AlCava GH: Substituting for Imports

AlCava GH was one of the major importers of Extra Neutral Alcohol (ENA) into Ghana, 90% of whose requirements were met from imports. The company was started five years before by acquiring 2,000 ha of land to produce ENA from cassava. Because duty, port charges, and transport accounted for 30% of the price, they thought they could competitively substitute for imports. They planned to invest in an annual 2.8 million litre capacity ENA plant, to capture a 4% share of the Ghana market. They would also invest in recovering carbon dioxide, a byproduct for which there was demand, and a plant to treat effluents. The company proposed to gradually expand the capacity to 9 million litres, its ultimate objective, by reinvesting its profits because it could not borrow now. The case offers information to estimate the returns to investment and consider how it may be affected by decisions on debt and equity and the uncontrollables such as interest rates and market prices.