Kigali Wholesale Market for Fresh Produce (KWSMFP) Kigali ... · National Agricultural Eport Development Board (NAEB) Kigali Wholesale Market for Fresh Produce (KWSMFP) Kigali,Republic

PROSPECTUS

JUNE 2015

Kigali Wholesale Market for Fresh Produce (KWSMFP)Kigali,Republic Of Rwanda

National Agricultural Export Development Board (NAEB)

National Agricultural Export Development Board (NAEB)Kigali Wholesale Market for Fresh Produce (KWSMFP)

Kigali,Republic Of Rwanda

CONTENTS

1. PROJECT PROMOTER MODALITIES

1.1. Legal Status of the Company

1.2. Reasons for Divestiture

2. SUMMARY OF INFORMATION ON KIGALI WHOLESALE MARKET FOR FRESH PRODUCE

2.1. Project Development

2.2. Projected Demand for Fresh Fruits and Vegetables (FFV)

2.3. PPP in Practice

3. MARKET MANAGEMENT STRUCTURE

4. ESTIMATION OF MARKET DEVELOPMENT COSTS

4.1. Investment Cost

4.2. Total Investment Cost

4.3. Operating costs

5. REVENUE PROJECTION

6. BUSSINESS PROFITIBILTY ANALYSIS

6.1. Profitability

6.2. Cash Flow

6.3. Discounted Cash Flow

7. Economic Analysis



Image 1 Overall Site Perspective

I. PROJECT PROMOTER MODALITIES

1.1 Legal Status of the Company

The company is incorporated in the Republic of Rwanda under the name Kigali Wholesale Market for Fresh Produce (KWSMFP). The Company is incorporated as a public company limited by shares. Its main objective is to manage the public shareholders of the company.

1.2 Reasons for Divestiture

The Offering allows Kigali Wholesale Market for Fresh Produce, as an investment vehicle, to achieve its objective to establish fresh fruit and vegetable wholesale market in Kigali, Rwanda. It also allows Kigali Wholesale Market for Fresh Produce to support the efforts of the Government of Rwanda to promote broader share ownership in Rwanda and expand, and further develop the Rwandan capital market as well as attract foreign investment.

The Company will not receive any proceeds of the Offering. All fees associated with this Offer, including commissions, fees and expenses are payable by the Selling Shareholder, and not by Kigali Wholesale Market for Fresh Produce.

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II. SUMMARY OF INFORMATION ON KIGALI WHOLESALE MARKET FOR FRESH PRODUCEProject DevelopmentCapacity• 380,000 MT FFV (Full Capacity)• 420 TradersFacilities• 32 Ware house including 4 Cold room storages• 15 traders each block• Packing, Loading and Unloading space• Admin Blocks• Area for office and Cafe• Parking & Circulation

Financial results

Source of finance IRR (%) NPV (USD) Payback period

Fully public 18.9 10,729,714 7.0

Fully private 18.9 12,657,005 7.0

Private public partnership 18.9 11,062,367 7.0

Projected Demand for Fresh Fruits and vegetables (FFV)• The Kigali demand for FFV grows from 128,669tons in

2015, to 148,985 in 2018. The demand will reach 209,637 tons in 2025, further 270,104 tons in 2030, and reaching 380,062 tons in 2037.

• The per capita daily consumption grows from 277gm/day in 2015 to 305gm/day in 2025. It will further reach 322 gm/day in 2030 and 345gm/day by 2037.

• According to this projection consumption FFV in Kigali will remain below the World Health Organization (WHO) for a substantial Period.

• This suggests for the need for further effort to increase the production and marketable supply of FFV to meet the daily demand of fruits and vegetables to provide essential and necessary nutrients lacking in other food groups.

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III. PPP in Practice

• Bidding process - The public entity will advertise and then run a competitive process under which private sector entities will “bid” in order to win the right to deliver the project. The winning private sector bidder is then awarded a ‘Concession” to implement the project.

• Project Company- A private sector entity will contract with the public entity and raise funds from investors and lenders in order to deliver the project. This new company is known as a “special purpose vehicle” (an “SPV”).

• Sponsor - The activities of the Project Company will be managed by one or more private sector companies (the “Sponsor”). The Sponsors are usually the equity investment divisions of large construction or facilities management companies who want their construction or facilities management divisions to deliver the project.

• Documentation - The Project Company will enter into a contract with the public sector. This is the key document detailing the terms and conditions of the project.

• Contractors- The Project Company will enter into contracts to enable it to implement the project as it will typically have no employees. Certain responsibilities may be sub-contracted to other more specialist entities (the “Sub- Contractors”).

• Funding - The Project Company will obtain private funding in order to finance the PPP. Usually, funds are made up of a mix of investments by Sponsors and loans from outside lenders. Project finance is provided on the strength of the cash flows of the Project Company. Lenders may include commercial banks with experience in project finance, export credit agencies (“ECAs”), multi-lateral agencies (“MLAs”) and development finance institutions (“DFIs”).

SPONSORS

PUBLIC ENTITY PROJECT COMPANY LENDERS

CONSTRUCTION CONTRACTORS

SUB-CONTRACTORS

FM CONTRACTORS

Fig 1PPP in practice

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Kigali Wholesale Market for Fresh Produce (KWMFP) key strategic objectives are to:

• The design shall recognize the farmer cooperatives and commercial Farmers in the short- term as they constitute a share in the supply chain and gradually abate their engagement by transforming the entire area to a modern market for formal wholesalers with regional and international significance. This could be achieved by introducing an open market for the cooperatives and commercial farmers in the short-term and develop the space to trader’s hall at a later full development stage. Still the open market can be utilized to serve non-perishable items specially potatoes, roots and tubers.

• Adopt an integrated transport system with the city center and more opportunities to motor cycle, Bajaj, small trucks and buses from the stations proximate to the market center.

• Efficient land use; well-functioning, hygienic and attractive market infrastructure. Large volume of waste generating activities such as FFV, to be located downstream away from the main streets with appropriate liquid and solid waste management facilities. The other business affiliates to be located outside the 10ha land strategically positioned to have good interface with the FFV centre.

• Promote good design for buildings, streets and neighbourhood development. The steep slope topography of the site will be managed properly with an access from the natural ground, at the same time optimizing the total area of the proposed land.

Image 2 Site Aerial Image

• Landscape design: will be considered to support a diversity of spaces that provide a range of amenities. The union of Landscape Architecture inside and outside will carefully be considered and integrated throughout the development encouraging a range of spatial experiences. The approach can include: Increasing social interaction and amenity for pedestrians, establishing a pedestrian environment that corresponds and relates with the adjoining amenities and uses, add more trees and vegetation to the site, establish a network of spaces and routes that seamlessly connect with each other, provide improved pedestrian safety and amenity to the street, use planting to control shade and light, utilize planting to control thermal access and improve thermal performance of buildings, use planting to control privacy within the development and surrounding developments.

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Waste Management

Guard Post

Power House

Cafeteria

Administration

FULL DEVELOPMENT

Market Warehouse 32 BlocksAdministration 4 Blocks

Image 3 Site Plan

Fig.2. Market management Structure of KWSMFP

NAEB SUPERVISORY AUTHORITY

GENERAL ASSEMBLY OF SHAREHOLDERS

MARKET STEERING BOARD

KWSMFP FACILITY MANAGEMENT

DIRECTOR

FINANCE AND ADMINISTRATION

FFV PRODUCT LINE SPECIALIST

DATA MANAGEMENT &

SHARING

FARMER’S OPEN MARKETWHOLESALE MARKET

MARKET ADVISORY COMMITTEE

IV. MARKET MANAGEMENT STRUCTURE

Based on ownership structure and guiding principles of efficient market management a simplified and flexible management structure has been proposed for KWSMFP. The structure will have a two tier system with limited core staff and outsourcing of services like cleaning, security etc. The structure is as shown in the figure below.

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Image 4 Office Building Image

Image 5 Single Storage Building Details

V. ESTIMATION OF MARKET DEVELOPMENT COSTS

5.1 Investment Cost

The fixed investment cost has been estimated based on the following assumption. The project will be implemented in two phases (phase 1 and Phase 2). Investment in Phase 2 will commence in year 9 and with construction period of one year, it goes operational during the 10 year.

Construction of the 1st phase will also takes two years. It is assumed that year 2016 and 2017 will be construction period and the KWSMFP will start operation by 2018.

• Land preparation is relatively expensive and costs $2.4 million because of the uneven and sloping site;

• The sales halls are the highest single cost item at $8.8 m;

• Development fees of $0.85 million include project development costs, third-party costs (legal costs, social & environmental studies, technical design studies etc.) and Financing charges;

• Taxes and duties have not been included at this stage, but could add significant cost to the project where applicable and if exemptions are not granted

• Rent may increase but assumed to be constant during the project period.

• Users fee charges is dependent on source of finance although $18/M2 / month for market stalls and $20/M2 for office facilities has been estimated as a base case

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Items Year 1 Year 2 Year 3 Year 4 Year 5 Year 10Cost of Staff 258,000 270,900 284,445 298,668 313,600 400,243Staff Benefits 38,700 40,635 42,667 44,800 47040 60,036Office running costs 100,000 100,000 100,000 100,000 100,000 120,000It System 84,746 84,746 84,746 84,746 84,746 84,746Cleaning/waste disposal 61,017 61,017 61,017 61,017 61,017 61,017Backup power 50,000 50,000 50,000 50,000 50,000 50,000Security 30,508 30,508 30,508 30,508 30,508 43,220Lease payment to city council 30,000 30,000 30,000 30,000 30,000 30,000Maintenance 78,061 78,061 78,061 78,061 78,061 150,000Other Costs 95,000 100,000 100,000 100,000 100,000 130,000Total 826,032 845,867 861,444 877,800 894,972 1,129,262

Table 5.1 Operating costs (USD)

The fixed investment cost of the project excluding working capital is estimated at $16,329,423 for the first phase of development. It is planned that 40% of the investment will be in the first year and the remaining 60% will be in the second year of construction.

The facility attracts additional supplies to the wholesale market; and expansion plan envisages further investment in developing trading spaces and facilities in the market. The investment for phase-2 is planned for operation year 9 and become functional in year 10 of the operation period. This is to accommodate additional supplies projected for the period.

The total investment in phase 2 developments is $11,578,402. It is assumed that construction of the facility will be completed within one year.

5.2 Total Investment Cost.

The total investment of the project including networking capital and capitalized interest payment during construction is estimated at $18,929,143 for phase 1 and $12,376,451 for phase 2. This brings the grand total investment of the project of the two phases to $31,305,594.

5.3 Operating costs

The major costs of Kigali wholesale market for fresh products include staff costs and benefits office running cost IT system, cleaning and waste disposal, backup power, security and lease payment to the city council. The details of the cost items have been provided in table 5.1 below.

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VI. REVENUE PROJECTION

The revenue projection for KWSFP is based on the estimated volume of FFV turn over in the market. It is estimated that the volume of fresh produce flowing to Kigali by the first year of operation (year 2018) will reach 186 thousand tons. We believe that not all the FFV flowing to Kigali will pass through the wholesale market. We assume that the share of institutional buyers will be estimated at 20% during the first year. This share will gradually decrease over the years as the wholesale function includes value added services such as sorting, grading and packing.

To ensure the success of wholesale market, we assume that the appropriate regulations are in place and enforced, including a zone of exclusion. The project volume and occupancy rate of the facility is provided in table 6.1 below.

Table 6.1 Share of KWSMFP in total FFV market and assumed occupancy rate of stallsDescription Year 1 Year 2 Year 5 Year 10

FFV Flowing to Kigali (MT)

186,231 195,543 226,365 291,657

KWSMFP Share of total Volume

80% 80% 80% 80%

Volume Traded at KWSMFP (MT)

148,985 156,434 181,092 233,326

Occupancy rate of Trading Stalls

70% 75% 80% 90%

KWSMFP will have 80% share of the total volume following to Kigali. This share will be maintained though it is expected to increase with value adding services. The 9th year includes the expanded size of the KWSMFP with the capacity to handle over 380,000 MT per year. Growth in volume of supply during the first period will be compensated by increasing the volume of turnover/m2. It is assumed that the volume of turnover per M2 will grow from 11.5 ton/M2 in the initial years to 14.7 tons/m2 towards the end of the project period.

Revenue projection for Kigali wholesale market has been established based upon the above parameters. The sources of revenue for the Project are assumed to be:

• Revenue from renting market Trading Stalls,• Farmers market fee charged per day• Office space rent• Sub-lease to Banks Café and Pensions• Car park fees• Equipment and facility rentalsBased on the revenue model discussed earlier the rent will be charged to market users based on space allocation and type of uses. Table 5.2 shows the estimated revenue from the above sources.

Year 1 2 3 4 Year 10Market Stall Farmers market

2,849,213 3,052,728 3,256,243 3,663,274 5,182,704

Office Space & Urban amenities

672,000 720,000 768,000 864,000 1,296,000

Car Park 51,100 54,750 58,400 65,700 65,700

Equipment rental

631,440 669,400 707,360 783,280 1,466,560

Total 4,203,753 4,496,878 4,790,003 5,376,254 8,010,964

Table 6.2 Revenue projection (USD)

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Based on initial preliminary financial modeling, market rents in the sales halls (inclusive of a service charge component) will be $18 per square meter per month.

The charges for use of the Daily market parking bays is set at the same rate as stall although higher rates may be charged and this is on daily bases. Charges will also be differentiated based on:

• Selling Space for cars ( 0.1t to< 0.5t)

• Pickups/small trucks selling space (<3t)

• Medium and large trucks selling space (3t)

This is considered reasonable given the benefits for traders of not having to enter a long-term lease agreement versus the disadvantage of not being able to use the space for storage.

Other rental revenues are assumed to be derived from renting 2000 m2 of office space during the first phase which will increase by additional 1000m2 during the second phase. The occupancy rate of the office space is estimated at 70%, 75%, 80% and 90% during the 1st, 2nd, 3rd, and 4th years and remains at that level. The main clients are assumed to be regional exporters, Processors. Packing material suppliers, input suppliers and super market agents.

Banks, Café and pension will Sub-lease an area of 2000m2 which will increase by another 1000m2 during the second phase. The rental rate will be $20/M2.

Car pack will be additional source of income for the facility. Parking space will be arranged in similar manner with that of selling space and vehicles will be charged according to their size to avoid misuse of space. It is assumed that 200 such space will be available and each space will generate $1per day.

Image 6 Office Buildings Image02

Image 7 Office Building

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VII. BUSSINESS PROFITABILITY ANALYSIS

6.1 Profitability

Based on the projected profit and loss statement, the project will generate a net profit throughout its life. Annual net profit after tax increases from USD 1,251 thousand in the first year, USD 1,657 in the third year, USD 2,185 thousand during the seventh year and grows to USD 2,323 thousand during the eighth. Net profit as % of equity grows 10% in the initial year to 40% in the terminal year. The net profit as a percentage to net worth increases 9.2% to 11.4% up to the 10th year operation and starts to decline thereafter and reach 6% towards the terminal year as the company’s net worth increases. The percentage share of net profit and interest to investment is more or less constant throughout the period with marginal increase in during phase one. This is due to additional investment made during the 9th year of operation.

6.2 Cash Flow

The projected cash flow of the envisaged project shows that the project is liquid and generates positive net cash flows throughout the project life. Due to strong cash flows, the project does not require additional financing for the second phase expansion and can cover it from internal sources. The cumulative cash flow generated by the project towards the end of the project life will amount to USD 72,635 thousand.

6.3 Discounted Cash Flow

Internal Rate of Return

The internal rate of return (IRR) is an indicator of the efficiency or quality of an investment. A project is a good investment 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 the project is computed to be 18.9% indicating the viability of the project Though the IRR is close to the commercial bank lending rate, the project has strong cash flow and profitable throughout its life.

Net Present Value

Net present value (NPV) is defined as the total present (discounted) value of a time series of cash flows. NPV aggregates cash flows that occur during different periods of time during the life of a project in to a common measuring unit i.e. present value. It is a standard method for using the time value of money to appraise long-term projects. NPV is an indicator of how much value an investment or project adds to the capital invested. In principle a project is accepted if the NPV is non-negative. Accordingly, the net present value of the project at 10.5% discount rate is found to be USD 11,062,367 which is acceptable.

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Payback Period

The payback period, also called pay – off period is defined as the period required for recovering the original investment outlay through the accumulated net cash flows earned by the project. Accordingly, based on the projected cash flow it is estimated that the project’s initial investment will be fully recovered within 7 years, which is a reasonably short period of time.

Balance Sheet

The positive financial performances are manifested in the balance sheet. The net worth of the project, which was about USD 14,271 thousand at the beginning of the operation year, will rise to USD 77,840 thousand at the end of the project life.

Important financial efficiency ratios like current assets to current liabilities, and net cash flow to sales all show that the project is highly liquid and has sound financial performance. More over the ratio of equity to total liability declines from 56% in the initial year to 14% at the end of the project. Net worth to total liability increases from 56% to 100% in the 12th year of operation and stays at that level for the whole period.

VIII. Economic Analysis

The project has a number of economic benefits. It contributes to increased income of the rural population engaged in FFV production and marketing through introducing transparency in the market channel and minimizing post-harvest losses. Women who operate at the production and marketing stage of FFV benefit the most from the project as increase income contributing to poverty reduction since most operators are women and poor.

The project equally benefits urban consumers since it provides quality and hygienic products at affordable price. It minimizes the traffic congestion in the city center and reduces traffic accidents.

The project makes huge contribution to the national treasury by way of taxes. It generates tax revenue of $536 thousand during the third year of operation which will increase to $1,753 thousand at the end of the project period.

Addition new jobs to the tune of 3000 will be created as a result of the project in marketing and market support services

The project also benefits the traders by increasing their profits through increased volume of trade and reduced waste and the government will also earn more tax income from increased profits.

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Project Design and Buisness plan Prepared by:

Consulting Architects & Engineers Pvt Ltd.CoTel +251-115-152475,

+251-115-158243, Fax +251-111-229766,

P.O.Box 1405,E-mail [email protected],

Addis Ababa, Ethiopia

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Kigali Wholesale Market for Fresh Produce (KWSMFP) Kigali ... · National Agricultural Eport Development Board (NAEB) Kigali Wholesale Market for Fresh Produce (KWSMFP) Kigali,Republic