290.

PROFILE ON PRODUCTION OF
BUTTONS FROM HORN

290-2

TABLE OF CONTENTS
PAGE
I.

SUMMARY

290-3

II.

PRODUCT DESCRIPTION & APPLICATION

290-3

III.

MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY
B. PLANT CAPACITY & PRODUCTION PROGRAMME

290-4
290-4
290-7

IV.

MATERIALS AND INPUTS

A. RAW & AUXILIARY MATERIALS
B. UTILITIES

290-8
290-8
290-9

V.

TECHNOLOGY & ENGINEERING

290-9

A. TECHNOLOGY
B. ENGINEERING

290-9
290-10

VI.

MANPOWER & TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT
B. TRAINING REQUIREMENT

290-12
290-12
290-12

VII.

FINANCIAL ANALYSIS
A. TOTAL INITIAL INVESTMENT COST
B. PRODUCTION COST
C. FINANCIAL EVALUATION
D. ECONOMIC BENEFITS

290-13
290-13
290-14
290-15
290-16

I.

SUMMARY

This profile envisages the establishment of a plant for the production of buttones from
horn with a capacity of 200 tonnes per annum.
The present demand for the proposed product is estimated at

929 tonnes per annum.

The demand is expected to reach at 2,528 tonnes by the year 2020.

The plant will create employment opportunities for 11 persons.

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The total investment requirement is estimated at Birr 1.54

million, out of which Birr

668,000 is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 30 % and a net
present value (NPV) of Birr 1.4 million, discounted at 8.5 %.
II.

PRODUCT DESCRIPTION AND APPLICATION

Buttons are items used in garments. Horn buttons are highly durable of all types. Most
of the time, they are used with elegant suits.

The Region is endowed with large

population of cattle. This is believed to be potential resource for horns.

Buttons made from horn is resource based product that will substitute the import

III.

MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Past Supply and Present Demand

Buttons are used by garment manufactures. Therefore, the local demand for the product is
influenced largely by the expansion of the local garment industry. According to the
information from the Ethiopian Investment Agency, investment permits were issued to a
total of 161 projects with a capital of Birr 990 million in the area of garment and related

290-4
articles manufacturing, of which 12 are already operational and 15 are under
implementation. When the licensed projects become operational the local demand for
buttons will increase considerably.
However, since there is no domestic facility for manufacturing buttons, the products are
imported from overseas. Import of button is given in Table 3.1.
Table 3.1
IMPORT OF BUTTON ( TONNE)
Year
2000
2001
2002
2003
2004
2005
2006

Import
11,950
32,906
42,770
72,439
77,563
41,466
46,228

Source :- Ethiopian Customs Authority.

As could be seen from Table 3.1, import data of buttons does not show any trend. Import
varies from 11,950 tonnes during the year 2000 to about 77,563 tonnes in the year 2004,
respectively. With such very erratic date a trend analysis could not be worked out to
estimate the present demand.

Hence, the simple average of the period under

consideration is assumed to indicate present demand. Accordingly, the present demand is

estimated at 46,475 tonnes. Conservatively assuming that the share of buttons made out
of horn has a 2% share of the total estimated demand for buttons, the present demand for
horn buttons is estimated at 929 tonnes.
2.

Projected Demand

The demand for buttons is related with the expansion of the garment and leather goods
production.

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Ethiopia has a good potential to expand the garment and the leather sector due to the
availability of the basic raw materials. Moreover, the government has given due attention
to these sectors in its industrial policy. Considering these favourable situations, the
demand for buttons is estimated to grow by an average rate of 8% per annum (see Table
3.2).

Table 3.2
PROJECTED DEMAND FOR HORN BUTTONS ( TONNES)
Year

Projected Demand

2008
2009
2010
2011
2012
2013
2014
2015
2016

1,004
1,084
1,171
1,265
1,366
1,475
1,593
1,720
1,858

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2017
2018
2019
2020

3.

2,007
2,167
2,341
2,528

Pricing and Distribution

Based on current retail price of the product and assuming profit margin for distributors
and retailers, the recommended factory-get price of the envisaged project is Birr 5 per
Kg.
The product can be distributed through the existing textile accessories distributes or by
establishing own distribution centers at strategic locations.

B.

PLANT CAPACITY AND PRODUCTION PROGRAMME

1.

Plant Capacity

According to the market study for horn buttons indicated above, the unsatisfied demand
for the year 2008 will be 1004 tonnes, and this figure will grow to 1,720 tonnes by the
year 2015. Therefore, the envisaged plant will have production capacity of 200 tonnes
of horn buttons per annum.
Production can be increased if the plant is made to operate double shift for 16 hours a day
without increasing investment on fixed capital.
2.

Production Programme

A gradual capacity build-up is proposed for the plant so as to allow for manufacturing
skill development and for establishment of sufficient market outlets. The plant, hence,

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will commence production at 65% of full capacity in the first year of operation.
Production will be made to grow to 75% and 85% in the second and third year,
respectively. Full capacity production shall be attained in the fourth year and then after.
Table 3.3 below presents the details of the proposed production programme.

Table 3.3
PRODUCTION PROGRAMME
Year
Capacity utilization (%)
Production (tones)

1
65
130

IV.

MATERIALS AND INPUTS

A.

RAW AND AUXILIARY MATERIALS

2
75
150

3
85
170

4 and then after

100
200

The major raw material required for the production of horn buttons is raw horn obtained
from cow, ox and others. The region has a high cattle population; Sidama, Debub Omo
and Hadiya Zones are with the highest cattle population in the region having 1,258,654,
1,114,258 and 879,147 TLU respectively. At woreda level; Kuraz, Awassa Zuria, and
Soro Woredas have the highest cattle population in the region.
In addition to horn, polishing materials are very useful in the production of buttons.
These materials produce polished surface of the buttons thereby enhancing the quality
and appearance of the products. Annual requirement of raw and auxiliary material at full
production capacity is given in Table 4.1 below.
Table 4.1

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ANNUAL REQUIREMENTS OF RAW AND AUXILIARY MATERIALS AND
COST AT FULL CAPACITY
Sr.

Description

Qty
LC

No.
1
2

B.

A. Raw Material
Horns (cow, oxen), etc (Tones)
B. Auxiliary Materials
Polishing materials
Total

Cost (000 Birr)

FC

TC

205

205

205

Req
-

10
215

10
215

UTILITIES

Electricity and water are utilities required for production of horn buttons. A total of
10,000 kWh electrical energy is required per annum. As regards water the plant will
require a total of 200 m3 water per annum.
At the rate of Birr 0.474 per kWh for electricity and Birr 10 per m 3 for water, annual
expenditure on utilities will be Birr 6,740.
V.

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Production Process

Production of horn buttons involves four distinct operations, namely:a)

Cutting in circular or other required shape

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a)

b)

Hole making

c)

Finishing and polishing

d)

Packing and dispatching

Cutting in circular or other shape. This unit operation involves the use of horn
cutting circular saw, band saw machine and high speed circle cutting machine.
The raw horn is first cut by the circular saw and band saw to the required sizes.
Next the horn piece is formed into circular shape by applying the high speed
circle cutting machine. This is the cash for circular button production.

b)

Hole making:- After the horn is cut into circular shape, then the required holes
are formed by a hole making machine.

c)

Finishing and polishing:- This is the process by which the horn button is treated
on a lathe machine where the edge and the button face are properly polished by a
polishing material so as to give the product smooth and good-looking face.

d)

Finally the polished and finished product is properly packed and dispatched to the
market.

2.

Source of Technology

Address of Machinery Supplier is given below:

Sigema Wood Working
CHINA
Tel: +86-512-6586-8021
Fax: +86-512-6762-3397
B.

ENGINEERING

1.

Machinery and Equipment

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Machinery and equipment required by the plant and related cost is shown in Table 5.1
below.

Table 5.1
MACHINERY AND EQUIPMENT
Sr.
No.
1
2
3
4
5
6
7
8
9

2.

Description

Qty
(No.)
Horn cutting circular saw
1
Band saw machine
1
High speed circle cutting machine
1
Semi-automatic hole master
1
Double ended polishing lathe
1
Motorized tool post grinder
1
Circular blade and band saw 1
sharpening machine
Special steel borers
2
Tungsten wire hole making machine
1
FOB price
Freight, Insurance charges, material
handling charges, Customs
CIF Landed Cost
Land, Building and Civil Works

LC
18.00
25.00
65.00
110.00
60.00
35.00
75.00

Cost (000 Birr)

FC
-

TC
18.00
25.00
65.00
110.00
60.00
35.0
75.0

80
45.00
593
-

75

80.0
45.00
593.0
75.0

593

75

668.0

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The total land required by the plant is 300 m 2, of which 150 m2 is built-up area. At land
lease rate of Birr 1.0 per m 2, the land lease value for 80 years is Birr 24,000. At unit cost
of building (per m2) Birr 2,000 the total cost of built-up area will be Birr 300,000. Thus,
the total investment on of land, building and civil works will be Birr 324,000.
3.

Proposed Location

Location of a plant is determined on the basis of proximity to raw materials, availability

of infrastructure and distance to major market outlets.

Potential weredas where raw

material is obtained in abundance are Bokagazer, Gellila, Banatsemay, Hammer, Kuraz

and Salamgo. Among these the selected wereda is Kuraz. It is therefore appropriate to
locate the envisaged plant in Omarate town.
VI.

MANPOWER AND TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

The plant requires both production and administrative workers. The details of manpower
are given in Table 6.1 below.
B.

TRAINING REQUIREMENT

Two weeks training for three operators is sufficient. Training can be carried out in the
workshop of Federal Micro and Small Enterprises Development Agency (FeMSEDA) in
Addis Ababa. A total of Birr 5,000 is allotted to carry out the training programme.
Table 6.1
MANPOWER REQUIREMENT AND LABOUR COST
Sr.

Job Title

No.
1

A. Administration
Manager (finance & Administration )

Req.

Monthly

Annual

No.

Salary

Wages

1,000

12,000

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2
3
4
5
6
1
2

VII.

Secretary
Sales man
Clerk
General services
Sub total
B. Production
Skilled worker
Unskilled workers
Sub total
Workers benefit (25% BS)
Total
FINANCIAL ANALYSIS

1
1
1
2
6

500
600
350
250
-

6,000
7,200
4,200
6,000
35,400

3
2
5
11

600
250

21,600
6,000
27,600
15,750
78750

The financial analysis of the buttons from horn project is based on the data presented in
the previous chapters and the following assumptions:Construction period

1 year

Source of finance

30 % equity
70 % loan

Tax holidays

3 years

Bank interest

8%

Discount cash flow

8.5%

Accounts receivable

30 days

Raw material local

30days

Raw material, import

90days

Work in progress

5 days

Finished products

30 days

Cash in hand

2 days

Accounts payable

30 days

A.

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at 1.54
million, of which 13 per cent will be required in foreign currency.

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

Table 7.1
INITIAL INVESTMENT COST
Sr.
No.
1
2
3
4
5
6
7

Total Cost
Cost Items
Land lease value
Building and Civil Work
Plant Machinery and Equipment
Office Furniture and Equipment
Vehicle
Pre-production Expenditure*
Working Capital
Total Investment cost
Foreign Share

(000 Birr)
24.0
300.0
668.0
75.0
200.0
229.7
45.5
1,542.1
13

* N.B Pre-production expenditure includes interest during construction ( Birr 104.66

thousand )

training (Birr 5 thousand ) and Birr 120 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 693,130 (see
Table 7.2).

The material and utility cost accounts for 40.47 per cent, while repair and

maintenance take 11.54 per cent of the production cost.

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Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)
Items
Raw Material and Inputs
Utilities
Maintenance and repair
Labour direct
Factory overheads
Administration Costs
Total Operating Costs
Depreciation
Cost of Finance
Total Production Cost
C.

FINANCIAL EVALUATION

1.

Profitability

Cost
215.00
67.4
80
43.35
14.18
35.4
455.33
154.3
83.5
693.13

%
31.02
9.72
11.54
6.25
2.05
5.11
65.69
22.26
12.05
100

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.

2.

Break-even Analysis

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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

34%

Sales Variable Cost

3.

Pay Back Period

The investment cost and income statement projection are used to project the pay-back
period. The projects initial investment will be fully recovered within 3 years.
4.

Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 30 % and the net
present value at 8.5 % discount rate is Birr 1.4 million.
D.

ECONOMIC BENEFITS

The project can create employment for 11 persons. In addition to supply of the domestic
needs, the project will generate Birr 829,610 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.