INSTITUTE OF PUBLIC MANAGEMENT AND DEVELOPMENT STUDIES DEPARTEMENT OF DEVELOPMENT ECONOMICS HENOS LEATHER GARMENT PLANT P.L.

C PROJECT FEASIBILITY STUDY

SUBMITTED TO -DR.NIGUSSIE SEMIE Prepared by Hailemariam Abera Course: project Planning and Analysis

January 07, 2012

CSU, Addis Ababa

TABLE OF CONTENTS

PAGE

....................................................................................................................................................1 INSTITUTE OF PUBLIC MANAGEMENT AND DEVELOPMENT STUDIES.................1 DEPARTEMENT OF DEVELOPMENT ECONOMICS........................................................1 HENOS LEATHER GARMENT PLANT P.L.C......................................................................1 PROJECT FEASIBILITY STUDY...........................................................................................1 SUBMITTED TO -DR.NIGUSSIE SEMIE .........................................1 Prepared by Hailemariam Abera .........................................................................................1 Course: project Planning and Analysis...............................................................................1 ...........................................................................................................................................1 January 07, 2012 .......................................................................................................................1 CSU, Addis Ababa ...........................................................................................................2 ...................................................................................................................................................2 TABLE OF CONTENTS PAGE..............................................................................2 SUMMARY................................................................................................................................4 1.BACKGROUND......................................................................................................................6 2.1 The Owner............................................................................................................................6 2.2 Objectives of the Company;.................................................................................................6 2.3 Brief Information on the owner and project coordinator.................................................7 2.4 Brief on the project..............................................................................................................7 2.5 Credit Relation....................................................................................................................7 2.Security available for loan purpose........................................................................................7 3.TECHNICAL ASSESSMENT...............................................................................................8 4.1 Location of the Project .......................................................................................................8 4.2 Project Layout.....................................................................................................................8 4.3 Machinery, Equipment, Furniture and Fixtures..............................................................8 4.3.1 Projects Machinery & Equipments.................................................................................9 4.3.2 Office Equipments, Furniture & Fixtures.......................................................................9 4.4 Raw Materials and Utilities...............................................................................................10

4.4.1 Raw Materials Supplies..................................................................................................10 4.4.2Utilities.............................................................................................................................11 4.MARKET STUDY ................................................................................................................11 5.1 General..............................................................................................................................11 5.2 Past Supply and Present Demand....................................................................................12 5.2.1 At National Level Past Supply and Consumption........................................................12 5.2.2Demand Analysis.............................................................................................................15 5.2.2.1Demand at National Level ...........................................................................................15 5.2.2.2Demand at the Regional Level ....................................................................................16 5.3 Pricing and Distribution....................................................................................................18 5.4 PLANT CAPACITY AND PRODUCTION PROGRAM ...............................................18 5.4.1Plant Capacity..................................................................................................................19 5.4.2Production Program........................................................................................................19 5.4.3Production Process..........................................................................................................19 5.ORGANIZATION, MANAGEMENT AND MANPOWER................................................20 6.1 Organizational Management.............................................................................................20 6.2 Manpower..........................................................................................................................20 6.3Organizational Structure....................................................................................................20 6.4 MANPOWER AND TRIANIGN REQUIREMENT........................................................22 5.2.1Manpower Requirement .................................................................................................22 5.2.2Training Requirements ...................................................................................................22 6.FINANCIAL ANALYSIS.....................................................................................................23 7.1 Initial Investment Cost and Source of Finance...............................................................23 7.2 Result of Finance...............................................................................................................23 Profitability...............................................................................................................................23 Financial Position....................................................................................................................25 Liquidity...................................................................................................................................25 Financial Internal Rate of Return and Net Present Value....................................................25 Pay Back Period.......................................................................................................................25 IRR Sensitivity Analysis...........................................................................................................25 7.ECONOMIC and SOCIAL BENEFITS..............................................................................26 8.CROSS CUTTING ISSUES ASSESSMENT......................................................................27 9.1 HIV AIDS...........................................................................................................................27 3

9.2 Gender issue.......................................................................................................................27 9.Risk Assessment....................................................................................................................28 10.1 Characteristic (personal risk)..........................................................................................28 10.2Business Risk....................................................................................................................28 10.3Collateral Risk...................................................................................................................28 10.Conclusion .........................................................................................................................29

SUMMARY
In Ethiopia the role of private sector in the economic development has greatly increased since the change from command economy to free market economic system. Nevertheless, the contribution the sector to national income is very small due to the continuation of limited industrial development in the country.

Ethiopia has the largest livestock population in Africa. But, taking the country as a whole there is underutilization of this huge economic resource potential. In accordance with this, the ultimate target of this investment project is to make use of this relatively unexploited resource potential and take part in the growing manufacturing activities by establishing leather producing plant. This project feasibility study deals with establishment of leather garments producing plant in Mekelle town, Tigray National Regional State. The objective of this project is to produce good quality garments and to create job opportunities for the local communities. The following presents the main findings of the feasibility study. The demand projection pointed out that there is sufficient demand in Tigray region alone for leather garments. Accordingly, the planned plant is set to produce 3000 jackets and 3000 coats annually. The total investment cost of the project including working capital is estimated at Birr 3,010,219 and creates jobs 13 people amounting to income of Birr 196,020.

The financial result indicates that the project will generate profit beginning from the first year of operation. Moreover, the project will payback fully the initial investment less working capital in 3 years. The result further shows that the calculated IRR of the project is 32% and NPV valued at 10% discount is Birr 3,704,954. The sensitive analysis shows that the proposed plant is capable of price shocks. In addition to this, the project possesses wide range of economic and social benefits such as increasing the level of investment, tax revenue, and employment creation. Generally, the project is technically feasible, financially and commercially viable as well as socially and economically acceptable. Hence the project is worth implementing. Annual Aggregate Production: . 6000 peaces Project Life: .. 10 years 5

Total fixed investment costs 2,946,154 Annual Operational Cost: . 1,178,496birr Pre-production Cost: .53,846 birr Depreciation Period:.. 20 years for building & 5 years for vehicles Total Sales Revenue for the 1st year:2,430,000 birr Income Tax .. 35% of the profit Net Cumulative Profit, 10 years .. 9,108,158 birr Pay Back Period .. 3 years Net Present Value 3,704,954 birr Internal Rate of Return .32 %

1. BACKGROUND
2.1 The Owner
Name of the Licensee: . Henos Leather garment Plant P.L.C Manager (would be): Hailemariam Abera Address: Mekelle Town, Kebele 11, House No. 598 Business: Small Scale Leather garment Plant Form of Organization: PLC Registration: On progress Business License: On progress Investment Permit:By Ethiopian Investment Authority on 1st January 2012 License Area: .. Tigray regional state, Mekele town Total area of the Project ... 1000 square meter Status of the Project: New Establishment

2.2 Objectives of the Company;

The main objective of this project is to produce a dependable and good quality garment in order to minimize the market shortage arising from the ever growing demand for leather

jackets and coats. The project is also planned to create job opportunities and improve the income of the local communities. Similarly, the project will have linkage effect with domestic tanneries and animal farmers though creating market for their products. The leather raw materials can be obtained from the domestic tanneries. The project is to produce and supply the products for the markets in and around Mekele, and Addis Ababa with dependable quality. The project will also maximize its profit without being hostile to the environment.

2.3 Brief Information on the owner and project coordinator

The owner of the project W/rt Tsehay Abera has allotted all the initial required capital to run the project and it amounts to Birr 1.248 . She is academically capable of running the project in that she has acquired MSC degree from Daad University of Germany in Organizational Management. Much of the required money needed to accomplish the project will be covered by her. She has over 10 years of work experience in both government and private organizations working as organization manager. The prospective coordinator for this project is Ato Ashebir Abera who has sufficient experience in managing private manufacturing enterprises undertaken in the nation in addition to getting his second degree in similar field of study.

2.4 Brief on the project

The project will be situated in Tigray Regional State, Mekele town, Kebelle 11 near Adishumdhun. This place is near to the market place of Mekele town and will be easily accessible road transport both during the dry and wet seasons.

2.5 Credit Relation

The company had no credit commitment with banks and other financial institutions until this date of report. Recognizing the importance of having its own building and premises, the company has negotiated and makes a deal to finance the acquisition from bank loan.

2. Security available for loan purpose

A, Plant building to be constructed .. Birr 2,100,000 B, Business mortgage (machinery & Equipments) .. Birr 2,000,000

Total Birr . Birr 4,100,000

3. TECHNICAL ASSESSMENT
4.1 Location of the Project
Mekelle is believed to be an appropriate location for the proposed plant. The appropriateness of the location for the proposed project is in view of availability of infrastructure, easy transport access to inputs, as well as major market area for the output is Mekelle. Similarly, there is availability of the major raw material, i.e. finished processed (tanned) leather. Thus, the selected location of the plant is situated at Mekele town, Kebele 11, in a distract named as Adi shumdhun District. According to the resource potential study, finished leather which is the main raw material is identified to be purchased from Sheba Leather Industry PLC located at.Wukro town, Wukro wereda of which only 40 kilometers from Mekele. As an alternative finished leather can also be purchased from other tanneries located in and around Addis Ababa. In addition, Mekelle is the capital town of the regional, where there is relatively high market potential in the region.

4.2 Project Layout

The total site area for the proposed plant is estimated to be 1000 square meters where 225 square meters for two workshops where sawing and finishing, inspection and cutting are performed, 125 square meters for warehouse, 150 square meters for 5 offices and 1 waiting room for guests, 89 square meters for lounge while the remaining 311 square meters will be compound for parking, loading and unloading trucks and other purposes.

4.3 Machinery, Equipment, Furniture and Fixtures

Henos Leather Garment Company will fully equip with the standard that it can serve and facilitate for production process. Major machineries and equipments would be installed in the appropriate rooms. The following list of machinery and equipment which are required by the leather garments producing project will be procured from domestic markets. Fixtures, furniture and other necessary office equipments will also be fulfilled from domestic market.

The total cost of these machinery and equipment including freight insurance and bank cost is estimated to be about Birr 800,000.

4.3.1 Projects Machinery & Equipments

The total cost of machinery and equipment including freight insurance and bank cost is estimated to be about Birr 800,000.

Table 1: List of Machinery and Equipment Item No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Machinery and Equipment Blind stitching machine Button hole making machine Button sewing machine Cylinder bed sewing machine Cutting machine, straight blade (7height) Flat bed sewing machine Single Needle Block Single Needle Post-Bed Needle Feed Strap Cutting Hydraulic Cutting Press Dyes for Hydraulic Cutting Leather Skiving Machine Flexible dummy (Ladies & Agents) Spare parts Miscellaneous tools and equipment Furniture
Unit of Measure

Set Set Set

Quantity 1 1 1 1 1 8 1 1 1 1 60 2 2 1 1

4.3.2 Office Equipments, Furniture & Fixtures

The total cost office equipments, furniture & fixtures is estimated to be about Birr 100,000. Table 1: List of Office Equipments & Furniture Unit of Quantity S. No. Items
Measure

1 Fire Extinguisher 2 Office Equipment

Set

1 4

3 4 5 6 7

Computers & accessories Printers Cupboard Chairs & tables File cabinet

4 1 4 4 4

4.4 Raw Materials and Utilities 4.4.1 Raw Materials Supplies

The most common raw material required for the production of leather garments is processed leather from tannery industries. There are many of local tannery industries that can supply adequate amount of processed leather to leather garments producing plants; Among these local tanneries we find:- Addis Ababa, Elico,Dire, Walya and Batu (in Addis Ababa region), Modjo, Ethiopian Tannery, Hafede, Shoa, Hora, Bale, Kolba and Tikur Abaye (in Oromiyya region), and Bahir Dar, Debre Birhan, Dessie, Kombolcha, Mersa and Abeya (in Amhara region) and Sheba (in Tigray region) .In addition to processed leather, the proposed plant requires suede leather, inner nylon lining fabric, zippers, buttons, shoulder pads, elastic band, and thread. Some of these are imported materials but they are readily available in domestic markets. The details of annual raw materials requirement at full production capacity are shown in Table 3 below.

Table 2:
Item No.
1 2 3 4 5 6 7

Raw Material Requirements

Unit Unit of Price LC FC 900,000.00 57,000.00 18,000.00 12,000.00 2,200.00 4,800.00 6,000.00 1,000,000.0 0 Total 900,000.00 57,000.00 18,000.00 12,000.00 2,200.00 4,800.00 6,000.00 1,000,000.00 Cost (Birr)

Description Suede Leather Lining fabric (nylon) Zippers Button Thread Shoulder pads Elastic band Total

Measure Qty (Birr) M2 3,000.00 300.00 M2 3,000.00 19.00 Pcs 6,000.00 3.00 24,000.0 Pcs 0 0.50 Km 200.00 11.00 Pair 1,200.00 4.00 M 6,000.00 1.00

LC = Local Currency FC = Foreign Currency

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4.4.2 Utilities
The major utilities required by the plant are electricity, water and telephone and they are already available in the vicinity and will be easily installed to the project. The details annual raw materials requirement at full production capacity are shown in Table 4 below.

Table 3 Utilities Requriement per year

Item No. 1 2 Description Electricity Water Total Unit of Measure Kwh M3 Qty 56,250 500 Unit Price (Birr) 0.474 1.5 LC Cost (000 Birr) FC Total 26,640 750 27400

26,640 750

4. MARKET STUDY
5.1 General
Ethiopia has a large competitive advantage in the leather industry because it ranks number 1 in Africa and 10th in the world with respect to the size of its livestock population. The Ethiopian leather and
leather product sub-sector produces a range of products from semi-processed leather in various forms to processed leathers such as shoe uppers, leather garments, school bags, handbags, industrial gloves, and processed leather. Such leather products have been consumed by a portion of the domestic population and are also exported to

more than 60 market destinations in Europe, North America and the Far East (Especially to

countries like Italy and the United Kingdom , the USA, Canada, Japan and China). There are also some export sales to countries in Africa and the Middle East (in particular to Nigeria and Uganda and Yemen). Leather garment is one of the many products of processed leather comprises mainly coats and jackets for gentlemen and ladies. Ethiopian pure leather garment are worn in the day to day activity of the people. Ethiopian pure leather garment are very comfortable to wear in cold places and seasons. They are also more durable than any jeans jackets and woolen coats. The 11

leather garment to be produced by the proposed small plant mainly targets the urban population of the Tigray National Regional State.

5.2 Past Supply and Present Demand 5.2.1 At National Level Past Supply and Consumption

Leather garment production in Ethiopia includes both industrially made and those produced at cottage small scale level. Most of the cottage and small scale industries are found in and around Addis Ababa while the rest are located in few major towns of the country. In general, a large proportion of demand for leather garments is met by local production while a few amount of a high grade product, usually for the extremely higher income group, is imported from overseas. This imported leather garments does not exceed 100 pieces per year. All of the Ethiopian large leather garment factories are located in Addis Ababa which are the major leather garments producing plants of the country. However, their target market is mainly for export. While the rest are cottage and small scale industries that are found mainly in Addis Ababa and produce for the domestic market. Although it is difficult to estimate the exact supply and demand for the product due to lack of accurate data and diversity of the producers, it has been tried to analyze the situation based on some indicative available official statistics and plausible assumptions. Currently, 18 enterprises manufacturing leather products are operate in the country producing products ranging from various forms of semi-processed leather to finished leather articles such as shoe uppers, leather garments, stitched upholstery, school bags, handbags, industrial gloves and finished leather.

As per the Central Statistics Authority, Statistical Abstract of Ethiopia 1993/94 1997/98 the domestic production of leather wearing garment in the past five years is given in Table 5. Table 4 Domestic Production Of Leather Wearing Garments Year Quantity 12

(E.C..). . 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 Total Average

(pieces)
22,484 13,034 10,411 16,838 7,599 22,054 26,024 30,869 36,488 42,975 50,498

279,274 25,389

Source: CSA, Statistical Abstract 1993/94 1997/98 As can be seen from Table 5, the average annual level of production in the 11 years under consideration is about 25,389 pieces. But the trend of production is increasing over the recent 7 years and last year it reached to 50,498 pieces. In this regard it has to be noted that information obtained from CSA refers only to the production of large and medium scale industries which have licenses from the Ministry of Industry and corresponding Bureau of the Regional States of the country. Moreover, it does not include enterprises that have less than ten workers. Hence, the data obtained from CSA, underestimates the domestic production of leather garments for the reasons mentioned above. Therefore, in order not to underestimate the current supply of leather garments the share of these establishments which are believed not covered by CSA are estimated to have a share of about half the amount of the surveyed units. Accordingly, current domestic supply of leathered garments both from these covered and not covered by CSA survey is estimated to be 1.5 X 50,498 is almost equal to 75,750 pieces. In addition to the domestic production and few imports the country also exports leather wearing garments abroad. The amount of leather wearing garments exported to overseas in the past five years is given in Table 6. Table 5 Export Of Leather Wearing Garment Year Quantity

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(E.C..). . (pieces) * 1993/94 4,476 1994/95 13,032 1995/96 6,928 1996/97 304 1997/98 1,006 1998/99 1,197 1999/00 1,499 2000/01 2,034 2001/02 2,775 2002/03 3,808 2003/04 5,311 Total 42,370 Average 3,852 *Since quantities in the External Trade Statistics are given in kilograms for the years 1993/95 2003/04 E.C.. an adjustment is made into pieces using an alteration rate of 1 kg to be 2 pieces of leather wearing garments. Source: CSA, Statistical Abstract 1993/94 2003/04 E.C.. Table 6 reveals that annual exports of leather wearing garment to the overseas market has been shrinking from 13,032 pieces to 304 pieces in the years 2003/04. But, in the recent six years there is an increasing trend in which it had grown more than five folds. In spite of the above increase trend, the annual maximum amounts still reached are low compared with the quantities exported in the years 1993/94 1995/96 E.C.. Thus, the external market has unsatisfied demand for Ethiopian leather garment products. From the above tables, net domestic consumption of the respective years can be calculated as follows:C= P + (I-E) Where:- C = is the net domestic consumption of a year

P = is the production of a year, I = is imports of a year, and E = the exports of a year. According to the above formula, the current net domestic consumption is calculated and tabulated as follows:Table 6 Consumption Of Leather Wearing Garment Year Quantity (pieces) 14

(E.C..). . . 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 Total Average

Production
33,726.00 19,551.00 15,617.00 25,257.00 11,399.00 33,081.00 39,036.00 46,304.00 54,732.00 64,463.00 75,747.00 418,913.00 38,083.00

Imports
100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 1,100.00 100.00

Exports
4,476.00 13,032.00 6,928.00 304.00 1,006.00 1,197.00 1,499.00 2,034.00 2,775.00 3,808.00 5,311.00 42,370.00 3,852.00

Consumption
29,350 6,619 8,789 25,053 10,493 31,984 37,637 44,370 52,057 60,755 70,536 377,643 34,331

As in the Table above the domestic consumption of leather wearing garment had shown that declines in from 1993/94 to 1997/98 E.C., but since 1998/99 E.C., it has been in increasing trend and amounted up to 70,536 pieces in 2003/04 E.C. The possible reason for the declines in domestic consumption of leather wearing garment was due to unexpected fluctuations in the external demand which in turn created supply shortage in the local market. From this it can be understood that the local market is still able to absorb further supply of leather wearing garment.

5.2.2 Demand Analysis 5.2.2.1 Demand at National Level

In the overseas there is a wide market for leather garments provided that a required standard of quality and design of the products are met. Additionally, it is needed to make identification and contacts with foreign companies that can make export market for the product successfully. As a matter of fact, the government has established an Export Promotion Agency that can assist entrepreneurs that are willing to engage in the production of goods for export. Consequently, the export market for Ethiopian leather garment is growing at a remarkable rate. For example, considering the recent six year information, the export market for Ethiopian leather garment is growing at an average rate of 30% per annum while its 15

domestic demand is growing at an average rate of 16% per annum. Considering half of the 30% growth rate in the demand projection for export market will have high probability to meet that demand, but if the 15% growth rate for domestic market is taken into account, then supply of the product would be in excess of its demand. A good method for demand projection would be using some determinants of demand like the level of income, growth rate and size of population. Therefore, using table 8 of population data, derived effective demand for leather garments products is estimated in table 9. Table 7 Urban Population Size Of Ethiopia And Tigray By Sex, July 2011 Male Female Both Sex Ethiopia 6,751,654 6,999,915 13,751,569 Tigray 482,382 538,565 1,020,947 Source: CSA, National population and Housing Census of Ethiopia. May 2007

5.2.2.2

Demand at the Regional Level

Since, quantity of demand for leather garments is not documented in detail. In order to project the future demand, the demand for the leather wearing garments is conservatively assumed from the incom level of the urban population. Therefore, to determine the current and future demand for the products in the region, the following conservative are assumptions are considered.. i. At least 0.3 percent of the urban females in the region have demand for leather Jacket and coat. ii. At least 1 percent of the urban male in the region have demand for leather Jacket and coat. Table 8 Estimated Demand By Urban Population Of Ethiopia And Tigray Country/ Region Ethiopia
Urban population Demand (in % of Population) 0.50% 0.15% 0.50% 0.15% Qty Demanded Jacket 33,758 10,500 44,258 2,412 808 3,220 Coat 33,758 10,500 44,258 2,412 808 3,220 Both 67,516 21,000 88,516 4,824 1,616 6,440

Sex

Tigray

Male 6,751,654 Female 6,999,915 Both Sex 13,751,569 Male 482,382 Female 538,565 Both Sex 1,020,947

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Applying the urban population size, the present (2004) regional demand for the leather garments in the domestic market is 6,440 pieces and is expected to grow at the rate of 2.9% which is the same as that of population growth rate. In the region there is only one tannery located in Wukro town, Sheba Leather Industry PLC, which produces variety of finished leather products (except leather jackets and coats) and semi processed finished leather. The majority of its finished leather products are exported to foreign market while the semi processed finished leather and some the finished leather products like shoes, hand bags, school bags, ladies bags, waist belts, brief cases are sold in domestic markets. Accordingly, the projected demand for the urban population of Tigray for the next 10 years is calculated as follows:-

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Table 9 Projected Demand And Unsatisfied Demand Year (E.C.) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Domestic Market (Pieces) 88,516 91,083 93,724 96,442 99,239 102,117 105,079 108,126 111,261 114,488 Export Market (Pieces) 5,311 6,161 7,146 8,290 9,616 11,155 12,940 15,010 17,412 20,198 Total (Pieces) 93,827 97,244 100,870 104,732 108,855 113,272 118,019 123,136 128,673 134,686 Existing Unsatisfied Supply Demand (Pieces) (Pieces) 75,850 17,977 75,850 21,394 75,850 25,020 75,850 28,882 75,850 33,005 75,850 37,422 75,850 42,169 75,850 47,286 75,850 52,823 75,850 58,836

As can be seen from Table 10, the unsatisfied demand for leather garment will constantly grow at an average rate of 14% per year from the present 17, 9776 pieces to 58,836 pieces during the coming 10 years. The figure can substantially increase if the assumption is relaxed and also if other regions' demand is incorporated in the document.

5.3 Pricing and Distribution

The price of leather garment varies mainly according to the grade of leather used and design of the product. Current price of locally produced pure leather jackets and coats in Addis Ababa ranges from Birr 1000 to Birr 1500. Even though the products of the proposed project are of high quality, they are new to the customers. So in order to develop goodwill and attract adequate number of buyers, a market penetration price (the lowest existing market price) will be used. Thus, the prices including vat (value added tax) for jacket will be Birr 1000 per unit and for Coat will be Birr 800 per unit. So, projection of the sales revenue shall be considered accordingly.

5.4 PLANT CAPACITY AND PRODUCTION PROGRAM

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5.4.1 Plant Capacity

According to the estimation of the machines manufacturer written on the manual, the plant has a production capacity of 20 pieces of leather garments per 8 hours a day. But if working hours is shift system

5.4.2 Production Program

Production schedule holds on 300 working days per annum and 1 shifts of eight hours each. The plant will start production at 60% of its capacity in the first year of operation (2004). A gradual capacity increase is proposed for the plant so as to allow for manufacturing skill development. Hence, the full capacity of production shall be attained at the fourth year and then after. The proposed production program is stated in Table 11 Table 10 Production Programme Type Outputs (pcs): Jackets Coats Annual Capacity Utilization (%) 1st year 2nd year = 3rd year 4th -10th years = 50% 67% = 83% = 100% 1,500 1,500 2,000 2,000 2,500 2,500 3,000 3,000

5.4.3 Production Process

The production process of leather garments does not involve complicated techniques. The leather is first cut to the required size and design. Plain sewing, pasting, button hole making, button fixing are other important operations which are performed after cutting. There is no particular specification for the manufacture of leather garments. The specifications of leather garments vary with the type of fashion of the product on a specific time. Other specifications like design and pattern, are in most instances provided by the buyer, like the color of the leather and its softness. Best designs and styles are also imitated from foreign made leather garments.

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5. ORGANIZATION, MANAGEMENT AND MANPOWER

6.1 Organizational Management
The company should have appropriate organizational structure so as to be able to achieve its objectives as well as to the satisfaction of standard requirement. It is important for a company to have a Board of Management (BOM), which will be responsible for the overall activities of managerial, leadership and policymaking. Under the BOM there will be a general manager who is responsible for leading the two

BOM important departments. The production department is responsible for all main production BOM
activities and the others. Administrative and Finance Departments, will take the responsibilities of running the supportive staff and general services issues.

6.2 Manpower Manager Henos Leather Garment Plant P.L.C has General made manpower requirement plan for a successful General Manager
implementation of the proposed project. The administrative staff are considered as supportive personnel and expected to be 4, while the production department shall consists of 5 technical

Supervisor and Supervisor and Purchaser Purchaser workers. There should also be 2 guards and a cleaner. Therefore, the total number of workers
is assumed to be about 13 personnel including the general manager. In general, the organizational and manpower arrangement is expected to provide good working atmosphere in the companys day-to-day activities. Administrative & Finance Administrative & Finance

ProductionDepartment Department Production

Department Department

Technical Technical Mechanic Mechanic and and Electrician Electrician

Designing Designing

Tailoring Tailoring Secretary Secretary and andStore Store Keeper Keeper

Clerk and Clerk and Personnel Personnel Keeper Keeper

6.3 Organizational Structure

Accountan Accountan t tand andSales Sales

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Keeper Keeper

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6.4 MANPOWER AND TRIANIGN REQUIREMENT 5.2.1 Manpower Requirement

. The total number of manpower needed in the proposed project is 13 which include both skilled and unskilled workers. The details of the manpower requirement along with the annual labour cost is shown in Table 13 Table 11 Manpower Requirement
Labour Cost (Birr) Salary per worker Monthly Annual 2,500.0 30,000.00 0 2,500.00 2,000.00 2,000.0 24,000.00 0
1,000.00

Item No. Job Title 1 General Manager 2 Administration, Finance Commercial & Manager 3 Accountant and Sales Person 4 Designers and Tailors 5 Supervisor and Purchaser 6 Mechanic and Electrician 7 Production & Technical Manager 8 Secretary and Store Keepe 9 Clerk and Personnel 10 Cleaner 11 Guard 12 Sub-Total 13 Employee Benefit: = 10% of Basic Salary Grand Total

No. 1 1 1 2

1,800.00

1
1,000.00

1
1,000.00

1 1 1 1 2 13

1,500.00
800.00 500.00 450.00 250.00

1,000.0 0 3,600.0 0 1,000.0 0 1,000.0 0 1,500.0 0 800.00 500.00 450.00 500.00 14,850 1485 16335

12,000.00 43,200.00 12,000.00 12,000.00 18,000.00 9,600.00 6,000.00 5,400.00 6,000.00 178,200.00 17,820.00 196,020.00

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5.2.2 Training Requirements

Manufacture of leather garments has been practices for some considerable time in this country. Therefore, it is anticipated that some trained labour would be available to the proposed plant.

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However, it is proposed that tailors and designers be give appropriate on-site training of leather garments. Estimated cost of on-site training of this nature is about Birr 30,000.

6. FINANCIAL ANALYSIS
7.1 Initial Investment Cost and Source of Finance

S. No 1 2 3 4 5 6 7

Table 12 Initial Investment Cost and Source of Finance(Birr) Cost Items Total Own Bank Loan cost Cntribution 300,00 100 Land Building and Civil Work Plant Machinery and Equipment Office Furniture and Fixture Office Equipment and supplies Vehicle Pre-production cost
Total Basic Cost 300,000 0 % 176615 26615 15 4 4 % 200,00 800,000 0 25% 100 40,000 40,000 % 100 60,000 60,000 % 280,00 100 280,000 0 % 100 53,846 53,846 % 3,033,8 933,84 46 6 31% 100 58,835 58,835 % 3,092,6 992,68 81 1 32% 1,500,0 00 600,00 0 85% 75%

2,100,0 00

69%

Working Capital
Grand Total

2,100,0 00

68%

7.2 Result of Finance Profitability

According to the projected income statement, the project is profitable throughout its life of operation. In the first year, the annual net profit is Birr 655,859 and it will increase

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progressively increase in the course of the operation time and reaches about Birr 1,272,344 in 10 years.

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Financial Position
The projects balance sheet shows quite good financial position. At the end of 1 st year, the net worth will be Birr 643,619 and will increase to about Birr 10,097,208 at the end of projected years.

Liquidity
The cash flow projection indicates an overall liquidity of the project. The cumulative cash balance at the end of the projected years would be about Birr 10,097,208.

Financial Internal Rate of Return and Net Present Value

Based on the cash flow projection for discounting, the calculated IRR of the project is 32%, Benefit Cost Ratio is 2.863 and the Net Present Value at 10% discount rate is Birr 3,704,954.

Pay Back Period

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

IRR Sensitivity Analysis

The proposed plant is sensitive to a possible decrease in the sales. That is the plant incurs loss of Birr 2776969 in the first year and this incurring of loss continues up to the six year making total loss of Birr 10,908,076 but it starts making profit thereafter if a 20% sales decrease takes place. However, the payback period extends to more than 10 years which could make the project non feasible.

25

7. ECONOMIC and SOCIAL BENEFITS

Economic and Social Benefit The project can create employment for 13 persons. In addition to supply of the domestic

needs, the project will generate Birr 2.8 million 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. The proposed project possesses wide range of benefits where it promotes the profit maximization objective of the business owner and there by fulfills the socio-economic goals and objectives the state government and the community. It also helps diversify the economic activities of the society and it creates linkage between the agricultural (livestock) and industrial sector. The other major benefits are listed as follows:
A. Profit Generation The project is found to be financially viable and earns a profit of Birr 9108158 within the project life. Such result can encourage the project owner to reinvest the profit earned in similar plants. B. Tax Revenue In the project life under consideration, the region will collect about Birr 8,521,006 from corporate tax payment alone (i.e. excluding income tax, sales tax and VAT). Such result creates additional income for the regional government that could be used in expanding basic social services in the region. C. Employment and Income Generation

26

Like most of the projects, the proposed project is expected to create employment opportunity to some citizens. That is, it will provide a permanent contract employment 13 people. Consequently the project creates income of Birr 196,020.00 per year. This would be one of the good character of the project. D. Pro Environment Project The proposed production process is environment friendly as the plant uses already processed leather.

8. CROSS CUTTING ISSUES ASSESSMENT

9.1 HIV AIDS
HIV AIDS is an epidemic disease which could hinder the viability and success of the project. There are some governmental and nongovernmental organizations which play a dominant role in minimizing the burden of it. The project cooperating with the stakeholders will contribute its best in addressing the problem by creating awareness of the epidemic to the community and by helping the victims. There will be HIV AIDS club that will help to create awareness for the new generation there by to solve the problem at the grass root level. Not implementing this will create a short term as well as long term manpower and other community based problems on the project. In this, the project will have a positive response in performing its role in community participation issues.

9.2 Gender issue

Even though there is no any legal regulation that affects the degree of men and women participation in the project, there are still some backward cultural, religious, social norms and other which hinder the participation of women. The project is will have a good potential to improve gender equity since it will have a closer relationship with community leaders, religious leaders and government officials in general and office of womens affairs in particular who are important in dealing with community on the issue.

27

9. Risk Assessment
There are universally accepted lending policies on risks from which the following risks are identified and the related mitigations are given here under. 10.1

Characteristic (personal risk)

This is the most important risk which needs serious attention As to this company, the Owner has sufficient years of work experience in both government and private organizations. This can help to mitigate the risk that comes from personal problem.

10.2

Business Risk

The outcome of the business, which is industrial unit, is generally found to be dependable. The demand and supply gap reveal the need of the product of the project. According to the demand of leather garment in the project proposed area, the effect of competitors in this sector would not be an immediate alarming threat at least for the coming five years. However, the reaction of competitors should be attended, in addition to an advanced promotional work and sustainable goodwill creation in the project area as well as in the public. To realize this motive the management and bureaucracy should be designed and practiced in line of work. Every time there will be periodic monitoring and evaluation that is accompanied by taking timely measures depending on the gap that is found between planned progress and actual progress during the monitoring and evaluation.

10.3

Collateral Risk

The collateral is an alternative possibility in case of any failure in loan repayment for the lenders confidence in providing loan easily to the borrower. The plant building, Office equipment and the business as a whole are securities that can be used as collateral. The value of the building which will be constructed by the business owner is more than the value of the debt. Thus, there is no risk regarding collateral. In addition, the quality of the assets of the company is dependable

28

and the projected financial reports imply a good leverage condition that the company will have a capacity to pay the principal and interest without any problem. 7.4 Construction Risk This is one of the most important areas of risk as the factors that affect for construction are dynamic changing from time to time. In the case of Henos Leather garment Plant P.L.C, the construction work of the plant building will be made at two phases. To accomplish the work of the construction restrict follow up and regulation is important by the Board of the project.

10.

Conclusion

The Henos Leather garment Plant P.L.C is a business firm that will begin its operation in 2004 E.C at Mekelle Town of Tigray National Regional State. The promoter of the project has a deep experience in the similar projects and will contribute 992,681 birr, which is 32% of the total investment cost as a startup capital. The deep interest of the owner in this project and willingness to monitor at every phases timely is a positive asset for the project that contribute for the feasibility and realization of the project. The area selected for the project is not only favorable for the provision of the proposed service but also it is a strategic place for raw material and market access as it is located within the town. It is shown that the company will have a strong management body which helps to accomplish its objective in a smooth and easy way. The project starts to generate revenue at the first period of the project. All the analyses made so far, both the financial and economic analysis, the project is viable. Moreover, when the project is fully implemented and starts operation, it will have its own economic and social benefits in terms of creating job opportunity for about 13 permanent contract employees. Actually, this is a contribution of the project in playing a role on minimizing the unemployment problems of the area in particular and the country in general .Beside to that; it will generate revenue for the government in the form of corporate tax, VAT and salary income tax of the employees

29

In addition to proper placement of manpower, the financial analysis shows the viability of the project. The projected income statement reveals that the annual profit will increase from Birr 655,859.00 in the first period of the project to Birr 1,272,344.00 at the end of the project period. The average net income will be Birr 910,816.00. The cash flow for financial planning indicates that the project will not face any liquidity problem. The financial internal rate of return FIRR of the project will be 32% showing 22.5% margin over the lending rate and other bank charges. Moreover, the sensitivity analysis exhibited that the business will be safe to the extent of more than 10% decrease of sales or 20% increase in fixed assets or20% operating costs. The initial investment can safely be recovered until the end of third year. In general, the projected financial results justify the acceptance of the proposed project. Moreover, the social impact of the project in terms of alleviating education quality problems and unemployment makes it to be viable.

8.2 Loan Needed

Based on the overall assessments of the project, the small Leather garment Plant requires a loan of Birr 2,100,000 from external sources to fully cover the building construction that would be located at Mekele, Adi shumdhun district, Keble 11. As the detail assessment results shows the loan will be settled without any problem. 8.2.1 Terms of loan 8.2.1.1 Disbursement Disbursement The loan is proposed to be transferred to the account of the company in three phases (installment). 8.2.1.2 Loan Repayment

30

a) Principal Repayment The principal amount of Birr 2,100,000 shall be repaid in 117 equal monthly installments. b) Interest Payment Interest payment is 10 % of the loan per annum amortized over 117 months and is payable on monthly basis together with the principal repayment amount. c) Other bank charges 0.5% of the loan per annum on the outstanding balance payable on monthly basis d) Grace Period Grace Period is three months for the loan repayment from the date of the loan disbursement. 8.2.2 Collateral 1. First degree mortgage of the plants building with its all facilities, which will be located at Mekele, Adi shumdhun district, Keble 11. 2. Business Mortgage Registrable by Tigray Regional Trade, & Industry Bureau. 3. Latter of responsibility for all manufacturing machines, equipments, vehicle & other non- registerable fixed assets.

31

ANNEXES

32

9.1

Assumptions Employed in the Projected Financial Analysis Most of the operating costs items are calculated based on of market assessment of similar plants average cost over the last year. Salaries and Wages based on payroll: 10% increment per annum Technical personnel = Birr 87,360.00/year Supportive staff Total = Birr 144,300.00/year = Birr 231,660.00/year

9.1.1 Operating Costs

Repair and maintenance = 2% of the fixed assets Cost Items 1 2 3 4 Building and Civil Work Plant Machinery and Equipment Office Furniture and Equipment Vehicle
Total

Total Repair and cost Maintenance 1,766,15 30000 4 800,000 16000 2000 100,000 280,000 5600 2,946,15 53600 4

Utilities

= Average of 6 months actual & 10% increase/annum = 1,255.83 x12 = 15,070 Birr/year

Fuel & Lubricant.= Average of 6 months actual & 10% increase/annum = 83.33 x 12 = 1000 Birr/annum Raw materials = Average of 6 months actual & 10% increase/annum = 91,666.67x 12 = 1,100,000.00Birr/year

33

Office Equipments & Furniture = Average of 6 months actual & 10% increase per annum

= 9,166.67x 12 = 110, 000.00Birr/year Insurance: = 0.75% of the fixed investment = Birr 2,680,000x 0.75% = Birr 20,100/year Gowns & Uniform = Two per technical worker, guard & cleaner per annum at Birr 300/uniform = 2 x 5 x 300 = Birr 3,000 /annum = 2 x 2 x 300 = Birr 1,200/annum = 2 x 1 x 300 = Birr 600/ annum Total Depreciation: (Straight line method): Depreciation
Description

= Birr 4,800/annum

Original Value 1,766,154 800,000 100,000 280,000 53846 3,000,000

Rate (%) 5 10 10 20 20 -

Building Machinery & Equipment Furniture & Fixture Vehicle Pre-operating costs Total

34

Interest rate = 10% of the loan Sales tax on interest = 5% of interest costs Profit tax = 35% of net income before tax Miscellaneous = Average of 6 months actual & 5% increase/annum = Birr 833.33 x 12 = Birr 10,000

9.1.2

Capacity Utilization Sales is assumed to commence at 50% of installed capacity and increase by 16.67% each year until it reaches the assumed attainable capacity, 100%.

9.1.3 Sr No.

Revenue Type of Income at Income at Income at 66.7% Leather 100% 50% Capacity Garment Capacity Capacity
1 jacket 2 Coat Total 3,000,00 0 3,000,00 0 6,000,00 0 1,500,00 0 1,500,00 0 3,000,00 0 2,000,000 2,000,000 4,000,000

Income at 83.33% Capacity

2,500,00 0 2,500,00 0 5,000,00 0

Income at 100% Capacity

3,000,000 3,000,000 6,000,000

9.1.4

Disbursements At time of building construction starts = Birr 2,100,000

9.1.5

Equity Contribution Birr 2,000,000

9.1.6

Repayment is assumed to begin three months later.

35

9.1.7 9.1.8

Grace period would be -------- after first disbursement. Number of repayments: 117 equal constant principal monthly installments along with the amortized interest payment.

9.1.9

Initial Working Capital 30 days Salaries and Wages = Birr 16,335 15 days r Inventory 30 days miscellaneous = Birr 41,667 = Birr 833 Total = Birr 58835

9.1.10 Technical & Administrative Staff and a) Supportive Staff and Their Salaries
Item No. Job Title 1 General Manager 2 Administration, Finance Commercial & Manager 3 Accountant and Sales Person 4 5 6 7 Secretary and Store Keeper Clerk and Personnel Cleaner Guard Sub-Total Employee Benefit: = 10% of B.Salary Grand Total Labour Cost (Birr) Salary per worker Monthly 2,500.0 0 2,500.00 2,000.00 2,000.0 0
1,000.00 800.00 500.00 450.00 250.00

No. 1 1 1 1 1 1 2 8 8

Annual 30,000.00 24,000.00 12,000.00 9,600.00 6,000.00 5,400.00 6,000.00 93,000 9300 102,300

1,000.0 0 800.00 500.00 450.00 500.00 7,750 775 8,525

36

b) Technical Personnel
Item No. Job Title 1 Designers and Tailors 2 Supervisor and Purchaser 3 Mechanic and Electrician 4 Production & Technical Manager 5 Sub-Total Employee Benefit:= 10% of B. Salary Grand Total Labour Cost (Birr) Salary per worker Monthly 3,600.0 0 1,800.00 1,000.0 0 1,000.00 1,000.0 0 1,000.00 1,500.00 1,500.0 0 7,100
710 7810

No. 2 1 1 1 5 8

Annual 43,200.00 12,000.00 12,000.00 18,000.00 85,200

8520 93720

37

9.1.12 Detailed Revenue S. No. 1 2 Type of Leather Garment Jacket Coat Total Unit Price Qty Sales at 100% Income at 50% Income at 66.7% Income at 83.33% Income at 100%

(Birr) Capacity Capacity Capacity Capacity Capacity 900 3,000 1350000 1800000 2250000 2700000 720 3,000 1080000 1440000 1800000 2160000 2430000 3240000 4050000 4860000

9.2 Financial Analysis Projections 9.2.1 Total investment costs Description\Year Total fixed investment costs Total pre-production expenditures Interest Increase in net working capital Total investment costs 0 2,680,00 0 53,846 10,219 0 2,744,06 5 1 0 0 0 0
0

2 0 0 0
199,003 199,003

3 0 0 0
202,115 202,115

4 0 0 0
205,557 205,557

5 0 0 0
42,659 42,659

6 0 0 0
46,806 46,806

7 0 0 0
51,361 51,361

8 0 0 0
56,372 56,372

9 0 0 0
61,879 61,879

10 0 0 0
67,932 67,932

9.2.2 Operating costs projection Description\Years 1 2 3 4 5 6 7 8 9 10

38

Salary & wages Raw materials Repair & maintenance Office Equipments & Furniture Utilities Fuel & Lubricant Insurance Gowns & uniforms Miscellaneous Depreciation Financial costs Total operating costs

178,200

196,020

215,622

237,184

260,903

286,993

315,692

347,261

381,988

420,186

500,000 53,600 100,000 27,400 2,000 20,100 4,800 10,000 159,769 122,627 1,178,496

666,670 54,672 110,000 30,140 2,200 20,100 4,800 10,500 159,769 122,627 1,377,49 8

833,330 55,765 121,000 33,154 2,420 20,100 4,800 11,025 159,769 122,627 1,579,61 2

1,000,00 0 56,881 133,100 36,469 2,662 20,100 4,800 11,576 159,769 122,627 1,785,16 9

1,000,00 0 58,018 146,410 40,116 2,928 20,100 4,800 12,155 159,769 122,627 1,827,82 7

1,000,00 0 59,179 161,051 44,128 3,221 20,100 4,800 12,763 159,769 122,627 1,874,63 0

1,000,00 1,000,000 0 60,362 61,570 177,156 194,872 48,541 53,395 3,543 3,897 20,100 20,100 4,800 4,800 13,401 14,071 159,769 159,769 122,627 122,627 1,925,99 1,982,362 1

1,000,00 0 62,801 214,359 58,734 4,287 20,100 4,800 14,775 159,769 122,627 2,044,23 9

1,000,000 64,057 235,795 64,608 4,716 20,100 4,800 15,513 159,769 122,627 2,112,171

9.2.3 Revenue projection Description\Year s Gross sales revenue Less sales tax (15%) Net sales revenue 1
243000 0 316957 211304 3

2
324000 0 422609 281739 1

3
405000 0 528261 352173 9

4
486000 0 633913 422608 7

5
486000 0 633913 422608 7

6
486000 0 633913 422608 7

7
4860000 633913 4226087

8
486000 0 633913 422608 7

9
486000 0 633913 422608 7

10
486000 0 633913 422608 7

39

9.2.4 Cash flow for financial planning

Description\Years Total cash inflow Inflow funds Inflow operation Salvage value Total cash outflow Increase in fixed assets Increase in current assets Operating costs Income (corporate) tax Financial costs Loan repayment Surplus Cumulative Cash Balance 0 0 3,010,2 19 3,010,2 19 300000 0 3,010,2 19 3,010,2 19 1 2,113,0 43 0 2,113,0 43 276717 6 1,704,2 08 2 3,016,3 93 199002 2,817,3 91 253435 2 2,360,3 20 0 199,00 2 1,095,1 02 605,57 8 122,62 7 338,01 1 656,07 3 1,064,9 09 3 3,723,8 53 202114 3,521,7 39 230152 8 2,768,7 19 0 202,11 4 1,297,2 16 808,75 1 122,62 7 338,01 1 955,13 4 2,020,0 44 4 4,431,6 43 205556 4,226,0 87 206870 4 3,179,6 85 0 205,55 6 1,502,7 72 1,010,7 19 122,62 7 338,01 1 1,251,9 58 3,272,0 01 5 4,268,7 45 42658 4,226,0 87 183588 0 3,044,5 15 0 42,658 1,545,4 30 995,78 9 122,62 7 338,01 1 1,224,2 30 4,496,2 31 6 4,272,8 92 46805 4,226,0 87 160305 6 3,079,0 85 0 46,805 1,592,2 35 979,40 7 122,62 7 338,01 1 1,193,8 07 5,690,0 38 7 4,277,4 47 51360 4,226,0 87 137023 2 3,117,0 24 0 51,360 1,643,5 95 961,43 1 122,62 7 338,01 1 1,160,4 23 6,850,4 60 8 4,282,4 58 56371 4,226,0 87 113740 8 3,158,6 77 0 56,371 1,699,9 66 941,70 2 122,62 7 338,01 1 1,123,7 81 7,974,2 42 9 4,287,9 65 61878 4,226,0 87 904584 3,204,4 04 0 61,878 1,761,8 44 920,04 4 122,62 7 338,01 1 1,083,5 61 9,057,8 02 10 4,294,01 8 67931 4,226,08 7 671760 3,254,61 2 0 67,931 1,829,77 5 896,268 122,627 338,011 1,039,40 6 10,097,2 08 Scrap 11

67176 0

0 896,10 0 401,31 6 122,62 7 284,16 5 408,83 6 643,61 9

0 0 0 0 0

40

9.2.5 Income statement projection

Description\Years sales revenue Less operating costs Operational margin In % of revenue Financial costs Gross profit from operation In % of revenue Income (corporate) tax Net profit In % of revenue Ratios (%) Net profit to equity Net profit to net worth Net profit + interest to investment 1 2,113,04 3 1,055,86 9 1,057,17 4 50 122,627 934,547 44 319,142 615,406 29 2 2,817,3 91 1,254,8 71 1,562,5 20 55 122,627 1,439,8 93 51 496,013 943,881 34 3 3,521,73 9 1,456,98 5 2,064,75 4 59 122,627 1,942,12 7 55 671,794 1,270,33 3 36 4 4,226,087 1,662,541 2,563,546 61 122,627 2,440,919 58 846,372 1,594,547 38 5 4,226,08 7 1,705,19 9 2,520,88 8 60 122,627 2,398,26 1 57 831,441 1,566,82 0 37 6 4,226,08 7 1,752,00 4 2,474,08 3 59 122,627 2,351,45 6 56 815,060 1,536,39 6 36 7 4,226,08 7 1,803,36 4 2,422,72 3 57 122,627 2,300,09 6 54 797,084 1,503,01 2 36 8 4,226,08 7 1,859,73 5 2,366,35 2 56 122,627 2,243,72 5 53 777,354 1,466,37 1 35 9 4,226,08 7 1,921,61 3 2,304,47 4 55 122,627 2,181,84 7 52 755,696 1,426,15 1 34 10 4,226,08 7 1,989,54 4 2,236,54 3 53 122,627 2,113,91 6 50 731,921 1,381,99 5 33

41

9.2.6 Cash flow projection for discounting

Description\Years Total cash inflow Inflow operation Salvage value Total cash outflow Increase in fixed assets Increase in net work capital Operating costs Income (corporate) tax Net cash flow Cumulative net cash flow Net present value @ 0 0 0 300000 0 3,010,2 19 3,010,2 19 0 0 0 3,010,2 19 3,010,2 19 3,704,9 1 2,113,0 43 2,347,8 26 276717 7 1,457,1 85 0 0 1,055,8 69 401,316 655,859 2,354,3 60 2 2,817,3 91 3,329,4 38 253435 4 2,059,4 51 0 199002 1,254,8 71 605,578 757,940 1,596,4 20 3 3,521, 739 4,115,1 58 230153 1 2,467,8 50 0 202114 1,456,9 85 808,75 1 1,053,8 89 542,53 0 4 4,226, 087 4,901,2 09 206870 8 2,878,8 16 0 205556 1,662,5 41 1,010,7 19 1,347,2 71 804,74 0 5 4,226, 087 4,738,3 11 183588 5 2,743,6 46 0 42658 1,705,1 99 995,78 9 1,482,4 41 2,287,1 81 6 4,226, 087 4,742,4 58 160306 2 2,778,2 16 0 46805 1,752,0 04 979,40 7 1,447,8 71 3,735,0 52 7 4,226, 087 4,747,0 13 137023 9 2,816,1 55 0 51360 1,803,3 64 961,43 1 1,409,9 32 5,144,9 83 8 4,226, 087 4,752,0 24 113741 6 2,857,8 08 0 56371 1,859,7 35 941,70 2 1,368,2 79 6,513,2 63 9 4,226, 087 4,757,5 31 904593 2,903,5 35 0 61878 1,921,6 13 920,04 4 1,322,5 52 7,835,8 14 10 4,226, 087 4,763,5 84 671770 2,953,7 43 0 67931 1,989,5 44 896,26 8 1,272,3 44 9,108,1 58 Scrap 11

671,77 0

42

10% DF Internal rate of return Payback period

54 32% 3 YEAR

9.2.7 Sensitivity analysis

Description Sales decrease by 10% Sales decrease by 20% Operating costs increase by 10% Operating costs increase by 20% Fixed assets increase by 10% Fixed assets increase by 20% FIRR 21% 7% 27% 23% 29% 26%

9.3 ECONOMIC OPERATING COST ANALYSIS

Description\Years Salary & wages Raw materials Repair & maintenance Office Equipments & Furniture Utilities Fuel & Lubricant Insurance 1 130530 377000 53600 88000 39182 1732 20100 2 143583 502669. 18 54672 96800 43100.2 1905.2 20100 3 157941.3 628330.8 2 55765 106480 47410.22 2095.72 20100 4 173735.4 3 754000 56881 117128 52150.67 2305.292 20100 5 191108.9 73 754000 58018 128840.8 57365.88 2535.648 20100 6 210219.8 703 754000 59179 141724.8 8 63103.04 2789.386 20100 7 231241.8 573 754000 60362 155897.2 8 69413.63 3068.238 20100 8 254366.0 431 754000 61570 171487.3 6 76354.85 3374.802 20100 9 279802.6 474 754000 62801 188635.9 2 83989.62 3712.542 20100 10 307782.9 121 754000 64057 207499.6 92389.44 4084.056 20100

43

Gowns & uniforms Miscellaneous Total operating costs

4800 10000 724944

4800 10500 878129. 58

4800 11025 1033948. 06

4800 11576 1192676. 392

4800 12155 1228924. 301

4800 12763 1268679. 176

4800 13401 1312284. 005

4800 14071 1360124. 055

4800 14775 1412616. 729

4800 15513 1470226. 008

Ecomic Gross Sales Revenue

Year economic benefit Economic Cost net benefit economic NPV @ 10.23% DF economic IRR 0 2314239. 16 2314239. 16 8,324,650 69% 1 1832220 724944 1107276 2 2442960 878129.5 8 1564830. 42 3 3053700 1033948. 06 2019751. 94 4 3664440 1192676. 392 2471763. 608 5 3664440 1228924. 301 2435515. 699 6 3664440 1268679. 176 2395760. 824 7 3664440 1312284. 005 2352155. 995 8 3664440 1360124. 055 2304315. 945 9 3664440 1412616. 729 2251823. 271 10 3664440 1470226. 008 2194213. 992

SENSETIVITY FOR ECONOMY Description EIRR Sales decrease by 10% Sales decrease by 20% Operating costs increase by 10% Operating costs increase by 20% Fixed assets increase by 10% Fixed assets increase by 20%

60% 50% 66% 63% 64% 59%

44

For Economic Sesitivity Years 0 1 economic benefit 1832220 economic 2314239. cost 16 724944 2314239. net benefit 16 1107276 economic 8,324,65 NPV 0 economic IRR 69% Sales decrease by 10% economic benefit economic 2314239. cost 16 2314239. net benefit 16 economic 6,710,88 NPV 0 economic IRR 60% Sales decrease by 20% economic benefit economic 2314239.

2 24429 60 87812 9.6 15648 30

3 30537 00 10339 48 20197 52

4 36644 40 11926 76 24717 64

5 36644 40 12289 24 24355 16

6 36644 40 12686 79 23957 61

7 36644 40 13122 84 23521 56

8 36644 40 13601 24 23043 16

9 36644 40 14126 17 22518 23

10 36644 40 14702 26 21942 14

1648998 724944 924054

21986 64 87812 9.6 13205 34

27483 30 10339 48 17143 82

32979 96 11926 76 21053 20

32979 96 12289 24 20690 72

32979 96 12686 79 20293 17

32979 96 13122 84 19857 12

32979 96 13601 24 19378 72

32979 96 14126 17 18853 79

32979 96 14702 26 18277 70

1465776 724944

19543 68 87812

24429 60 10339

29315 52 11926

29315 52 12289

29315 52 12686

29315 52 13122

29315 52 13601

29315 52 14126

29315 52 14702

45

cost net benefit economic NPV economic IRR

16 2314239. 16 5,097,11 0 50%

9.6 740832 10762 38

48 14090 12

76 17388 76

24 17026 28

79 16628 73

84 16192 68

24 15714 28

17 15189 35

26 14613 26

Op. Cost increase by 10% economic benefit economic 2314239. cost 16 2314239. net benefit 16 economic 7,753,29 NPV 2 economic IRR 66% Op. Cost increase by 20% economic benefit economic 2314239. cost 16 2314239. net benefit 16 economic 7,181,93

1832220 797438. 4 1034781 .6

24429 60 96594 2.5 14770 17

30537 00 11373 43 19163 57

36644 40 13119 44 23524 96

36644 40 13518 17 23126 23

36644 40 13955 47 22688 93

36644 40 14435 12 22209 28

36644 40 14961 36 21683 04

36644 40 15538 78 21105 62

36644 40 16172 49 20471 91

1832220 869932. 8 962287. 2

24429 60 10537 55 13892 05

30537 00 12407 38 18129 62

36644 40 14312 12 22332 28

36644 40 14747 09 21897 31

36644 40 15224 15 21420 25

36644 40 15747 41 20896 99

36644 40 16321 49 20322 91

36644 40 16951 40 19693 00

36644 40 17642 71 19001 69

46

NPV economic IRR

3 63%

Fixed Cost increase by10% economic benefit 1832220 economic cost net benefit economic NPV economic IRR 2545663. 076 2545663. 076 8,114,704 64% 724944 1107276

24429 60 87812 9.6 15648 30

30537 00 10339 48 20197 52

36644 40 11926 76 24717 64

36644 40 12289 24 24355 16

36644 40 12686 79 23957 61

36644 40 13122 84 23521 56

36644 40 13601 24 23043 16

36644 40 14126 17 22518 23

36644 40 14702 26 21942 14

Fixed Cost increase by 20% economic benefit economic 2777086. cost 992 2777086. net benefit 992 economic NPV 7,904,757 economic

1832220 724944 1107276 1832220

24429 60 87812 9.6 15648 30 24429

30537 00 10339 48 20197 52 30537

36644 40 11926 76 24717 64 36644

36644 40 12289 24 24355 16 36644

36644 40 12686 79 23957 61 36644

36644 40 13122 84 23521 56 36644

36644 40 13601 24 23043 16 36644

36644 40 14126 17 22518 23 36644

36644 40 14702 26 21942 14 36644

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benefit economic cost

2777086. 992

724944

60 87812 9.6

00 10339 48

40 11926 76

40 12289 24

40 12686 79

40 13122 84

40 13601 24

40 14126 17

40 14702 26

Evaluation on the Benefit Cost Ratio of a project Year Description Dicounted Benefit @ 10% DR Dicounted Cost @ 10% DR Benefit/Cost Ratio @ 10% DR 0 -3010219 -3010219 2.863 1 59617 6 54192 4 2 62605 9 51712 5 3 79178 7 59487 0 4 92018 6 62848 7 5 92059 6 57169 0 6 81659 9 46056 2 7 723295 371050 8 638987 298407 9 560762 237763 10 539474 228737
Total

4123700 1440395

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Income Tax Rate (on Salary) Salary Range 0 to 150 151 to 650 = = 0% 10% -15 15% -45.5 20% -117.5 25% -235 30% -412 35% -662

651 to 1400 = 1401 to 2350 = 2351 to 3350 = 3351 to 5000 = above 5000 =

Amortization Formula:P= A 1 1 n (1 + i) r

A=

i (1 + i ) n 1 (1 + i ) n

Population Size of Tigray Region by,Urban, Urban + Rural and Sex; Year (E.C..). . . 2000 E.C. 2001 E.C. 2002 E.C. 2003 E.C. 2004 E.C. 2005 E.C. 2006E.C. 2007 E.C. 2008 E.C. 2009 E.C. Male 400484 419337 439077 459746 481388 504049 527789 552648 578678 605934 Urban Female 447405 468466 490519 513610 537788 563104 589626 617397 646477 676926 Both Sexes 847889 887803 929596 973356 1019176 1067153 1117416 1170046 1225155 1282860 Male Urban + Rural Female Both Sexes 4330388 4444207 4561474 4682310 4806842 4935201 5067464 5203779 5344281 5489111

2132965 2197422 2188585 2255623 2245872 2315603 2304885 2377425 2365685 2441157 2428335 2506867 2495066 2572398 2563880 2639899 2634848 2709433 2708044 2781067

Source: National Regional Government Of Tigray, Bureau of Plan And Finance, Feb 30, 2010 GIS and Statistics Information Sub Process

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