY MATERIALS

Logs, which are suitable for plywood, urea resin, glue and ammonium chloride are the
materials used to produce plywood. Except for urea resin and ammonium chloride
which are to be imported, the other materials required are locally available. The
annual raw material requirement is calculated on the bases of the final output. Thus,
the total cost of materials at full operation capacity of the plant is estimated to be Birr
8,045,282 The detail breakdown is shown in Table 4.1.

Table 4.1
RAW AND AUXILIARY MATERIALS REQUIREMENT AND COST
('000 BIRR)

Sr. Description Qty. Cost '000 Birr

No. FC LC Total
1 Logs (m3) 8,750 - 7000 7000
2 Urea resin (tonne) 290 794.8 - 794.8
3 Ammonium chloride (kg) 100 0.482 - 0.482
4 Glue (tonne) 15 - 250 250
Grand Total 795.28 7,250 8045.282

B. UTILITIES

The major utilities of the project are electricity, furnace oil and water. The annual
water requirement is about 32,000 m3. The total annual expenditure on utilities is,
thus, about Birr 1,446,045.00.

Annual requirement and cost of utilities is indicated in Table 4.2.

 149- 11

Table 4.2
UTILITIES REQUIREMENT AND COST

Sr. Description UOM Qty. Cost (‘000 birr)

No

1 Electricity kWh 93,000 44.0448

2 Furnace oil lt 200,000 1,082
3 Water m3 32,000 320
Total 1,446.045

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Process Description

The manufacturing of plywood comprises of three major steps. These are:-

- Preparation of logs;
- Veneer manufacturing from logs; and
- Plywood manufacturing from veneer.

a) Preparation of logs

This section consists of two major log treatment operations. In the first one, logs are
cut by chain saw to a desired length and fed to the lathe to make veneer sheets, while
in the second high-density logs are cooked in cooking vats or steam chambers to
facilitate the cutting operation.

b) Veneer Manufacturing

Under this process several physical actions such as cutting, clipping, drying, joining,
etc. are conducted on the log obtained from the first section in order to prepare good
quality veneer suitable for plywood making.
 149- 12

c) Plywood manufacturing from veneer

In plywood making, the initial operation is the preparation of glue for the process.
The proceeding step is the spreading of glue on the core veneer sheets and the final is
the pre-pressing of the stacked sheets by the cold press.

After pre-pressing, the obtained plywood is fed to hot-press machine, where it is

subjected to a pressure at a specified temperature. Then, the plywood is cut to a pre-
determined size by cutting machine and stored for delivery.

2. Source of Technology

The machinery required for the envisaged plant could be obtained from the following
England company.
Scott & Sergeant Woodworking Machinery Ltd.
Blatchford Rd, Horsham, RH13SQR, England.
Tel. + 44 (0) 1403273000.
Email: sales@scorsarg.co.uk.

B. ENGINEERING

1. Machinery and Equipment

Cutting, slicing, clipping or pressing and drying units are some of the major
machinery and equipment required in the production of plywood. The total cost of
machinery and equipment is estimated at Birr 7.84 million, of which Birr 7 million is
required in foreign currency. Table 5.1 shows the list of machinery and equipment
required by the envisaged plant.
 149- 13

Table 5.1
LIST OF MACHINERY AND EQUIPMENT

Sr. Description Qty.

No.
1 Peeler 1
2 Veneer router 1
3 Veneer clipper 1
4 Veneer drying machine 1
5 Veneer splinter 1
6 Veneer splicer 1
7 Gluing machine 1
8 Conveyor (roller) 1
9 Pressing machine 1
10 Drying press 1
11 Plywood edger 1
12 Sanding machine (scraper belt, drum) 1
13 Boiler with its accessories 1
14 Polishing 1

2. Land, Building and Civil Works

The plant requires a total of 2500m2 area of land out of which 1,600m2 is built-up area
which includes Processing area, raw material stock area, offices etc. Assuming
construction rate of Birr 2500 per m2, the total cost of construction is estimated to be
Birr 4 million. The total cost, for a period of 80 years with cost of Birr 1 per m2, is
estimated at Birr 2,500. The total investment cost for land, building and civil works is
estimated at Birr 4,002,500.
 149- 14

3. Proposed Location

According to the resource potential study of the region, the raw material is identified
in Bitta ,Andricha ,Maji woredas. Based on the availability of raw material
infrastructure, utility and market outlet Tum town of Maji Woreda is selected and
recommended to be the location of the envisaged plant.

VI. MANPOWER AND TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT

The plywood manufacturing plant will create job opportunities for about 42 workers,
of these 36 of the employees are production workers while the remaining are
administrative staff. The detail is indicated in Table 6.1.

Table 6.1
MANPOWER REQUIREMENT AND ANNUAL LABOUR COST (BIRR)

Sr. Description Req. Monthly Annual

No. No. Salary Salary
A. Administration
1 Manager 1 1,800 21,600
2 Administrator 1 950 11,400
3 Accountant 1 750 9,000
4 Secretary 1 450 5,400
5 Salesperson 1 600 7,200
6 General service 1 350 4,200
Sub-Total 6 38,800
B. Production
1 Supervisor 1 1,050 1,050
2 Skilled workers 20 500 120,000
3 Unskilled workers 12 250 36,000
4 Technician 3 500 18,000
Sub-Total 36 175,050
Total 42 233,850
Benefits (25% of basic salary) 58,462.50
Grand Total 42 292,312.50
 149- 15

B. TRAINING REQUIREMENT

Imparting skill both on the supervisor and the operators who will be directly involved
in the plywood production is an essential task. Thus, on-job-training by the
machinery supplier for about two weeks should be given locally. The training cost is
estimated to be Birr 40,000.

VII. FINANCIAL ANALYSIS

The financial analysis of the plywood 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 3 years
Bank interest 8%
Discount cash flow 8.5%
Accounts receivable 30 days
Raw material local 30 days
Raw material, import 90 days
Work in progress 1 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
14.91 million, of which 59 per cent will be required in foreign currency.

The major breakdown of the total initial investment cost is shown in Table 7.1.
 149- 16

Table 7.1
INITIAL INVESTMENT COST

Sr. Total Cost

No. Cost Items (‘000 Birr)
1 Land lease value 200.0
2 Building and Civil Work 4,000.0
3 Plant Machinery and Equipment 7,840.0
4 Office Furniture and Equipment 100.0
5 Vehicle 200.0
6 Pre-production Expenditure* 764.4
7 Working Capital 1,811.7
Total Investment cost 14,916.1
Foreign Share 59

* N.B Pre-production expenditure includes interest during construction ( Birr 664.43 thousand )
training (Birr 40 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 11.25
million (see Table 7.2). The material and utility cost accounts for 84.35 per cent,
while repair and maintenance take 1.33 per cent of the production cost.
 149- 17

Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Cost %
Raw Material and Inputs 8,045.28 71.50
Utilities 1446.05 12.85
Maintenance and repair 150 1.33
Labour direct 140.4 1.25
Factory overheads 46.8 0.42
Administration Costs 93.6 0.83
Total Operating Costs 9,922.13 88.18
Depreciation 672 5.97
Cost of Finance 657.62 5.84
Total Production Cost 11,251.75 100

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.
 149- 18

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 = 80 %
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 7 years.

4. Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 15 % and the
net present value at 8.5% discount rate is Birr 5.12 million.

D. ECONOMIC BENEFITS

The project can create employment for 42 persons. In addition to supply of the
domestic needs, the project will generate Birr 3.51 million 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.