5.

PROFILE ON PRODUCTION OF
BARBED WIRE
 5-2

TABLE OF CONTENT

PAGE

I. SUMMARY 5-3

II. PRODUCT DESCRIPTION & APPLICATION 5-3

III. MARKET STUDY AND PLANT CAPACITY 5-4

A. MARKET STUDY 5-4
B. PLANT CAPACITY & PRODUCTION PROGRAMME 5-6

IV. RAW MATERIALS AND INPUTS 5-6

A. RAW MATERIALS 5-6
B. UTILITIES 5-7

V. TECHNOLOGY & ENGINEERING 5-8

A. TECHNOLOGY 5-8
B. ENGINEERING 5-9

VI. MANPOWER & TRAINING REQUIREMENT 5-11

A. MANPOWER REQUIREMENT 5-11
B. TRAINING REQUIREMENT 5-12

VII. FINANCIAL ANLYSIS 5-12

A. TOTAL INITIAL INVESTMENT COST 5-13
B. PRODUCTION COST 5-13
C. FINANCIAL EVALUATION 5-14
D. ECONOMIC BENEFITS 5-15
 5-3

I. SUMMARY

This profile envisages the establishment of a plant for the production of barbed wire
with a capacity of 375 tonnes per annum.

The present demand for the proposed product is estimated at 226.36 tonnes per annum.
The demand is expected to reach at 545 tonnes by the year 2020.

The plant will create employment opportunities for 51 persons.

The total investment requirement is estimated at Birr 2.71 million, out of which Birr
824,100 is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 24.65 % and a net
present value (NPV) of Birr 1.80 million, discounted at 8.5%.

II. PRODUCT DESCRIPTION AND APPLICATION

Barbed wire is a fencing material consisting of a metal cable with regularly spaced sharp
projections. The cable usually consists of two wires twisted around each other to add
strength and to allow the cable to expand and contract with temperature changes with out
breaking. The sharp points, called barbs, usually consist of short pieces of wire twisted
around one or both of the cable wires.

Barbed wire afforded protection against untamed cattle and safeguarded property
improvements. It is durable, easy to install, flexible, and inexpensive.

Moreover, barbed wire is used for military and security purposes and on the top prison
fences.
 5-4

III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Present Supply And Demand

The demand for barbed wires in Ethiopia is being met from two sources: imports and
domestic production by importing the billet and processing it in local factories. The
historical data on the unsatisfied demand for the product which met through, spanning the
years 2000-2006 is provided in Table 3.1.

Table 3.1
IMPORT OF BARBED WIRE( TONNES)

Year Import
2000 261.88
2001 263.65
2002 22.07
2003 108.10
2004 490.80
2005 266.94
2006 171.09

Source: Customs Authority, External Trade Statistics, annual Issues.

Scrutiny of Table 3.1 reveals that imports of barbed wire during the period of analysed
years ranged from 22.07 tonnes (2002) to 490.80 tonnes (2004). The mean import over
the same span of time was 226.36 tonnes.

The average import during the period 2000 – 2006, i.e., 226.36 tonnes is considered to
represent current (2007) unsatisfied demand for the product.
 5-5

2. Projected Demand

The future demand for barbed wire is contingent upon the growth of the national
economy, especially the construction sector. Assuming that the construction sector will
grow by 7% annually, the future demand for the product is forecasted to range from 242
tonnes in 2008 to 545 tonnes by the year 2020 (see Table 3.2).

Table 3.2
PROJECTED DEMAND FOR BARBED WIRE (TONNES)

Year Projected Demand

2008 242
2009 259
2010 277
2011 297
2012 317
2013 340
2014 363
2015 389
2016 416
2017 445
2018 476
2019 510
2020 545

3. Pricing and Distribution

A kilogramme of barbed wire sells currently Birr 16 in the retail market. Allowing a
margin of 55%, the factory can sell the product for 10.4 Birr per kilogramme.
 5-6

B. PLANT CAPACITY AND PRODUCTION PROGRAMME

1. Plant Capacity

Based on the market study indicated above, the envisaged plant for manufacturing of
Barber wire plant with a capacity of 375 tonnes per annum.

2. Production Programme

The plant is expected to operate in 3 shifts of 8 hours per day for a total of 300 working
days a year. It is anticipated that the plant will run at 70%, 85% and 100% in the first,
second and third years, respectively.

IV. MATERIALS AND INPUTS

1. RAW MATERIALS

The diameter of wire rod, as a starting material, is mostly 5-6 mm. In this project, it is
presumed that wire rod having a diameter of 5.5mm, which is most popular, is used.

As for the secondary materials required, they include chemical reagents for pickling –
mainly hydrochloric acid. The annual requirement of raw materials for barbed wire
manufacturing is indicated in the Table 4.1.
 5-7

Table 4.1
RAW MATERIAL REQUIREMENT AND COST

Sr. Cost ‘000 Birr

No. Description Qty F.C L.C Total
1 Wire rod Ø 5.5mm-ASA 1010 400 tonnes 1,748.00 349.60 2,097.60
2 Saw dust 1.5 tonnes - 0.087 0.087
3 Zinc 3.0 tonnes 20.83 4.17 25.00
4 HCL 250 Lt. 1.60 0.32 1.92
5 Ammonium Chloride 34 tones 7.50 1.50 9.00
6 Packing Material L.S - 10.00 10.00
Grand Total 1,777.93 365.68 2,143.61

B. UTILITIES

The major utilities required by the plant are electricity and water. The estimated annual
requirement of utilities of the plant at 100% capacity utilization rate and their estimated
costs are given in Table 4.2

Table 4.2
UTILITIES REQUIREMENT AND COST

Description Qty Cost ‘000

Birr
Electricity , kWh 960,000 454.656
Water, m3 1,500 15.00
Total 355.45
 5-8

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Process Description

A surface coating of iron oxide which forms on steel when it is heated, must be removed
from the wire rod and this oxidation layer will be removed by cleaning machine.

The clean wire rod is coated with lime, borax, or phosphate. This coating prevents
rusting, neutralizes any remaining traces of acid, and helps lubricants adhere to the wire
rod when it is made into wire.

One end of the coated wire rod is shaped to a point. This end is inserted like a thread
going through the eye of a needle into a die consisting of a very hard central nib made of
tungsten carbide surrounded by a steel holder. The wire rod is lubricated with oil or soap
and is pulled through the die to reduce the diameter. This process is known as drawing. A
series of dies are used to reduce the wire rod from its original size to the desired size of
the wire. For barbed wire, the diameter is typically 2.5 mm.

Drawing the wire causes it to become hard and stiff. To make it pliable, it is heated, a
process known as annealing.

Wire to be made into barbed wire is usually galvanized (coated with zinc) in order to
prevent weathering. The wire must be perfectly clean and dry to be properly galvanized.
First it is cleaned in a bath of hot, dilute hydrochloric acid, and then rinsed with hot
water. It then passes through a solution of hot zinc chloride or ammonium chloride to
prevent rust from forming as it is dried. After drying, the wire passes through bath molten
zinc. Excess zinc is wiped off and the coated wire is allowed to cool.
 5-9

A single automated machine performs all the steps needed to transform galvanized wire
into barbed wire. Two wires are fed into the machine and twisted together to form the
cable. Another wire is fed into the machine from the side and twisted around one or both
of the cable wires. This wire is cut at an angle on both sides to form a two-point barb.
Two wires are twisted and cut together if four- point barbs are needed. The barbed wire is
pulled along a set distance usually 10 or 13 cm, and the process is repeated to space the
barbs evenly. The barbed wire is wound onto spools and cut into 402 m lengths. These
spools are then loaded onto trucks for dispatch to the customer.

2. Source of Technology

The address of machinery supplier is given below:-

Shandong Weichai Imp. & Exp. Corp.
Address: No.6A, Siping Rd., Kuiwen District,
Weifang, Shandong, P.R of China
Tel:+8269988
Fax:+86-536-8232079
Email: [email protected]

B. ENGINEERING

1. Machinery and Equipment

Plant machinery and equipment required for barbed wire plant is presented in table 5.1.
The total investment cost of plant machinery and equipment is estimated at Birr 19.9
million.
 5-10

Table 5.1
MACHINERY AND EQUIPMENT REQUIREMENT AND COST FOR
BARBED WIRE PLANT

Sr. Qty. Cost ‘000 Birr

Description
No. (No.) LC FC Total
Wire drawing machine (for
1 drawing the wire from 2 Set 80.96 80.96
Ø6.5mm-2.5mm)
Cleaning machine for
2 1 Set 4.74 4.74
oxidation layer
3 Wire tip sharpening machine 1 Set 12.15 12.15
High speed barbed wire
4 2 Set 85.00 85.00
machine
5 Work shop equipment L.S. 150.00 150.00
Dies for drawing machine-for
6 100pcs 6.07 6.07
one year
7. Galvanizing machine 1 set 45.00 45.00
8 Furnace 1Set 250.00 250.00
Total - 633.92 633.92
Insurance, Customs Duty, Inland Transport, Bank
190.18 - 190.18
Charge, Etc.
Grand Total 190.18 633.92 824.10

2. Land, Building and Civil Works

Total land space required is about 1,000 m2. The total land lease value for 80 years at the
lease rate of Birr 0.625 per m2, will be Birr 50,000.00. A built-up area of about 350
square meters will be utilized for production, storage of space parts and office rooms.
The construction cost of the built-up area, at a rate of Birr 2,300.00 per m2, is estimated
to be Birr 805,000.
 5-11

3. Proposed Location

The main factors of selecting the location for barbed wire manufacturing plant are:
availability of access road to transport the raw materials and finished products and easy to
get utilities. Hence, it is proposed to locate the plant in Jinka town which can fulfilled the
above requirement.

VI. MANPOWER AND TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT

The plant requires a total of 51 persons and the details of their position along with the
annual labuor cost are indicated in the Table 6.1.

Table 6.1
MANPOWER REQUIREMENT AND ESTIMATED LABOUR COST

Sr. Job Title No. of Salary (Birr)

No. Persons Monthly Annual
1 General Manager 1 2,000 24,000
2 Secretary 1 800 9,600
3 Production & Technical Head 1 1,700 20,400
4 Commercial Head 1 1,600 19,200
5 Finance & Administration Head 1 1,600 19,200
6 Personnel 1 800 9,600
7 Accountant 1 750 9,000
8 Accounts Clerk 1 400 4,800
9 Cashier 1 500 6,000
10 Sales person 1 500 6,000
11 Purchaser 1 500 6,000
12 Store Keeper 1 500 6,000
13 Quality Controller 1 800 9,600
14 Shift Leader 3 750x3 27,000
15 Operator 9 400x9 43,200
16 Assistant Operation 9 250x9 27,000
17 Laborer 10 150x10 18,000
18 Mechanic 1 700 8,400
19 Electrician 1 700 8,400
20 Driver 2 400x2 9,600
21 Guard 3 200x3 7,200
Sub – Total 51 289,800.00
Employee’s Benefit 25% basic salary 72,450.00
Grand Total 362,250.00
 5-12

B. TRAINING REQUIREMENT

Training of production worker is required. Therefore, the production supervisors,

operators and technicians need to be given three weeks training on production, repairing
and maintenance activities.

The training cost is estimated at Birr 25,000.-

VII. FINANCIAL ANALYSIS

The financial analysis of the barbed wire 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 10.5%
Accounts receivable 30 days
Raw material local 30days
Raw material, import 90days
Work in progress 2 days
Finished products 30 days
Cash in hand 5 days
Accounts payable 30 days
 5-13

A. TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at 2.71
million, of which 23 per cent will be required in foreign currency. The major breakdown
of the total initial investment cost is shown in Table 7.1.

Table 7.1
INITIAL INVESTMENT COST

Sr. Total Cost

No. Cost Items (‘000 Birr)
1 Land lease value 50
2 Building and Civil Work 805
3 Plant Machinery and Equipment 824.1
4 Office Furniture and Equipment 125
5 Vehicle 200
6 Pre-production Expenditure* 280.73
7 Working Capital 426.98
Total Investment cost 2711.81
Foreign Share 23

* N.B Pre-production expenditure includes interest during construction ( Birr 130.73 thousand )
training (Birr 25 thousand ) and Birr 125 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 3.40
million (see Table 7.2). The material and utility cost accounts for 76.89 per cent, while
repair and maintenance take 1.21 per cent of the production cost.
 5-14

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

Items Cost %
Raw Material and Inputs 2,143.61 63.07
Utilities 469.65 13.82
Maintenance and repair 41.2 1.21
Labour direct 217.35 6.40
Factory overheads * 72.45 2.13
Administration Costs ** 144.9 4.26
Total Operating Costs 3,089.16 90.89
Depreciation 205.16 6.04
Cost of Finance 104.3 3.07
Total Production Cost 3,398.62 100

* Factory overhead cost includes salaries and wages of supervisors, insurance of

factory workers social costs on salaries of direct labour etc.

** Administrative cost includes salaries and wages, insurance, social costs, materials
and services used by administrative staff etc.

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.
 5-15

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 = 20 %
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 4 years.

4. Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 24.65 % and the
net present value at 10.5% discount rate is Birr 1.8 million.

D. ECONOMIC BENEFITS

The project can create employment for 51 persons. In addition to supply of the domestic
needs, the project will generate Birr 1.27 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.