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Friday, September 23, 2011

How to start a Paper Pencil Making Factory: SME Business Idea in Nigeria

Paper pencil production is a viable business venture which is capable of returning over 100% on your investment within 12 months and break even by 9th month with N147,000 daily sales.

How Feasible is Paper Pencil Production in Nigeria?
Recycled Paper Pencil Production is viable in Nigeria because the six success factors have been found to make it viable all exist in Nigeria namely; a sizeable population of school age children, target market locations within the same city and that city has a large population of corporate organisations and urban city dwellers and four other success factors. See end of article for more details.

What is the Market size for Paper Pencils in Nigeria?
Most of the pencils used in Nigeria is consumed by school children mostly those in primary school, also teachers, students in higher institutions, carpenters and even in many offices. With a massive population of school children running nearly 40 million, there is so much money to be made from this business. In Nigeria, according to a federal government report monitored on Daily Trust Newspaper Nigeria spent N750 billion in 2009 on the importation of pencils which we are capable of starting and running on our own if we so desire. The actual market demand is hard to estimate but with over 40 million school children consuming over 2 billion pencils per year we can safely assume at least N30 billion market gross sales for primary school children alone.

Opportunities in Paper Pencil Production in Nigeria
There are only four companies involved in Paper pencil production in Nigeria as of March 2017 and they are located in Abuja, Enugu, Akure and Lagos respectively. None of them produces more than 20,000 units of pencils per day but Nigerians consume over 4.8 billion pencils per annum meaning these 4 companies combined which only produce 24 million pencils - less than 1% of the total market demand – have huge growth potentials. Secondly there are other opportunities along the product range such as production of eye pencils, coloured pencils which can replace crayons and very hard pencil types such as 9h or very dark pencils like 4B etc which we also import. Thirdly production cost for paper pencils is very low at just below 65% and minimal labour costs the profit margin is larger than average manufacturing

What are some of the threats and Challenges of Paper Pencil Production in Nigeria?
  •  Power supply: production must not be interrupted so a minimum of 10 hour daily fueling costs for generator set must be in place this doesn’t come cheap
  • Distribution expenses can be high but there are effective strategies that can help minimize these expenses so that the business can reach its target market inexpensively
  •  Cheap, imported imitations from Asia especially China
  • Foreign Exchange scarcity and value fluctuations: the main raw materials which are imported for now are not under serious threat from dollar scarcity and price fluctuation
Financial Projections for first year Paper Pencil Production Factory in Nigeria
The cost of paper pencils per unit based on production cost analysis is N 5.73 each and at factory price of N7 per unit first year profit of over N 5,635,000 naira can be realized if sales of N 44,100,000 is achieved within 12 months based on 21,000 pencils produced daily for 300 working days in a year.  The total startup costs is N5,305,000 implies payback period is in the 12th month while breakeven should occur either in the 9th or 10th month.

Production Details per day
  •  Total output per day at full capacity: 21,000 units
  •  Total Number per set – 12
  •  Total packaged sets – 1,750
  •  Total sets per carton – 25
  •  Total number of Cartons per day – 70
  •  Factory Price per Carton – N 2,100
  • Total sales per day – N 147,000

First Year Income statement
Assumption: 21,000 produced pencils per day and 300 full production days a year
  • Total Sales – N 44,100,000
  • Cost of Sales – N 28,649,600
  • Gross Profit – N 15,450,400
  • Estimated Annual Expenses – N 7,400,400
  • Net Profit before Tax – N 8,050,000
  •  Taxation – N 2,415,000
  •  Net profit After Tax – N 5,635,000

Projected Returns on Investment
Net profit after tax/Total outlay X 100 = 5,635,000/5,305,000 X 100 = 106.2%

Start-up capital
The amount needed to set up a pencil making factory varies depending on your intended capacity. Here is a breakdown of the start-up capital;
·         Machinery – N 960,000
·         1 year Rent (a single room for a start is sufficient) – N 330,000
·         Generator set – N400,000
·         Delivery Van – N900,000
·         Raw Materials – N 200,000
·         Working Capital - N 300,000 (6 months)
·         Salaries – N 555,000 (3 months)
·         Contingency – N 300,000
·         Others – N 1,360,000
·         Total – N 5,305,000

Concluding Summary on Paper Pencil Production in Nigeria
A relatively simple and small manufacturing business to set up with very few and not so threatening challenges but the potential is quite huge.

You can order for the complete feasibility study report which contains an effective sales strategy, organizational setup and implementation plan, success factors for paper pencil production with complete production cost analysis, income statements and other financial projections by simply calling: 0803 206 4106 or email me: paulonwueme@gmail.com