Market study for a wooden craft & toys project

Awrak for Studies & Economic Consultancy

2013

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Introduction :-

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Copy rights Vision and mission Index

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Copyright :-

Notification “All rights are preserved for / Awrak Economic Consultancy It is not permissible to utilize, photocopy or redesign this material in any form or amend it either with addition or cancellation or use the ideas contained in unless with a previous authorization from Awrak Economic consultancy.

We thank you for your trust in Awrak services.

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Vision & Mission :Awrak vision We provide a clearer economic vision for the future

Awrak mission We work with you from the beginning to reach the peak; we provide an integral set of specialized consulting services to put our client on the right economic way.

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Index :

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Chapter (1): Project introduction 1.1- Project definition and mentioning nature and properties of the product. 2.1- Egyptian market overview 3.1- Definitions

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Chapter (2): Reality of wooden industry in Egypt 2.1- Development and Growth of the wooden industry in Egypt from year 2008 till 2012 2.2 - Development and growth forecast of the wooden industry in Egypt from year 2013 till 2017

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Chapter (3): Supply and demand volume forecast and method of determining the demand gap. 3.1- Determination of supply volume for wooden and toys products from year 2008 till 2013. 3.2- Determination of demand volume for wooden products and toys from year 2008 till 2012. 3.3- Determination of the demand gap from year 2008 till 2012. 3.4- Supply volume forecast for wooden products and toys from year 2013 till 2017. 3.5- Demand volume forecast from year 2013 till 2017. 3.6- Determination of the demand gap for wooden products and toys from year 2013 till 2017. 3.7 – Company’s share from the demand gap from year 2013 till 2017.

 Chapter (4): An analytical study for the nature of competition in the Egyptian market. 4.1- Study and analysis of the most important competitors. 4.2- S.W.O.T analysis.

 Chapter (5): Marketing solutions for the project. 5.1- Planning and Pricing for the service. 5.2 – Put the promotional plan for the project. 5.3 – Determination of marketing solutions and promotional methods used in the project marketing.

 Chapter (6): Outcomes and recommendations and documents portfolio and information sources. 6.1- Outcomes and recommendations. 6.2- Documents portfolio and information sources

 Chapter (1): Project introduction 1.11.21.3-

Project definition and mentioning nature and properties of the product. Egyptian market overview Definitions

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Project definition and mentioning nature and properties of the product.

In general, wooden industry in Egypt is considered a leading industry in which Egypt has a relative advantage and a competitive position due to its history and redundancy in skilled labor in Egypt, and certainly the ancient Damietta governorate which is popular for this industry is the most appropriate place for starting a project in the field of wood manufacturing like our suggested project. The formal study indicates that 80% of the Damietta governorate population depend on their living on the wooden industry. Our project aims to produce and manufacture the light wooden products like children wooden toys and some stuff which every person needs at home and work which is characterized by distinct ideas and attractive colors for children and seniors alike. The segment pertained to children wooden toys is considered from the distinctive sectors of the project because children toys are one of the means of education for every growth phase, as they are a mean to entertain the child and spend an interesting time, on the other hand they are a mean to educate, develop the children’s physical and psychological skills at the same time. Children’s toys made of natural wood are one of the most important sources of design and implementation of children’s toys programs due to its good natural properties and perfect features in use, especially if painted with naturally colored materials. *Aims of the project: Manufacture of various wooden products like children’s toys and instruments which the Egyptian house needs.  Develop the children’s skills from year until 12 years old and develop their physical and muscular abilities and the skills needed for this age with toys which are originated from the Egyptian society.  Cover the needs of the educational children toys imported from abroad.  Cover the other needs simply manufactured like office, Home and kitchen wooden supplies. *Project products:1- All wooden kids’ toys from year to 12 years old. 2-Various simply manufactured wooden products for diverse use valid for all ages, like office, house and kitchen supplies.

*Production line and the required equipment:Production line is divided into several basic stages through which all the project products are manufactured, and these stages include choosing the required shape for the product, drawing the design then repeating the drawing on a piece of wood, then cut and split of parts stage, then finishing and painting the parts with natural colors and finally packaging stage. Mechanical equipment are used for this purpose mostly in carpentry workshops .For instance saw , drill , grinding machine , wood lathe , hand tools , measuring instruments , assembly and segmentation machine . *Materials:Wood with its various types and diverse properties is the basic material for this project (Solid, pine, white veneer, oak, Mahogany, colors from various sources non-toxic and in conformity with specifications) *Technical specifications:Products are in conformity with the European specifications as a primary stage for exporting. European Standard: (NE – 71, Latest Version) *Project area and location:Project area shall be approximately from 700 to 1000 meter square, divided into workshops, stores, administrative buildings. The suggested area for the first stage shall be from 200 to 250 meter square and close to factories of wood products. Certainly New Damietta city which has been chosen by the investor is the most appropriate place for the project implementation because of redundancy in the trained labors and the necessary experience for working in the project as well as the diffusion of wood trade and the roads necessary for ease of local distribution are available and also existence of maritime ports in case of exporting abroad or shipping to any of the local ports in Arab Republic of Egypt. *Labor: The project needs 12 individuals as a start.

1.2- Egyptian market overview    

Important statistics:Population: 83,800,000 (according to February 2013 estimates). Population growth rate: 2% (between 2005-2010). Age group : » » » »

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0-14 years old, 31.71 % 15-44 years old, 49.85 % 45-49 years old, 12.36 % 60 years old and up, 6.08 %

Manpower : 26.8 million (first quarter of year 2012 ) Most important ports: Alexandria, Damietta, El-dekhila,Portsaid, El-Suez,El-sokhna. Routes network : 91173 km Railway network : 6700 km Periodic region : Grinitch +2 (GMT+2) Voltage : 220 KW Coasts : 2450 KM Internet users : 30.94 million (March 2012) Mobile users : 91.92 million (March 2012) Landline users : 8.57 million (March 2012 ) Most important economic indicators :-

 Gross Domestic Production rate (GDP) o 2.6% , first quarter (2012/2013) o 2.2% (2011/2012) o 1.8% (2010/2011)  Gross Domestic production according to sectors (2011-2012) :o Agriculture 14.25 % o Petroleum & Gas 14.90% o Industry 16.50 % o Constructions 4.59% o Tourism 3.19 % o Communications & Information Technology 3.06% o Transport 4.07% o Domestic Trade 11.50 % o Finance 7.06% o Other 20.62 %

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Inflation rate :-(consumers’ average prices ) 8.4% (April 2012) 11.8% (2010/2011) 10.1%(2009/2010)

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Currency Exchange rates at National Bank of Egypt(31/03/2012) :USD : buy 6.803 EGP - sell 6.8331 EGP Euro: buy 8.6864 EGP – sell 8.899099 EGP Sterling pound : buy 10.304 EGP - sell 10.5556 EGP Currency Exchange rate at exchange firms for USD ranges between 7.50 to 7.60

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Net international reserve (Foreign Currency reserve) :15 billion USD (December 2012 ) 26.56 billion USD (2011) 35.22 billion USD (2010)

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Net inflow of Direct Foreign Investment :o 108 million USD (1st quarter 2012-2013). o 2.1 billion USD (2011/2012 ) o 2.2 billion USD (2010/2011)

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Net inflow of Direct Foreign Investment (% of GDP) :o 0.8% (2011-2012) o 0.9%(2010-2011) o 3.1% (2009-2010)

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Unemployment rate :o 12%(2010-2011) o 9% (2009-2010)

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Most important exports :Crude oil, Petroleum products, Cotton, Textiles, Metal products, chemicals, Agricultural products. Most important imports :Machines and equipment, Automobiles, Food, Chemicals, wooden products, metal products, Fuel and industrial oil. Source: General Authority for Investment http://www.gafinet.org/Arabic/Pages/GeneralOverview.aspx#

From the previous data and numbers, we have taken an overview of the Egyptian market after Jan25th revolution and the current political transformation in the country , we have found out that Egypt future opportunities in the medium and long run promise economic mutations due to the selfcapabilities which Egypt has , including its location , population density and available natural resources which give potentiality for the new projects specifically the industrial projects like in the field of children wooden toys project under study, However country conditions in the short run make us be careful when doing the final feasibility study of the project, especially the financial study (costing) because of the fluctuations in the currency exchange rates and the current inflation rates which generate fears from costs inflation, particularly as changes happen daily to the currency exchange rates. Also we should look at the current political conditions which the country goes through in terms of security. However the general trend encourages national industry and replacement of imports ((For instance, the new custom policies which raise custom duties on enormous unnecessary goods).

1.3- Definitions:In the context of this study, the words and phrases shall have the meanings hereby assigned to unless the context shows otherwise. Country: Arab Republic of Egypt City: New Damietta Ministry: Ministry of Industry and Foreign Trade The bank: Central Bank of Egypt Association: General Association for Investment Industrial cities: General Association for Industrial Development Targeted Sector: Wooden Industry Sector Administration: Central Administration of mobilization and Statistics Fund: Social Fund For Development

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Chapter (2): Reality of wooden industry in Egypt 2.1- Development and Growth wood industry in Egypt from year 2008 till 2012

2.2 - Development and growth forecast of wood industry in Egypt from year 2013 till 2017

2.1- Development and Growth wood industry in Egypt from year 2008 till 2012 Wood industry is one of the oldest industries which Egyptians knew and were proficient in it where trees were planted over the river banks and they used it for manufacturing furniture and ships. This industry has been developed over the centuries. Types of used wood in Egypt are shown as follows:-

*First: Natural wood:1) Imported wood: Soft wood  Pine (constructive works)  Fir (light carpentry works)  Cedar (Toys & pencils industry)  Hemlock (drilling works & boards industry ) Solid wood : Ash (Mosques & churches carpentry , dry places  Oak (doors , windows & ladders , dining room furniture industry ,veneering)  Beech (Furniture & chairs industry )  Hickory (hammer hands)  MAHOGANY (all types of furniture)  Teak (chemical labs furniture , moulds , windows frames)  Ebony (maps , design , veneering)

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Decoration wood  Cherry wood  Pear  Apple  Lemon  Olives

2) Domestic wood:     

Ficus ( sail boat structure , Axes hands) Sycamore (all types of wooden crafts , submerged under water ) Acacia (agricultural machines industry , cupboard vehicles , cane mills) Mulbury( Musical instruments industry , carpentry) Buckthorn (Agricultural machines ) Zaturn (maps , decorative antiques)

*Second: Semi – finished wood:-

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Veneer Wood:Consists of several completely dry chips, orthogonally arranged over each other, opposite and affixed with glue or with stickers and compressed under high pressure with hydraulic compressors to achieve coherence and severe adhesion.

*Wood commonly used for veneer manufacturing:   

Hemlock Pine Furnace Oak Source (industry of wooden furniture in Egypt, series of sectoral studies, Engineering industry sector, General Association for Industrial Development)

 Development and growth of wood industry in Egypt, According to division of products items and custom term *Project Products under study as follows: Numbering

Partition Part Chapter section Term Part

Chapter Section Term

Description Wood and its crafts. wood charcoal Other items of wood Other Children wooden toys - Puzzle Furniture, Medicine and surgery furniture, family items (Pads, pads’ holders, pillows, and similar), lighting devices, illuminated signals, Promotional or guiding boards and similar, buildings previously manufactured. Other furniture and its parts Other furniture made of wood Educational means made of wood

Due to the small size of the targeted business and being part of other activities beside furniture industry which the state gives priority (wood industry), therefore the available data pertained to this industry is associated with other activities and that appears in the ways of available and aforementioned sections division and in order to reach accurate monitoring, we are going to use all the available associated data.

Wood and its products and cork industry except furniture, straw and plaiting products

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Table (2-1-1) Development of wood industry in Egypt: -

in thousands pounds

Description 2008/2009 2009/2010 Number of facilities 110 81 Total workers 3912 3046 Finished production at selling 417501 333571 price Net add value 121874 116896 Source: Annual statistical book for year 2012, “Central Administration for general mobilization and Statistics” As shown in table, the effect of the global financial crisis and the effect is very clear in year 2010) the statistical book doesn’t show estimates of year 2011, 2012), from the aforementioned data we have found that the industry add value is 1/3 of the production value. 

Foreign Trade for wood sector :-

1- (Wood and Charcoal and cork and mats and baskets and plastic) Table (2-1-2) shows import and export of wood sector in million pounds Description 2008 2009 2010 2011 Imports 6341 6021 6826 8005 Exports 199 194 217 358 Source: Annual statistical book for year 2012, “Central Administration for general mobilization and Statistics” 

The previous table shows an increase in the value of imports (which includes products under study) which reached 8005 million Egyptian pounds in 2011 for 6826 million Egyptian pounds in 2010 with an increase 1179 million Egyptian pounds in comparison with our exports which equals to 217 million Egyptian pounds in 2010 and reached 358 million Egyptian pounds in 2011 with an increase 141 million Egyptian pounds and considering table (2-1-1) which shows value of production equals to 417.5 million Egyptian pounds in 2009 and decreased to 333.5 million Egyptian pounds because of the global financial crisis and we have found that in the same year of comparison 2010, we imported with 6.8 billion Egyptian pounds which indicates to a gap in this industry.

2- (Furniture, medicine and surgery furniture, family items) 

Table (2-1-3) shows export and imports of wood sector Description

2008

2009

2010

in million USD 2011

Imports 223.78 203.31 256.76 217.75 Exports 281.87 283.83 245.27 287.95 Source: “Central Administration for general mobilization and Statistics” Data was arranged and processed by international trade point.

2012/ JanNov 221.07 297.74

Supply and demand calculations and growth forecast are based on data of (wood ,charcoal , cork , mats and baskets and plastic ) and we ignore furniture , medicine furniture ,,,,,, because exports are higher than imports in most of the years and variety of the products makes the results of the product under study marginal (looking at number of established facilities which manufacture the product under study and Egyptian market volume and demand we find that the first division is more precise as it is consistent with the general trend of the product)

2.2 - Development and growth forecast of wood industry in Egypt from year 2013 till 2017 The aforementioned data shows the gap between supply and demand which is covered by importing although all the aforementioned available data includes the products project under study among other products, therefore this makes growth forecast for our products hard, however it provides an indication that the targeted project has an expected opportunity for growth increase. It's worth to mention that the project is one of the suggested projects by several authorities in the state like:  Social fund: “Guiding study for a factory of children wooden toys”.  General Association for Industrial Development, series of sectorial studies –engineering industry sector, "wooden furniture industry in Egypt" has suggested educational means made of wood project. By reviewing the companies which perform the same business in Egypt, we have found out that these companies perform this business as sub-business beside other several business, which results in covering the gap mainly through importing. Hence we expect high growth rates of demand on our products to cover this gap and that what’s going to be explained in details in chapter 3. For supply and because of the evaluation of years 2008-2012 include the global financial crisis as well as Arab Spring revolutions especially Jan25th revolution followed by incidents which have affected the general economic conditions and the main state activities. Looking at supply volume of the wood products except furniture industry, we can see how this industry has been affected and according to production volume in year 2011 for the entire sector which was 349 million (obtained from statistics of central administration) and production volume in 2010 was 333.57 million which shows a growth rate equals 4.63 % Considering the incidents which Egypt has been through, we will use the same growth rate for measuring the sector growth from 2013 till 2017 as follows: Table (2-2): Production growth forecast for wood industry:Year Production Source: Awrak Estimate

2013 365.22

2014 382.19

2015 399.96

2016 418.55

2017 438