II. Background of the Company Habesha Cement is a Share Company incorporated as per the laws of Ethiopia and it was initially founded by individuals who have long years of experience in the cement industry and businesspersons who have the insight to run a big and complex business entity. It is now recently announced that the company has finalized a 1. 52 Billion birr loan agreement with Development bank of Ethiopia to cover the 70% cost of the project. The company has already secured 31. 6 acres of land around Holeta town of Oromia regional state and makes it ready for constructing the factory.
It has selected North Holding Industries which is a Chinese company for the construction. The two companies have made an agreement to finalize the construction within 22 months. The total cost of the project including its construction is expected to reach 110 USD. The factory is expected to produce 1. 4 million tons of cement per annum. The initial founders decided to collect the equity portion of the project cost and floated shares to the public for subscription and they manage to raise more than 550 million Birr.
The first Extraordinary Shareholders meeting was convened and elected the following 12 Directors to run the company. • Gizaw T/Mariam (Engineer)- Chairman of the Board of Directors • Abebe Dinku (Professor)- Vice Chairman of the Board of Directors • Mesfin Abi (Engineer)- Director and Chief Executive Officer • Amha Ketsela (Captain) • Ato Eskinder Desta • Ato Mekonnen Buta • Nigru Mulualem (Engineer) • Ato Tamiru Wondimagegnehu • Terefe Mengesha (Engineer) • Tsedeqe Yihune (Engineer) • United Insurance Share Co. Represented by Ato Eyesuswork Zafu • Yetebaberut Biheraw Petroleum Share Co.
Represented by At Tsega Asamere Profiles of the Directors are as briefly outlined below: 1)Engineer Gizaw T/Mariam Engineer Gizaw T/Mariam started working for Dire Dawa Cement Factory after graduation, which was administered by the then Ethiopian Cement Corporation. He worked for many of the cement factories that were under the corporation assuming many high level managerial positions. After the re-organization of government owned factories following the 1990 change of government, he became General Manager of Mugher cement factory and managed the company for more than 8 years.
Under his management, Mugher cement registered rapid growth both in cement production and operating profit. In 2001, he was promoted to the position of Director General of Public Enterprises Supervising Authority and worked for more than a year. In addition to his professional work, he was also active in other aspects of social activities. He served as President of the Ethiopian Football Federation and the Ethiopian Olympics Committee for more than six years. Now he has established with his colleagues a consultancy firm which provide advice and consultancy service for the cement and related industries.
Eng. Gizaw has earned M. Sc. Degree in Mechanical Engineering. 2)Professor Abebe Dinku (PhD); Professor Abebe Dinku is a lecturer at Addis Ababa University, Faculty of Technology, Department of Civil Engineering specializing in cement and concrete structure design. Throughout his long teaching career, he assumed many responsibilities. He worked as Dean of the Faculty, Head of the Civil Engineering Department, among other responsibilities. He wrote many research papers on cement and concrete and he is a leading figure in the field.
He is member of lots of Academic and Professional Associations. 3) Engineer Mesfin Abi; Engineer Mesfin Abi worked for Mugher Cement Enterprise for more than 12 years, starting his career in the industry as practicing engineer and later on assumed different managerial positions. He was manager of Addis Ababa Plant and technical manager of Mugher Cement. While he was at Mugher cement, he was actively involved in the rehabilitation work of Dire Dawa and Addis Ababa Cement plants.
After leaving Mugher Cement, he established his own company, which is actively working as local representative of leading foreign engineering companies, fabricator of different parts for industrial projects, and locating good suppliers for industrial customers. He was actively engaged in the fabrication of parts, inspection and supervision of the erection work of the Dire Dawa Cement Plant owned by National Cements. Co. Ato Mesfin with his colleagues established and become manager of a consulting firm that is actively working on appraisal and management of industrial projects for the last two and a half years.
Ato Mesfin has earned B. Sc. degree in Mechanical Engineering from Addis Ababa University. 3)Captain Amha Ketsela Captain Amha is aircraft capitain by profession. He worked for Ethiopian Air Lines for more than 40 years. In addition to his flying career, he has very good managerial skill and training. He assumed many managerial positions within the airliner. 5) Ato Eskinder Desta Ato Eskinder Desta has served at various governmental enterprises, private institutions and international companies.
His professional experiences include working for Construction and Business Bank as credit analyst, the Ethiopian Airlines as sales executive and Marubeni Corporation, an international trading company with headquarters in Tokyo, Japan, as a senior manager. Ato Eskinder also owns and runs his own companies. Ato Eskinder played a significant role in the establishment of Zemen Bank S. Co. and he is one of the Board Directors of the bank. Ato Eskinder has earned his B. A Degree in Management and Public Administration and Masters Degree in Business Administration from Addis Abba University. 6) Ato Mekonnen Buta
Ato Mekonnen Buta, has worked for many multinational companies such as Marubeni of Japan. He has rich experience of the Ethiopian business environment and at the moment he has founded his own companies and is managing them. His business acumen makes him a very successful business person. 7) Engineer Nigru Mulualem Ato Nigru started working for Bahir Dar Edible Oil mill in 1990 and later on assumed the position of Production and technical manager. After leaving the oil mill, he joined the Ethiopian Pharmaceutical company (EPHARM) as technical manager and he later on joined the Nazareth Tractor Assembly Plant as Commercial manager.
In 2000, he joined Hagbes PLC as sales manager for heavy machinery and few years later, he was promoted to the position of Director of Operations of the entire group. Through the years, he, together with his colleagues, transformed the company into one of the fast growing and best managed private companies. In his quest to meet the requirements of a big trading company, he travels a lot and mastered the skill of negotiating with multi-national companies. Ato Nigru Mulualem has earned B. Sc. Degree in Mechanical Engineering from Addis Ababa University. 8) Ato Tamiru Wondimagegnehu
Ato Tamiru Wondimagegnehu has got a distinguished professional career. He served in the Ethiopian Legal System in many capacities. He started as a judge in the High Court and went all the way up to became Vice President of the Supreme Court of Ethiopia. In 1992, he started his own legal firm and became a practicing lawyer. In addition to this he is active member of many associations and he became President of the Ethiopian Bar Association. He teaches law in many institutions including Addis Ababa University and has published many papers on topical issues. Ato Tamru has earned LLM degree in International Law from University of Manchester, UK. ) Engineer Terefe Mengesha Engineer Terefe Mengesha has long years of professional experience. He worked for many prominent companies such as Reis Engineering and Synthec Ethiopia. Later on he joined MIDROC Ethiopia Technology group and managed Kombolcha Steel Products Industry, KOSPI. He is now promoted to the position of Vice President of the Group and oversees four business units under the group. Engineer Terefe Mengesha has earned B. Sc. Degree in Mechanical Engineering from Addis Ababa University. 10) Engineer Tsedeqe Yihune Engineer Tsedeqe Yihune has worked for many companies before he started his own construction firm.
At the moment he is founder, owner and Managing Director of Flintstone Engineering. The company is a GC 1 construction and Real Estate firm. In addition to his day to day activities, Engineer Tsedeqe is member of many professional associations. He is Vice President of the Ethiopians Contractors Association. Engineer Tsedeqe has earned M. Sc. Degree in Civil Engineering from UK. 11) United Insurance Share Co. United Insurance is one of the successful Insurance companies in the country. Its representative and Managing Director, Ato Eyesuswork Zafu is a distinguished and accomplished businessperson and leader. 2) Yetebaberut Biherawi Petroleum Share Co. (YBP) YBP, is one of the only two local petroleum companies. It was founded by local businesspersons. Its representative Ato Tsega Asamer, played active role in the formation of YBP and he the Chairman of the Board of Directors of YBP. He is a prominent businessman and run his own companies in addition to his responsibilities in YBP. The shareholders of Habesha Cement are more than 15,000. This gives the company the ability to raise capital easily whenever the need arises to do so.
The Directors have rich experience in the sector and the Ethiopian Business Environment and can lead the company successfully. III. Technical Realities Ordinary Portland Cement (OPC) and Port Land Pozzolana Cement (PPC), are the two major cement types produced in Ethiopia. However, there are a number of cement types for different uses and have potential markets in Ethiopia. Some of the important cement types are outlined below: • Ordinary Portland cement- It is rapid hardening cement which is achieved simply by finer grinding of good quality clinker with small amount of Gypsum of around 4%; Portland Pozzolana Cement (PPC) – This cement type is well established on the Ethiopian market. It is obtained by adding up to 20% pumice to clinker and grinding it to the finest level; • Masonry Cement- Masonry cement is made by grinding ordinary Portland cement with 25%-30% limestone together with air entraining agent. Good market opportunities exist for this product in Ethiopia, especially for the low income population both in the urban and rural parts of the country; and • Other Cement – There are ranges of other cement which only have very specialized or limited market.
Oil well cement is made to very stringent specifications. High alumina cements use special manufacturing techniques to produce cement of exceptionally high early strength. Portland blast- furnace slag cement is made by inter- grinding granulated blast furnace slag (BFS) with clinker (in high ratios) or by post blending the cement with ground BFS. a) Plant Capacity The proposed capacity of the Habesha Cement project shall be 3,000 tones per day clinker production line with a total annual production capacity of 1,400,000 tons of cement. b) Production Program
The general plan or the production program has been laid out using the following main assumptions: • A 3010 tons per day clinker production; • 300 working days per year; • A 100% Portland Pozzolana Cement (PPC) unless there comes special request for ordinary Portland cement (OPC) from specific customers including export demand and thus to be varied in accordance with the requirement of the market; • A PPC proportion of 67% clinker, 28% pumice, 5% gypsum; and • An estimated capacity utilization of 85 % in the 1st Year, 95 % in the 2nd year and 100 % in the 3rd year and afterwards.
C) Raw Material availability To establish a cement plant the existence of good quality and minable Raw Materials is one of the main determining factors. Habesha Cement Share Company, has found limestone and gypsum deposits in Oromia Regional State, West Shoa Zone, Meta Robi Wereda, in Goro Mako locality, clay close to Holeta town and pumice in the same state, East Shoa Zone, Ada’a Wereda, in Dire locality. The feasibility study of the proposed company has revealed that Limestone, clay, gypsum, sand and pumice in the licensed areas in sufficient quantity and quality for the production of 1. – 1. 4 million tons of cement annually. IV. Market Realities The success of any venture depends on the ability to get the right product into the right marketplace at the right time and the right price. The marketing world is littered with failed products that could have been successful if the formula for success had been different. Effective market research is the most important activity an entrepreneur can undertake to reduce risk. 4. 1 The Ethiopian Cement Market Cement is by far the most important construction material manufactured in
Ethiopia accounting for over 85% of the gross value of production of none metallic building materials. The first cement plant established in Ethiopia was Dire Dawa Cement and Lime factory. In response to the increase in demand for cement, the Addis Ababa and Massawa (Eritrea then Part of Ethiopia) cement factories were established in 1964 and 1965, respectively with 70. 000 tons of clinker per year each. Due to slow development of the construction sector (Urban housing, roads, Dams Industrial and commercial buildings) local cement supply stagnated for many years.
In 1974 the feudal regime was over thrown by the military socialist regime which was followed by external aggression of Somalia and internal civil unrest resulting in heavy disruption of economic infrastructure. After the end of the war, the reconstruction of the dilapidated infrastructure required huge quantity of cement which the existing industries were unable to meet. The country resorted to import large quantity of cement as a temporary solution. Soon the Mugher Cement factory was initiated and became operational in 1984 almost after two decades.
As the demand for cement continued, the Mugher Cement factory had doubled its capacity to 600,000 tpa in 1990. The above development indicates the slow growth of cement industry in Ethiopia corresponding to its economic development. The Dire Dawa Cement and Lime factory was closed due to old age and the Addis Ababa Cement Factory stopped production of clinker due to its environmental impact on its neighborhood and the Massawa plant is no longer part of Ethiopia. The Mugher Cement Factory was the only supplier of cement until the Messebo cement was commissioned in Mekelle in Tigray Region some 770 km north of Addis Ababa, in May 2000.
The Messebo cement has a nominal capacity of 600,000tpa. There had been slow growth in demand and supply and in some regions particularly in the eastern regions supply was not adequate and as a result cement price was excessive. As a result major rehabilitation was made for the Dire Dawa cement factory and its capacity was scaled up to 150,000 tones. Major demand shift is being observed in cement demand since 2006. In addition the emergence of large number of real estate developers including high rise office and other commercial buildings, government investment in oads and dam construction shifted the demand curve of cement with unmatched supply. This resulted in very high cement prices. As cement importing is highly regulated by the government, the rise in price has attracted many investors. Supply however cannot be immediate because it takes an average of (3-5) years to implement a cement project from idea till production 4. 2 The Current Supply of Cement Cement is a construction material with virtually no substitute, and is used widely for all construction work. The Ethiopian market for cement is being served through local production and import.
Until recently the local cement producers were three namely, Mugher, Messebo and Dire Dawa cement factories. Import of cement is highly restricted by the government and is only allowed temporarily and conditionally during shortages of cement to stabilize prices. 4. 2. 1 Domestic Production (a) Existing Production Capacity Dire Dawa Cement and Lime Factory which is located in the town of Dire Dawa, 515Km south east of Addis Ababa has a production capacity of 150,000 tones per annum. It produces both Portland cement and hydrated lime.
Initially the capacity of the plant was 36,000 tones of Portland cement per annum but after a recent rehabilitation its capacity has been raised to 150,000 tons per annum. Mugher Cement Factory located 105 Km west of Addis Ababa has a maximum capacity of 850,000 tons per annum. It was the major cement producer in the country until the Messebo Cement plant which is located in Mekelle, Tigray Regional State become operation in May 2000. Messebo has a nominal capacity of 900,000 tons per annum. The newly established cement factories i. e. C. G.
C Overseas Construction Ethiopia, Derba MEDROC and Jema Cement PLC have an annual capacity of 100,000 tones, 90,000 tones and 120,000 tons per annum. In total, the existing annual production capacity of local cement factories is 2,160,000 tones. Production Capacity of the Existing Cement Plants NoPlant NameMax CapacityCurrent Capacity PPCOPCTotal 1Mugher Cement900,000775,00089,000864,000 2Messebo Cement900,000845,000845,000 3National Cement300,000300,000300,000 4Jemma Cement240,000200,000200,000 5Abyssinia Cement150,000100,000100,000 6Midroc Dejen 90,000 90,000 90,000 7Red Fox Int’l150,000150,000150,000 CGOCC cement150,000100,000100,000 2,880,0002,320,000329,0002,649,000 (b) Trends in Domestic Production of Cement Cement production picked up since 2000 partly owning to additional capacity created by Messebo cement and partly due to increased capacity utilization of the existing plants. However the growing production was not able to catch up with the shifting demand as a result of several drivers of cement consumption. Thus, after several years of stagnation the Cement industry has started to attract many local and foreign investors in response to the huge demand generated by the buoyant construction sector. . 2. 2 Import of Cement In addition to domestic production, the country imports some amount of cement from Europe, Middle east and Asian Countries. In 2006, local companies were permitted to import cement through Franco valuate to satisfy the growing cement demand amid an unprecedented growth in building constructions. During the period 2006 – 2009 the annual average import has been, 69,954 tones of clinker, 214,783 tones of white Portland cement, 464,178 tons of Portland cement, 7. 16 tones of Aluminous cement and 511 tons of other cement.
Over the past four years the country was importing more than 749,433 tons of different kinds of cement per year. 4. 3 Apparent Consumption Trend in the apparent consumption of cement which is composed of domestic production plus import minus export can be a good estimator of current effective demand if there are no shortages in the market. Apparent consumption of cement, exhibited upward trend during the years under review although marginal decline were registered for a few years. In 1998 and 1999 apparent consumption has decreased by about 1% and 2% as compared to 1997 and 1998 respectively.
It was a period when several government financed projects, such as roads, schools and health centers had to be suspended because of the boarder conflict with Eritrea. However, in 2000, 2001 and 2002 apparent consumption has increased by 7. 60%, 0. 41 % and 12. 25%, respectively while in 2003 apparent consumption has decreased by 3. 37%. In 2004, supply has registered a huge growth, increasing by 59. 35% as compared to 2003. This was mainly due to capacity utilization of Messebo cement. However, during 2005 supply has registered a 12. 25% decrease compared to that of 2004.
This period was again related to the climate that surrounded the election in which investors opted for the wait and see approach. In year 2006 apparent consumption has shown tremendous increases of 126. 06% compared to the supply of 2005. The period after 2006 is characterized by boom in the construction sector accompanied by huge investment in building, roads and hydro dam construction with corresponding growth in demand for cement. Thus, apparent consumption of cement, though showed sharp decline in some years, exhibited an upward trend during the years under review registering an average annual growth rate of 17%.
Assuming that the apparent consumption can be equated to effective demand, the current effective demand for cement is estimated at 4. 85 million tons. 4. 3. 1 Demand Projection There are various factors affecting the demand for cement such as, population size, construction of residential and non-residential buildings, household income and expenditure, other infrastructure development and so on. According to the government’s growth and transformation plan, the objective of the cement industry is to fully satisfy local demand for cement and create capacity to supply cement to the export market.
The plan has already set a target to raise the country’s total cement production capacity to 27 million tons by the end of 2014/15. There are various approaches and forecasting techniques that would help to estimate and project future cement demand level in the country. Among these Estimated demand of end users, Moving average, Time trend extrapolation, Regression analyses; and Per capita consumption are the major approaches. The feasibility study of Habesha Cement had employed combined approach. According to this approach, the local demand for cement will be 7. million tons in 2010, grows to 12. 1 million tons in 2015 and forecasted to reach 20. 1 million tones by 2020 and 37. 8 million tons by 2025. In our view, based on the above stated facts, the demand projection made by the company is not too far from reality. Hence, we have taken it as a projection for the proposed company. Habesha cement is expected to start production around 2012 and build up its production capacity up to 2014. This period also coincides with the time when many of the currently initiated projects start production and those under construction attain full capacity operation.
As a result, the demand gap substantially narrows during this period. Beyond 2015, Supply stabilizes while demand continues to grow with the resulting widening gap until the end of the projection period. The growing demand is expected to attract new investors and encourage those in operation to expand their capacities. The demand coverage of the new promoter continuously declines as the gap expands starting from 2015. The demand coverage declines from 50% in 2015 to 9. 6% in 2020 and further to 3. 5% in by the end of the projection period. . Cost and Financial Realities Each of the previous analyses generated information on anticipated costs and expected returns. Once this information is transferred to a ledger, three statements can be created: •Pro Forma (Projected) Income and Expense Statement •Cash Flow Statement •Opening Balance Sheet These statements are essential to creating a solid business case to justify the proposed venture. In the original goals, return on investment (ROI) might have been stated. It is possible to calculate a projected ROI.
The entrepreneur is seeking answers to the following questions: •Does the profit level meet or exceed stated goals? •Are the setup costs within the range of financial options? •Will this proposal provide sufficient return on investment? •How will this investment affect net worth? Criteria considerations •Is the cost of sales acceptable relative to the product price? •Does the venture meet or exceed the profit goals? •Does the expected return meet or exceed the minimum acceptable level? •Is there a better way to reach my financial goals?