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Project Feasibility Study On

Project management (Mekelle University)

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PROJECT FEASIBILITY STUDY

On

Waste Plastic size reducing/recycling plant

November, 2019

Addis Ababa, Ethiopia

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Table of contents
Titles page

i. Executive summary...................................................................................................................i

Chapter one......................................................................................................................................1

1. Introduction..............................................................................................................................1

1.1. Objectives.........................................................................................................................2

Chapter two......................................................................................................................................3

2. Description of products and application..................................................................................3

2.1. Polymeric material classification......................................................................................4

2.2. Plastic types......................................................................................................................5

2.3. Methods of recycling........................................................................................................7

2.4. Benefits of plastic recycling..............................................................................................7

2.5. National policy on industry...............................................................................................8

Chapter three....................................................................................................................................9

3. Market analysis and production capacity....................................................................................9

3.1. Market analysis.................................................................................................................9

3.1.1. Market profitability analysis..............................................................................................9

3.1.2. Market development strategy.........................................................................................9

3.2. Competitor analysis:-......................................................................................................10

3.2.1. Knowing competitors strategy....................................................................................10

3.2.2. Competitor’s objectives...............................................................................................10

3.2.3. Competitor’s current and past strategies.....................................................................10

3.2.4. Competitor’s capabilities.............................................................................................10

3.2.5. Evolving markets and strategic windows....................................................................11

3.2.6. Forecasting market growth..........................................................................................11

3.2.7. Distribution systems....................................................................................................11

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3.2.8. Price leadership strategy..............................................................................................11

3.2.9. Advertising strategy........................................................................................................12

3.3. Past supply of recycled plastic....................................................................................12

3.3.1. Projected demand....................................................................................................13

3.3.2. Projected demand and supply gap analysis.............................................................14

3.4. Production program and plant capacity..........................................................................15

3.5. SWOT analysis...............................................................................................................15

Chapter four...................................................................................................................................17

4. Key success and risk factors...................................................................................................17

4.1. Key success factors.........................................................................................................17

4.1.1. Macro level success factors.....................................................................................17

4.1.2. Sector specific success factors.................................................................................17

4.2. Risk factors.....................................................................................................................18

4.2.1. Major risk factors.....................................................................................................18

4.2.2. Firm level risk..........................................................................................................18

Chapter five...................................................................................................................................19

5. Materials and inputs...............................................................................................................19

5.1. Raw materials......................................................................................................................19

5.2. Inputs...................................................................................................................................19

Chapter six.....................................................................................................................................20

6. Technology and engineering..................................................................................................20

6.1. Technology......................................................................................................................20

6.1.1. Waste plastic recycling/size reducing process.........................................................20

6.1.2. The need for separation of plastics..........................................................................20

6.2. Engineering.....................................................................................................................21

6.2.1. Machinery and equipment.......................................................................................21

6.2.2. Land, building and civil works................................................................................21

Chapter seven................................................................................................................................22

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7. Manpower requiremente and organizational structure..............................................................22

7.1. Manpower requirement.......................................................................................................22

7.1.1. Training requirement....................................................................................................22

7.2. Organizational structure......................................................................................................23

Chapter eight..................................................................................................................................24

8. Socio-economic benefits........................................................................................................24

Chapter nine...................................................................................................................................25

9. Environmental impact identification......................................................................................25

Chapter ten.....................................................................................................................................26

10. Financial analysis...................................................................................................................26

10.1. Profitability evaluation................................................................................................29

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I. Executive Summary

Plastic recycling is the process of recovering scrap or waste plastic and reprocessing the material
into useful products, even recycled plastic has new plastic material added in; the same piece of
plastic can only be recycled about 2-3 times before its quality decreases to the point where it can
no longer be used.
Plastic recycling not only promotes proper utilization of plastic waste but also helps conserve the
environment, making it cleaner and greener. It reduces high rates of plastic pollution while
putting less pressure on virgin materials to produce brand new plastic products. This approach
helps to conserve resources and diverts plastics from landfills or unintended destinations such as
oceans.
Plastic recycling has one huge problem due to specific categories of plastic types. It is hard to
tell one type from another by looking at it but, consumers can identify the types of plastics by the
numerical coding system created by the Society of the Plastics Industry
Mechanical recycling (chop and wash, where the plastic is washed, ground into powders and
melted) is the most recommended ways of recycling than chemical recycling
Thermoplastics can be re-melted and reused while thermoset plastics can be gather and used as
filler. Depending on the waste Thermoplastics recyclability and local availability, the principal
raw material of this project are Polyethylene Terephthalate (PET), Polyethylene (HDPE and
LDPE) and Polypropylene (PP).
The Total Capital Investment of the envisaged project is birr 3,379,644.44; from the total
investment cost, the share of birr 3,041,680 is accounted for fixed capital investment
Based on the projected cash flows statement the project initial investment will returned within
5years and its Average annual net profit will be birr 695,832.2. The Average Gross profit
margin of the project is shown 0.878%; it represents the percentage of sales turned into profits.

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Chapter One

1. Introduction
A steady growth of industry and trade has been registered in the past years in Ethiopia due to
an array of reforms and the opening up of the economy and the creation of encouraging
investment environment, plastic is one of the sectors that increase its industrial expansion in
our country
Plastic is a manmade material which covers a range of synthetic or semi-synthetic products
made through polymerization. The development of plastic products has accompanied the
development of human’s history since it was invented while they have provided a great
convenience for our daily life. But how to deal with the plastic waste is the hottest topic for
environmental studies.
The rapid growth of population and development of industrial field is contributing to
massive waste pollution in which plastic waste is considered as most difficult waste to deal
with due to its non-biodegradable nature. This lead to various impact on environment as well
as all living things. The most popular ways to deal with plastic waste are local public or
private landfills, incineration at special sites, and recycling
The recycled plastic wastes can be reused alone or regenerated by mixing with fresh raw
material in suitable ratio. Products made with simple regenerated plastics alone belong to low-
grade products, acceptable only in developing countries while the latter can be accepted
by advanced countries.

Recycling plays its part in the green energy debate by reducing the amount of energy required
to manufacture certain products. This reduces greenhouse gas emissions generated by the
manufacturing process and lowers global energy consumption and reduce the amount of
industrial waste.

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1.1. Objectives
In a complete view of the various aspects of plastic recycling, markets, finance and
management there is huge potential to play a very major role in the business that has initiated
the owners to continue Plastic recycling industry.
The principle objectives of the project are:-

 To participate and contribute in a small way to the ever growing demand for
the Recycled plastic products
 To generate revenues in the form of taxes for the government
 To explore domestic and foreign markets
 To provide employment opportunity for youth
 To generate profit from the invested capital

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Chapter Two

2. Description of products and Application

Plastic recycling is the process of recovering scrap or waste plastic and reprocessing the
material into functional and useful products. Most of house holed and packaging products are
made from different types of plastic called Polyethylene terephthalate (PET), High-density
polyethylene (HDPE), Low-density polyethylene (LDPE), and polypropylene (PP). These
plastic raw materials quickly gained accepted among house holed and packaging producers
and consumers. Because of that they are lightweight, economical and durable. These plastics
are now widely used as a house holed, packaging, packaging films, conduit and so on.
From its beginning, the producers of the above plastic manufacturer has demonstrated its/there
commitment to environmental responsibility through recycling. They are fully recyclable
where facilities exist.

PET
Recycled polyethylene terephthalate (RPET) has been widely used to produce polyester fibres.
One use for this recycled PET is to create fabrics to be used in the clothing industry. The
fabrics are created by spinning the PET flakes into thread and yarn. This is done just as easily
as creating polyester from brand new PET. The recycled PET thread or yarn can be used either
alone or together with other fibers to create a very wide variety of fabrics. Traditionally these
fabrics are used to create strong, durable, rough products, such as jackets, coats, shoes, bags,
hats, and accessories since they are usually too rough for direct skin contact and can cause
irritation. However, these types of fabrics have become more popular as a result of the public's
growing awareness of environmental issues.

HDPE

Thermoplastics like PE (Polyethylene) liquefy, allowing them to be easily extruded or

(injection molded) and turned into brand new (HDPE pipe).
LDPE
Beyond reducing waste and creating a cleaner world, there are practical benefits to companies
that make the effort to recycle LDPE film, used for Conduit making and itself again.
PP
Recycled polypropylene (RPP) has been widely used to produce polypropylene mat and also
used for production of polypropylene strings, bags and construction shad net.

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2.1. Polymeric material classification

Polymeric materials can be classified as thermosets and thermoplastics. Thermoplastics are

made up of linear molecular chains and this polymer softens on heating and hardens when
cooled
Thermoplastics can be re-melted and reused while thermoset plastics can be gather and used
as filler They are hardened by curing and cannot be re-melted or re-moulded and are therefore
difficult to recycle. They are sometimes ground and used as a filler material.

Thermosets whilst initially

processed by melting in a similar
manner to thermoplastics cannot be
re-melted and will decompose
rather than melt. This is because
they are chemically cross linked
during a process called curing. This
produces a highly dense
chemical structure which imparts
stiffness and brittleness
Thermoset polymers refer to the irreversible polymerization and this type of polymer is cured
by chemical reaction or heat and becomes infusible and insoluble material. Thermosets whilst
initially processed by melting in a similar manner to thermoplastics cannot be re-melted and
will decompose rather than melt. This is because they are chemically cross linked during a
process called curing. This produces a highly dense chemical structure which imparts stiffness
and brittleness.
Thermoplastics make up 80% of the plastics produced today. Examples of thermoplastics
include;
• high density polyethylene (HDPE) used in piping, automotive fuel tanks, bottles, toys,
• low density polyethylene (LDPE) used in plastic bags, cling film, flexible containers;
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• polyethylene terephthalate (PET) used in bottles, carpets and food packaging;

• polypropylene (PP) used in food containers, battery cases, bottle crates, automotive parts and
fibres;
• polystyrene (PS) used in dairy product containers, tape cassettes, cups and plates;
• polyvinyl chloride (PVC) used in window frames, flooring, bottles, packaging film, cable
insulation, credit cards and medical products.
There are hundreds of types of thermoplastic polymer, and new variations are regularly being
developed.
Thermosets make up the remaining 20% of plastics produced. They are hardened by curing
and cannot be re-melted or re-moulded and are therefore difficult to recycle. They are
sometimes ground and used as a filler material. They include:
 polyurethane (PU) - coatings, finishes, gears, diaphragms, cushions, mattresses and car
seats;
 epoxy - adhesives, sports equipment, electrical and automotive equipment;

 phenolics - ovens, handles for cutlery, automotive parts and circuit boards

2.2. Plastic types

Most plastic can be recycled and collection of plastics for recycling is increasing rapidly.
Plastic recycling has one huge problem due to specific categories of plastic types.
In order to understand how best to recycle a plastic material it is necessary to know what the
material is and how it is likely to behave. Plastics are made up of polymers and additives. The
percentage of a polymer contained within a plastic material can vary widely from virtually
100% to less than 20% and depends on the application for which it is intended.
It is hard to tell one type from another by looking at it but, consumers can identify the types of
plastics by the numerical coding system created by the Society of the Plastics Industry
.Actually, there are laws that each plastic product has to have a code printed inside the familiar
three-arrow recycle system. The code helps to identify the type of plastic. According to the
code, plastics can be distributed into the following categories:

PET: Polyethylene terephthalate (#1)

The most commonly recycled plastic, which can be broken down into fibers that are used for
polyester fabrics; it can also be rolled into clear sheets or tape band for VCR and
audiocassettes. PET is used for liquor containers, boil-in food pouches, processed meat

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packages, egg cartons, fibers, industrial strapping, engineering plastic and automobile
distributor caps to name a few .

HDPE: High-density polyethylene (#2)

HDPE can be used in direct food contact applications such as detergent, milk and water
bottles. Also, it is found to be used in making many toys. Plastic HDPE is a recyclable. It is
recycled into products like trash cans, recycling bins, engine oil containers and detergent
bottles.

PVC: Poly vinyl chloride (#3)

PVC is one of the world's most widely used plastics. The advantage is its flexibility (during
forming and moulding). Almost three-quarters of PVC plastic go into building and
construction applications. It is also used in products such as piping (especially popular in
plumbing), siding, window profiles, food wraps, surgical gloves, wire cable coating,
flooring, toys and producing thermoforming boxes. Packaging is another major market for
PVC plastic. PVC plastics cause serious health and environmental problems. Not all PVC
products are recyclable and they are toxic in production with harmful ingredients like chloride
that is left over after breakdown. PVC production melts vinyl chloride molecules with toxic
metals such as lead and cadmium, which are added as plasticizers and stabilizers. Because of
the chemical properties of chlorine, PVC production tends to be toxic. It is more persistent
when leaching into the environment, fixating in the food and the bodies longer than other
chemicals. There are many different additives used in the making of PVC causing the
recycling of this plastic extremely difficult. If bottles made from PVC enter the wrong section
of the recycling system then chemical additives from PVC can infect and damage other
products which are being processed at that moment.

LDPE: Low-density polyethylene (#4)

Usually used for shrink-wrap film, bag films, and clothing bags. Plastic is not currently
recycled but it can be recycled into new products that require lower quality raw materials.
LDPE plastics are flexible, with high impact strength and relatively low heat resistance. It is
an excellent material where corrosion resistance is an important factor, but solidity, high
temperature and structural strength are not important considerations.

PP: Polypropylene (#5)

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PP is the most flexible of all plastics types. The usage of this plastic is on the rise. PP usually
used for margarine and yoghurt containers, caps for containers, medicine bottles, and car
seats. The process of recycling PP plastic is less efficient than other plastics.

PS: Polystyrene (#6)

Commonly used for disposable plastic silverware, egg cartons, fast food packaging, video
cassettes and televisions. Recycled in some areas and made into the same types of polystyrene
products, insulation, plastic wood and hard plastic products such as rulers and pens.

Other (#7)

This category of plastics includes resins or combinations of plastics. No recycling must be

land filled. #7 plastic is any plastic material that does not fit one of the other categories. This
includes PTFE plastic and ABS plastic. Some of these materials are recyclable, but #7 plastic
is not possible to recycle because there are so many different types.
There are methods by which plastics can be broken back down to a feedstock state for re-
entering the production line in the beginning stages. Unfortunately, recycling plastics proved
difficult. The biggest problem with plastic recycling is that it is difficult to automate the
sorting of plastic waste, and so it is labour-intensive.

2.3. Methods of recycling

Broadly, there are two major ways to recycle plastic mechanical recycling (chop and wash,
where the plastic is washed, ground into powders and melted, and chemical recycling, where
the plastic is broken down into basic components.

2.4. Benefits of Plastic Recycling

After knowing the processes and stages of plastic recycling, it is also important to know its
various benefits. A few of them are:

There’s a ton of Plastic

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- One of the biggest reasons for recycling plastic is its huge quantity. It has been observed
that most of the waste accumulated by the municipal corporation is a plastic waste. Apart
from this, plastic is used for manufacturing various types of goods and items that are
being used on a daily basis. This will not only help increase the production of plastic but
will also take care of the environment.

Conservation of Energy and Natural Resources

- The recycling of plastic helps save a lot of energy and natural resources as these are the
main ingredients required for making virgin plastic. Saving petroleum, water, and other
natural resources help conserve the balance in nature.

Clears Landfill Space

- Plastic waste is accumulated on land that should be used for other purposes. The only way
this plastic waste can be removed from these areas is by recycling it. Also, various
experiments have proven that when another waste material is thrown on the same ground
as plastic waste, it decomposes faster and emits hazardous toxic fumes after a certain
period. These fumes are extremely harmful to the surrounding area as they can cause
different types of lung and skin diseases.

Plastic recycling not only promotes proper utilization of plastic waste but also helps conserve
the environment, making it cleaner and greener.

2.5. National policy on industry

The development policy of the Ethiopian government supports the manufacturing sector,
including the manufacturing of standard product which enables our country to compute in the
global market.
In the African context, our government is a pioneer in providing a strong policy support for
industrialization. In fact, currently there is no country in Africa that extends strong policy
support for manufacturing sector.
Our government has created a conductive policy environment which is likely to yield effective
results in manufacturing industries.

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Chapter Three

3. Market analysis and production capacity

3.1. Market analysis

In recent years, the plastic industries in Ethiopia has increasing fast, however plastic causes a
short and long time environmental problems unless it managed properly. Recycling of waste
plastic is one of the alternative plastic waste management system that generates income
beyond its environmental management. This project has the intention of delivering the size

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reduced plastic product to its local plastic recycling customers as well as to PET
flakes/granules exporters
A market analysis will be made up of a range of factors relevant to the particular situation
under review, but to achieve the main objective of this project would normally include Actual
and potential market size, trends of the market, Customers behavior, Customer segments and
Distribution channels etc.
3.1.1. Market Profitability Analysis
According to Porter (1985), the attractiveness of a market or an industry is measured by the
long-term return on investment of the average firm. This in turn depends on five factors that
influence profitability:
 the intensity of competition
 the existence of potential competitors who will enter if profits are high
 substitute products that will attract customers if prices become high
 the bargaining power of customers
 The bargaining power of suppliers.
So, the profitability of the plastic recycled materials should have to analyze at any period of
time.
3.1.2. Market development strategy

Finding the new waste plastic recycled materials markets does not guarantee long-term or
short-term profitability the project but economies of scale in producing for the market or in
supplying the market will contribute to profitability. However, there may well be barriers to
entry to the market which means that neither short-run nor long-term contributions to overall
profitability are attractive. A logical avenue of growth is to develop new markets by
duplicating the business operation, perhaps with minor adaptive changes.

3.2. Competitor Analysis:-

To know well the perfect competitors of this sector the ‘five forces’ analysis has examined
the overall industry and is a starting point in assessing a company’s competitive position. This
is likely to be a rather broad definition of an industry and contains a number of such
plastic waste recycle companies that would not be direct competitors. Some strategies
competitors that would apply to these projects are;

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3.2.1. Knowing competitors Strategy

In this area of investment the Strategic groups are made up of organizations within the same
industry that are pursuing equivalent strategies, targeting groups of customers that have
similar profiles.

3.2.2. Competitor’s Objectives

Whether the competitor’s current performance is likely to be fulfilling their objectives. If not,
the competitor may initiate to alter of their strategy. How likely the competitor is to commit
further investment to the business.
Financial objectives may indicate this. Investment is more likely from companies that have
objectives which are long-term in nature, such as market share and sales growth, rather than
organizations under pressure to produce short-term profitability. This also reveals potential
trade-offs the competitor may be willing to take. If short-term profitability is the key objective
then the rival is likely to be willing to lose market share in the short term in order to achieve
its profitability targets of this project.
3.2.3. Competitor’s current and past strategies

There are two areas that should be explored in order to establish waste plastic recycle
materials competitor’s current activities:
 Identification of the current markets, or market segments, within which the
competitor currently operates. This will indicate the scope of the business
 Identification of the way the competitor has chosen to compete in those
markets. Is it based on quality of service, brand image or on price? This may
be an indication of whether a low cost or differentiation strategy is being
pursued.
3.2.4. Competitor’s capabilities

An analysis of a competitor’s assets and competencies allows a judgment to be made about

how well equipped they are to address the market, given the dynamics in the industry and the
trends in the external environment. In order to evaluate a competitor’s potential challenge to
an organization a number of areas need to be examined (Lehman and Weiner, 1991). Thus,
knowing competitor’s capabilities as management, Marketing, innovation, production and
financially the projects allows designing its own strategy.

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3.2.5. Evolving markets and strategic windows

Strategic windows arise as a result of market evolution. Markets are not static unchanging
entities but change substantially in nature over time. There are different ways in which a
market can evolve.
3.2.6. Forecasting Market Growth
It is important to check the growth stage of the product market every year. There are three
basic steps we can use to assure the level of market growth
 product levels- product item sales, product form sales, product line
sales, company sales, industry sales, national sales

 space levels- sales to individual customers, sales by territory, area or

country, world sales

 Time levels- short-range, medium-range, long-range sales

3.2.7. Distribution Systems

The growth of low-cost channels results from market evolution and the decline in the value
added by a channel. At the early stages in market development, intermediaries provide high-
level support in helping manufacturers to find customers and in offering help and service to
customers. Later on, customers become more familiar with the product, prices decline and
product reliability improves. A shift then takes place from specialist to higher-volume, low-
added value channels. Eventually mass merchandising channels may be used and even mail
order and discount shops may distribute the product.

3.2.8. Price leadership strategy

This is the position where a particular supplier is generally accepted by other suppliers as the
‘lead’ firm in introducing changes in market prices. There are two principal forms of price
leadership.
The first form of price leadership occurs when the largest firm in terms of market share,
and/or the lowest-cost producer, leads on prices changes and where other firms are prepared to
follow because the price change yields them adequate profits.
The second form, sometimes referred to as barometric price leadership, is where a particular
firm, often a smaller firm, is ‘adopted’ as the price leader, because it has demonstrated itself to
be capable of spotting changes in market conditions. Therefore, this project uses the following
pricing strategies to enable it and to compete with other organizations marginal pricing,
demand-oriented pricing and Competition-oriented pricing

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3.2.9. Advertising strategy

Advertising has catch the customer’s attention and deliver the message in an original way that
will enable the customer to remember and identify with the message and the brand.
3.3. Past supply of recycled plastic

Currently recycled plastic is supplied to the local as well as foreign market by local plastic
recycling company; Information obtained from chemical and construction inputs industry
development institute, plastic and rubber directorate indicates that as of 2018 there are 17
Operational local plastic recyclers (production capacity 50,980ton/year)
Table 3.1. List of local plastic recycling company

No. Production capacity (ton/year)

Name of company PET HDPE PP LDPE
flakes/granules product product product
1 Huyang recycling plc 9,000
2 AISAI chemical fiber plc 1,050
3 Coba imact 8,960
4 Oryx 4,500
5 Aphram tamrat plastic factory 4,500
6 EkT 6,000
6 Jiendangpeng 446
7 Fuyongzhang 400
8 Jivadani matand plastic 600
9 Jeredinmuebles 3,500 3,500
10 Salasar compounding 576
11 National factory for house hold 2,500
12 Inshana 550
13 conplas 120
14 Weidongjia 1,500
15 Abdu mehamed 1,200
16 AIJO 950
17 Deresa pp mat factory 1,128
Sub total 34,010 8,626 7,944 400
Grand total
50,980
Source: Chemical and Construction Inputs Industry Development Directorate Company
Profile (accessed on 2019
3.3.1. Projected demand

The demand for recycled plastic depends on many factors such as, population size,
consumer’s disposable income, price of the product, consumer’s preference, price of substitute
products and other factors. According to world population review 2018 estimation; the
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population of Ethiopia is estimated about 108 million and estimated to increase at annual
growth rate of 2.46%, which has a significant factor for consumption of plastic product.
The demand of recyclable grade virgin plastic raw material is increased from year to year,
according to Ethiopian custom commission import data the recyclable plastic demand
increased from 2014 - 2016 three consecutive years and from 2017-2018 relatively decreased;
this implies, generally the plastic usage demand is increased however due to political issue the
last two years the country industrial growth disturbed.
The potential raw materials for plastic recycling project is related to all type of recyclable
plastic categories imported from abroad and locally produced one. Since the source of all
plastic raw materials and products are from abroad, it is possible to know the potential
quantity of recyclable plastic raw material/products using Ethiopian custom commission
imported data.
The last destination of imported plastic is dumping as scrap/waste and it is low cost material
after service, due to that it is highly demand by recycling company for non-food grade product
manufacturing purpose by mixing with other virgin materials as well as alone itself, for the
last five years the average imported recyclable plastic materials are 98,000,863.04kg/year
(98,000.863ton/year) and all these recyclable plastic type are demanded for recycling to
substitute the high cost virgin material.

Table 3.1. Most common recyclable plastic raw material and products

Types of HS Five years imported quantity of common recyclable plastic raw

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plastic Code material and products (kg/year)

2014 2015 2016 2017 2018 Total
Preform 39233010 9,304,90 11,531,010.7 12,046,278 11,982,568. 753,133.66 45,617,89
7.90
6.82 0 .22 50

PET 39076000 9,094,58 14,575,526.0 15,783,772 19,963,422. 12,850,228.0 72,267,53

9.20 0 .07 37 0 7.64
Resin/
granules

PP 39021000 27,255,1 36,867,109.0 113,096,55 43,203,647. 4,548,313.00 224,970,7

88.31
67.91 0 1.4 00

HDPE 39012000 21,291,6 26,466,627.4 29,504,497 30,105,910. 5,413,864.50 112,782,5

46.25
45.86 0 .56 93

LDPE 39011000 5,983,18 7,258,492.19 9,380,036. 8,551,768.0 3,192,067.50 34,365,54

5.09
0.90 50 0

Total 72,929,4 96,698,765.2 179,811,13 113,807,316 26,757,606.6 490,004,3

.80 6 15.19
90.69 9 5.75
Annual Average 98,000,8
63.04

As it can be seen from Table 3.1, the average annual imported amount of recyclable plastic
materials are 98,000,863.04 ton/year; recyclable plastic material for the period of 2014 to
2018 reveals a trend of annual increasing by 32.6% and 85.9% in each consecutive years, and
from 2017 to 2018 it decreases by 36.7% and 76.5%; however still the import demand of
recyclable plastic material is high.

3.3.2. Projected demand and supply gap analysis

The gap of projected demand and supply of recycled plastic are too much, the annual
estimated demand based on the demand of recyclable virgin material is equivalence to the
demand of to be recycled plastic because of that the mass of imported material is all most
equal to waste plastics after recycled.
Neglecting the time difference of imported raw material service life and currently recycled
waste, the amount of recyclable average annual imported plastic raw material is
98,000.863ton/year; from this demand only 50,980ton/year are supplied by local plastic
recycler company the rest of 47,020.863 ton/year imported plastic waste/scrap that will
substitute the virgin material is dumped/wasted.

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3.4. Production program and plant capacity

By considering the complexity of the raw material collection, production process and market
integration with a time, it takes step to master the operation; the plant will start to produce at
85% of its designed capacity. In the second year it will attain 100% of the full production
capacity. The production program is shown in Table 3.2 below:

Table 3.2. Annual production program of the recycled/size reduced plastic project

Capacity Utilization (%)

Product type st
1 phase 2nd phase
85% 100%
PET Flakes 719.1 846
Recycled/size reduced HDPE 1,797.75 2,115
plastic Production
(ton/year) PP 1438.2 1692
LDPE 479.4 564
Total 4,434.45 5,217.00

3.5. SWOT analysis

SWOT Analysis (Waste plastic recycling subsector)

Strength Weakness
 The availablity of cheap laborer and easily
trainable professionals
 Creation of conducive environment for
Investment
 Inavailbility of machinery
 New Entrepreneurs (local and foreign) are
manufacturer locally
attracted by the sector
 Limited number of skilled
 Characterized as profitable sub-sector
professionals, technicians)
 The availability of government incentives
 Weak plastic waste collection
package for the sector
trend
 Low cost with optimum quality relative to
virgin raw materials
 It indirectly benefit for waste management
system

Opportunity Threat
 Characterized by private sector led  Threat of losing market due to

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industry
 Contribute to the nation’s economy by
reduce import of virgin raw material for the competition
 Increasing electricity power
outflow of foreign exchange
supply interruption
 Less Utility (Hydropower Energy and
 Increasing non trade
Water) Tariffs
 Government policies and incentives for environment barriers

Industry
 The availability foreign market demand

- The proposed business has a threat and weakness in terms of losing its market,
advance technology, and new entrance. However, the proposed business has a monopoly
power to capture most of the market share in the country as well as it will contribute to
the nation economy.
- Mitigation Mechanisms for Threats:-In order to penetrate the market and remain
competitive, the owner would develop good marketing strategy like production of
optimum quality product and avail it at competitive price. Promotion is also the main
weapon to introduce the products to consumers

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Chapter Four

4. Key success and risk factors

4.1. Key Success Factors

4.1.1. Macro Level Success Factors

The country has registered a continuous economic growth for the past few consecutive years.
Meaningful economic growth is also expected for the coming years indicating the right track
the country is following to achieve middle income Ethiopia.
 There is stable and conducive economic environment for investment.
 The government has availed different incentive systems to attract investment in
the country. Tax exemption in importation of investment goods, tax holidays for
the first few operational years, availing land at reasonable price or free of charge
in some regional governments, established bonded manufacturing
warehouse systems, export credit guarantee scheme, voucher systems, etc.
 There is improvement in basic infrastructural facility (i.e. road network,
telecommunications and electricity facility) in the country.
 The government has availed a credit facility to be financed to investment projects with
particular emphasis /priority/ to export oriented and manufacturing projects. This
project could take advantage of it as it is the government's priority area.
 There is urbanization and population increases in the country and consumption of
plastic product is increased from time to time.
 As the; population growth increases which leads to the consumption of plastic product
will be increased, which affects the importing capability virgin raw material, is one
of the most important factors that drive government to encourage local products.

4.1.2. Sector Specific Success Factors

 The manufacturing sector is one of the priority areas in the government

industrial development strategy and it has enjoyed every advantage that is rendered for
the priority sectors.
 The environmental protection issue is one of the most critical things for the continuity
of generation and nature, so that such sector is encouraged by the government in
Environmtal management contribution beyond economic benefit

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4.2. Risk factors

4.2.1. Major risk factors

Although Ethiopia presents many opportunities for investors, it suffers from some
disadvantages.

Some of these are:

 Increase in the price of some of the imported chemicals.

 A lack of marketing, as most small and medium sized companies have no
marketing organizations of their own and are dependent on third parties for
selling in practice, most of the companies compete for production orders
offered for manufacturing capacities at low prices.
 Though the associated wages are low, labor productivity is also very low which
affects the competitiveness of industries. The causes of the low labor productivity
levels are a combination of several factors-including poor skills training, limited
motivation, inadequate workplace engineering, basic technologies employed may be
semi-obsolete.

4.2.2. Firm level risk

o Increasing price of imported chemicals

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Chapter Five

5. Materials and Inputs

5.1. Raw materials

The principal raw material and chemicals required for the production of waste recycled/size
reduced plastic are listed below:-
Table 5.1. The principal raw material type used for waste recycled/size reduced plastic
Unit Product Total
Produ Raw Total
cost unit Product
No. ct material/c Cost( in Source
(birr/kg price (in price
type hemicals birr)
) birr/kg) (birr)
PET product
1 8 5,752,800 13.5 9,707,850 Local
waste/scrap
LDPE
2 product 5 7,191,000 9 4,314,600 Local
waste/scrap
HDPE
3 Recycle product 22 45,135,460 29 52,134,750 Local
d/size waste/scrap
reduced
plastic PP product
4 waste/scrap 15 21,573,000 22 31,640,400 Local

NaOH (for 38
5 PET) 218,606.40 - -

HCl (for 25
6 PET) 53,932.50 - -

Total 79,924,799 - 97,797,600 -

5.2. Inputs

o Water: - water involvement in two steps of manufacturing process, used for cleaning.
The plant expected to use about 1m3 per ton of flakes produced
o Electricity: - in this process electric power play a key role, shredding machine force
consume significant amount of electric power.
Table 5.1. The principal raw material type used for waste recycled/size reduced plastic

s/n Description Annual consumption Unit Unit cost Cost(birr)

1 Electricity 1,500,000 Kwh 0.57 855,000

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2 Water 4,434.45 m3 - -

Total 855,000

Chapter Six

6. Technology and Engineering

6.1. Technology

6.1.1. Waste plastic recycling/size reducing process

The common plastic recycling processes involves collecting, sorting, shredding, washing,
melting, and pelletizing; however this project aims to proceed only part of the following steps:
Purchasing of the collected plastic waste material and store in temporary storage open area
and then, sorting plastics automatically or with a manual sort to make sure all the
contaminants are removed from the plastic waste stream. After the plastic is sorted, cleaned,
dried and loading of waste plastic in to large hopper, shredding of plastics into flakes and
secondary washing will be followed. Drying the size reduced flakes in spin drier and collected
in jumbo bag, finally the product is ready to deliver for customers. The actual particular
processes vary based on plastic resin or type of plastic product.

6.1.2. The need for separation of plastics

The reasons that thermoplastic and thermosets need sorting from each other will hopefully be
quite clear since thermosets cannot be re-melted to reprocess them. However, individual
thermoplastics families i.e. PP, PET, PE also need to be separated from each other before they
can be reprocessed. If all the various thermo- plastics were mixed together and recycled the
properties of the new mix would not be very good. This is because of the chemical
composition of polymers. They are all different and do not mix well with each other. Instead
of getting a single polymer mixture of one single set of properties, the mixture would consist
of lots of small discrete areas of different polymers with no bonds between them. Therefore,
not only is separation necessary for good properties, single polymers mixtures can also
command a higher price in the market place and be used alone or in blends with new
materials.

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6.2. Engineering
6.2.1. Machinery and equipment
The total cost of machinery and equipment is estimated at Birr 1,098,600. The list of major
machinery and equipment required for the envisaged waste plastic recycling/size reducing
project is given in Table 6.1.

Table 6.1. List of machinery, equipment and cost

S/ Description Quantity Unit Total price

N price(Birr) (Birr)
1 Cleaning 2set 285,600
2 Belt conveyer 2set 367,200
3 Spiral feeder 2set 476,000
2,541,680
4 Hopper 1set 274,400
5 Shredding machine 1set 431,200
6 Friction washing machine 1set 285,600
7 Dehydrator 1set 211,680
8 Automatic sharpening machine 1set 210,000

6.2.2. Land, building and civil works

The total required area of land for the envisaged plant is about 2,150m 2, out of which 950 m2
will be built-up area. The land proposed to get from government accordingly youth job
opportunity creation program policy of Ethiopia, the land will be free from payment for five
years
Table 6.2. Factory-Area Summary Table

No. Description of space Area in m2

1 Production hall 500

2 Raw material storage open area 1,100
3 Finished product store 250
4 Office block 150
5 Guard house 50
6 Car parking 100
Grand Total 2,150

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Chapter Seven

7. Manpower requiremente and Organizational structure

7.1. Manpower Requirement

The plant requires 45 permanent and laborers’. Details of job position are indicated in Table
7.1
Table 7.1. Manpower requirement and annual labor cost

s/n Position Required No. of Salary

Manpower
1 General manager 1
2 Executive secretary 1
No payment will be
3 Production head 1
Production supervisor 3 applied, rather the
4 Machine operator 24 manpower is the
6 Financial manager 1
9 Accountant 1 owner of the
10 Quality inspection head 1 company, so that
13 Quality control expert 3
they will dived and
15 Human resource head 1
16 HR expert 1 earn net profit after
17 Marketing and sales head 1
the end of the
18 Purchasing officer 2
19 Sales officer 1 production year
20 Driver 1
21 Guard 2
Total 45

7.1.1. Training requirement

Technical staffs will be given 15 to 21 days training by local machine supplier experts.

7.2. Organizational structure

General Manager
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Finance and Production section

Commerce
administration
A
d
m
i Marketing Quality control
n section Section
i Audit
s
t
r
a
t
i
o
n Delivery

Finance

Cost
department Accounting
department

Figure 7.1 Organizational structure of the company

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Chapter Eight

8. Socio-economic benefits
As our country is among the world fastest growing countries, development and establishment
of such manufacturing industries are very important & unquestionably. It is possible to state
enormous reasons. Among, the followings are some of it:
Employment Opportunity Creation: The project is expected to create employments
opportunity for about 45 skilled, semi-skilled and large numbers of daily workers,
Technology and know-how transfer: The waste plastic recycling/size reducing project can
transfer new technology and know-how to the technical staffs that will hired in the
factory.
Generate Revenue for Government: The project will generate substantial revenue to the
government in the form of taxes.
Substitution Effect: Since the total import of recyclable plastic raw materials to the
country is increasing through time, it will contribute its own substituting quantity for
import and saves foreign currency incurred for importing the virgin raw materials.

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Chapter Nine

9. Environmental impact identification

Plastic waste impact on our environment can be divided into two parts: The first part is visible
pollution: abandoned plastic products can spoil the face of city and sights. In big cities, travel
industry sites and near water bodies, a lot of plastic waste is abandoned by people after use.
The second part is potential risk: plastic waste produces long term and deeper environmental
problem for society in nature, because plastic can own a steady chemical structure which
cannot be destroyed by microbes and is non-biodegradable.
Plastic waste doesn’t only result in environment and visual pollution, but it also affects crop
farms. It would take more than 100 years without degradation. These plastic wastes are held
up in soil and they destroy the breathing ability of it and reduce the ability of to keep the
water. The heavy metals and toxic materials in plastic additives can scatter and permeate to
anywhere. These toxic materials impact the quality of soil nutrient and water bodies; results in
farm land degradation.
Generally plastic waste is reducing production capacity of the country and catastrophe for our
world, Based on above senses, plastic waste may pose long-term problems as a pollution
source if we don’t use our awareness and put them into the recycle system.
However our company is highly concerned about environmental issue and manufacturing an
environmentally sound product by promoting green economy since we recycle the potential
environmental pollutant wastes of plastic products dumped to streets/ landfills all over Addis
Ababa and nearby towns.

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Chapter Ten

10. Financial analysis

The financial analysis of plastic recycling/size reducing project is based on the data presented
in the previous point and the following assumptions:-
Table 10.1. Financial analysis of the proposed project

Construction period 1 year

Source of finance 100% debt from government
Accounts receivable 30 days
working day 282 day
Tax holiday 1year
Loan interest 10%
Finished products 30 days
Cash in hands 5 days
Accounts payable 30 days

No. Cost items Local cost (in birr)

1 Land -
3 Plant machinery and equipment 2,541,680
4 Vehicles 500,000
5 Fixed capital Investment
3,041,680
6 Working capital
337,964.44
Total capital investment 3,379,644.44

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b. Depreciation expenses

Depreciation is calculated using straight line method. Vehicle, machinery and equipment
are expected to be replaced every 10 years but building is 20 years.
Table 10.3 Summary of depreciation using straight line method

Depreciation item Life time Depreciatio Cost (birr) Value (birr)

n Rate (%)
Vehicles 10 years 12.5 500,000 62,500
Equipment and machineries 10 years 12.5 2,541,680 317,710
Total 380,210.00

c. Salvage value
By considering the existing fixed asset market value and by considering the salvage values of
existing chemical plants situation the salvage value is estimated in the following manner;
 Equipment and machinery ……………...20 %
 Motor vehicle ……………………………20 %
The above values assumed to be realized at the end of their respective service periods.
Table 10.4. Summary of salvage value
Depreciable item rate Cost (birr) Value (birr)
Vehicles 20 % 500,000 100,000
Equipment and machineries 20 % 2,541,680 508,336
Total 608,336

d. Total production cost

The annual production cost at full production capacity is estimated at birr 96,797,100 for
detail production cost see table 10.3.
Table 10.5. Annual production cost at full capacity (birr)
Total product List of items Cost (birr) at 1st Cost (birr) at
cost Items phase 2nd phase
Raw materials and inputs 79,924,799 94,563,695.12
Manufacturing Utilities 855,000 855,000
/ Maintenance and repair 65,916 65,916
Operating cost Depreciation (using straight line) 380,210 380,210
Salvage value 608,336 608,336
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Administration 9,887.4 9,887.4

expense Distribution and marketing expense 9,887.4 9,887.4
General
Financing(interest) 337,964.444 304,167.9996

82,192,000 96,797,100

e. Loan repayment schedule

As shown in the table below the loan taken from government/bank will be paid in 10 years
with the total interest of 1,858,804.44Birr.

Table 10.6 Loan repayment schedule

Year borrowed Principal Interest (10%) Total annual Outstanding
Payment payment in Birr. balance
0 - - - 3,379,644.44
End of year 1 337,964.444 337,964.444 675,928.89 3,041,679.996
End of year 2 337,964.444 304,167.9996 642,132.44 2,703,715.552
End of year 3 337,964.444 270,371.5552 608,336.00 2,365,751.108
End of year 4 337,964.444 236,575.1108 574,539.55 2,027,786.664
End of year 5 337,964.444 202,778.6664 540,743.11 1,689,822.22
End of year 6 337,964.444 168,982.222 506,946.67 1,351,857.776
End of year 7 337,964.444 135,185.7776 473,150.22 1,013,893.332
End of year 8 337,964.444 101,389.3332 439,353.78 675,928.888
End of year 9 337,964.444 67,592.8888 405,557.33 337,964.444
End of year 10 337,964.444 33,796.4444 371,760.89 0

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10.1. Profitability Evaluation

Table 10.7 Annual revenue and price

No. Product Product unit price Total Product price (birr) Total Product price
(in birr/kg) at 1st phase (birr) at 2nd phase
1 RHDPE 29 52,134,750 61,335,000
2 RPET 13.5 9,707,850 11,421,000
3 RLDPE 9 4,314,600 5,076,000
4 RPP 22 31,640,400 37,224,000
Total 97,797,600 115,056,000

Based on the projected profit and loss statement, the project will generate a profit throughout
its life time. With annual gross revenue of birr 97,797,600 at 85% production capacity and at
full capacity operation gives a gross revenue of 115,056,000, the profit will be continued the
same value at the end of 10 years the average net profit will be 5,562,967.87 the financial
viability of the project will be calculated as follows:
Table 10.8 profit /loss calculation at full capacity

Sr. Description Value in birr (85%) Value in birr (100%)

No
1 Annual revenue 97,797,600 115,056,000
2 VAT /15%) 14,669,640 17,258,400
3 Net- revenue 83,127,960 97,797,600
4 Annual production cost 82,192,000 96,797,100
5 Gross profit 935,960 1,000,500
6 Profit tax (30%) 280,788 300,150
Net profit (birr) 655,172 700,350
Average annual net profit 695,832.2

a. Break even analysis

Waste plastic recycling project has calculated that it has fixed costs that consist of its
depreciation of its assets. Those fixed costs add up to 3,041,680 birr. Their product is
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recycled/size reduced plastic. Their variable costs associated with producing the recycled/size
reduced plastic are raw material, and sales commissions. Average variable costs of waste
plastic have been calculated to be 12.5 birr/kg. The recycled plastic/size reduced is priced at
18.375 birr/kg.
Given this information, we can calculate the breakeven point for Waste plastic recycling
project product, using our formula:
3,041,680 birr ÷ (18.375birr/kg – 12.5birr/kg) = 517,732.77 kg unit
What this answer means is that if Waste plastic recycling project is produce recycled/size
reduced product; it has to produce and sell 517,732.77 kg units recycled plastic products in
order to cover their total expenses, fixed and variable. At this level of sales, they will make no
profit but will just break even.

b. Method of rate of return on initial investment

Average annual profit for 10 years = 695,832.2

Minimum acceptable rate of return (m ar) for new capacity with established corporate with low
levels of risk =12%
The annual average rate of return on investment (ROI)
average annual profit 695,832.2 birr
ROI = = x 100 = 20.59%
total capital investment 3,379,644.44 birr
Therefore,
ROI ≥ M ar  12 %  , 20.59%  12 % , so the project is
feasible

c. Method of minimum payback period with interest charge

Pay out period, or pay out time, is defined as the minimum length of time theoretically
necessary to recover the original capital investment in the form of cash flow to the project
based on total income minus all costs except depreciation. The pay out or payback period, also
called pay-off period is defined as the period required recovering the original investment
outlay through the accumulated net cash flows earned by the project. Generally, for this
method, original capital investment means only the original, depreciable and fixed-capital
investment.
Accordingly, based on the projected cash flows it is estimated that the projects initial
investment will return with in 4.55years.
Pay out period takes the time value of money into consideration and is designated as pay-out
period including interest. With this method, an appropriate interest rate is chosen representing
the minimum acceptable rate of return. The annual cash flows to the project during the
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estimated life are discounted at the designated interest rate to permit computation of an
average annual figure for profit plus depreciation which reflects the time value of money
Thus,
Payback period (with interest charge)
=

depreciable
 capital investment interest on total capital investment during estimated service
life average
profit

ave year 
3,041,680  1,858,804.44 4,900,484.44 = 4.55
= =
695,832.2380,210 1,076,042.20
5 years

d. Gross profit Margin(GPM);

Profit margin gauges the degree to which a company or a business activity makes money. It
represents what percentage of sales has turned into profits.

GPM= Gross profit/ Sales Revenue * 100%

No. Product Project phase

st
1 phase 2nd phase

1 Total sales revenue (birr 97,797,600 115,056,000

2 Gross profit (birr) 935,960 1,000,500
Gross profit margin (GPM) 0.95% 0.87%
Average Gross profit margin (GPM 0.878%

e. profitability Index(PI);

Profitability Index= PV of cash flow/initial investment

Since, PI>1, the project is accepted
PI<1, the project will be rejected
PI=1, the project will neither rejected nor accepted
Here, PV of cash flow = 7,380,777.6
Initial investment = 3,379,644.44

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Profitability Index (PI) = 2.2 (the project is accepted!!!)

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f. Projected cash flow statement

Description Project year

0 1 2 3 4 5 6 7 8 9 10
Cash inflows
Bank loan 3,379,644

Net profit - 655,172 700,350 700,350 700,350 700,350 700,350 700,350 700,350 700,350 700,350

Total - 380,210 380,210 380,210 380,210 380,210 380,210 380,210 380,210 380,210 380,210

depriciation
Total cash inflows3,379,644 1,035,382 1,080,560 1,080,560 1,080,560 1,080,560 1,080,560 1,080,560 1,080,560 1,080,560 1,080,560

Cash outflow
Fixed asset 3,041,680

Working 337,964.44

capital
Loan - 337,964.444 337,964.444 337,964.444 337,964.444 337,964.444 337,964.444 337,964.444 337,964.444 337,964.444 337,964.444

repayment
Total cash 3,379,644 337,964.444 337,964.444 337,964.444 337,964.444 337,964.444 337,964.444 337,964.444 337,964.444 337,964.444 337,964.444

outflows
Net cash flow - 697,417.56 742,595.56 742,595.56 742,595.56 742,595.56 742,595.56 742,595.56 742,595.56 742,595.56 742,595.56

Cumlative 697,417.56 1,440,013.12 2,182,608.68 2,925,204.24 3,667,799.80 4,410,395.36 5,152,990.92 5,895,586.4 6,638,182.04 7,380,777.60
8
cash flow

g. Net present Value

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NPV(p) = CF(0) + CF(1)/(1 + i)t + CF(2)/(1 + i)t + CF(3)/(1 + i)t + CF(4)/(1 + i)t +…. CF(10)/(1 + i)t
Where:
i = firm's cost of capital
t = the year in which the cash flow is received
CF (0) = initial investment

Years Investment Net cash flow 15% discount factor Discounted amount
0 3,379,644.44
1 697,417.56 0.87 606,753.28
2 742,595.56 0.756 561,402.24
3 742,595.56 0.658 488,627.88
4 742,595.56 0.572 424,764.66
5 742,595.56 0.497 369,069.99
6 742,595.56 0.432 320,801.28
7 742,595.56 0.376 279,215.93
8 742,595.56 0.327 242,828.75
9 742,595.56 0.284 210,897.14
10 742,595.56 0.247 183,421.10
3,687,782.25
NPV 308,137.81

h. Initial Rate of Return (IRR)

The initial rate of return is the annual effective compound return rate that can be earned on invested capital, i.e. the yield on investment. A project is
a good 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 project is computed to be 21.24% indicating the project is acceptable.
The IRR formula is as follows:

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Year Cash flow (1 + IRR)n Present value

0 3,379,644.44 3,379,644.44

1 697,417.56 1.1824 589,832.17

2 742,595.56 1.398069 542,040.548

3 742,595.56 1.6530776 460,102.548

4 742,595.56 1.954599 390,804.728

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5 742,595.56 2.311117 332,197.098

6 742,595.56 2.732665 282,630.278

7 742,595.56 3.2311 240,710.008

8 742,595.56 3.8204 205,258.918

9 742,595.56 4.517308 175,271.488

10 742,595.56 5.3412 160,796.654

NPV 0
IRR 21.24%

37

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 lOMoARcPSD|43893812

Downloaded by Yetnayet Zerfu ([email protected])