1.

Executive summary

Total project cost is estimated to be ETB 10.26 million. The project will be financed
through lease financing 80:20 Debt equity sharing ratio. Total plant & machinery cost is
estimated to be ETB 4.14 million out of which ETB 3.31 million will be financed through
lease financing the rest ETB 1.14 thousand will be financed by the project owner.

The total working capital requirement i.e. assuming 60 days of direct and indirect
expenses is estimated to be ETB 5.22 million. It is planned to finance the working capital
requirement through short term loan from private bank.

The envisaged project planned to produce T-shirt, ladies tight, polo shirt and track suit
with a rated annual capacity of producing 1,000,000 pieces of garments under
consideration in the first year.

2. Project Background

The project is promoted by two entrepreneurs named Mr. Demeke Feyesa and Ms. Rabiel
Demeke the later having an enormous experience in the fields of apparel manufacturing.

Table 1.Share holders

S/N Name Share

1. Mr. matiyas mamo 50%
2. Ms. Tsedey mamo 50%

 Address of the project: Addis Ababa, Ethiopia Kolfe sub city Woreda 6, House No:
new.
 Principal Reg. No: New
 Tax payer identification No(TIN): New
 Value Added Tax (VAT) Reg. No: New
3. Market study
In Ethiopia there is a proactive government that has created a stable political and
economic environment. The government of Ethiopia offers many incentives and has
offered tremendous amount of freedom for foreign direct investment in textile and
apparel value chain.

 There is tremendous scope both for horizontal and vertical integration in textiles
and apparel sector in Ethiopia. This would attract further investments and growth
in the sector.
 Ethiopia has a critical mass favorable for creating industrial clusters, parks, SEZs
and EPZs for textiles and apparel sector.
 Ethiopia’s domestic market is growing very fast, and it is one of the largest
domestic markets in Africa with about a 100 million population.
 Ethiopia is one of the safest countries in the world. The crime rate is very low in
the country.
 The country is emerging as a regional power in Africa and now Ethiopia is
considered as the ‘Gate Way to Africa’.
 Ethiopia has duty and quota free market access to the US under the African
Growth and Opportunity Act (AGOA).
 It also has duty and quota free market access to the European Union (EU) under
everything but arms (EBA) initiative. This is a non- reciprocal agreement. It is an
initiative given by the EU allowing duty free import of goods from Ethiopia and
other developing countries to enter its member countries markets.
 Outsourcing garment manufacturing for exports.
 The out sourcing apparel business for the export sector apply four methods of
manufacturing arrangements, such as CMT, FOB, OEM, ODM and OBM.
 CMT (cut- make- trim).
 This is the easiest export method of apparel industry and bring the value added
when working with this method , buyers offer the entire input to outsourcing
business for production including raw materials, transportation, design and
 specific requirements, manufacturers only carry out stages of cutting, sewing and
finishing products. Business following export method of CMT only needs the
basic understanding of design patterns and the ability to produce finished product.
 OEM/FOB (original equipment manufacturing).
 FOB export method creates higher value compare to CMT which is the production
method of “buying raw materials, selling products”. Businesses are actively
involved in the production process on FOB, from acquisition of raw materials to
production of final products. Unlike CMT, exporters using FOB actively buy
necessary material inputs instead of being supplied directly from their buyers. The
activities under the FOB have significantly changed based on forms of the actual
contractual relations between suppliers and foreign buyers and are divided into 2
types.
 FOB level 1. Business following this method will purchase inputs from a group of
suppliers specified by buyers. This method requires garment enterprises to bear the
financial responsibility for the procurement and transportation materials.
 FOB level 2. Business following this method will receive product designs from
foreign buyers and will take full responsibility for sourcing of raw materials,
production, and transportation of raw materials and finished goods to ports
specified by buyers. The bottom line is that business must find the material;
suppliers with capability of providing special materials and efficiency in quality
and delivery time. Risks in this method are higher bur manufacturing companies
also receive higher5 added value.
 ODM(Original Design Manufacturing)
This method of production for export includes the design and production process
of purchasing fabric and materials cutting, sewing, finishing, packaging, and
shipping product. The ability to design reflects the higher level of knowledge of
the providers and therefore, will bring higher added value of products. ODM
businesses create designs, finished products and sell them to buyers, who are
owners of most of the major brands in the world.
  OBM(Original Brand Manufacturing)
This method of production is an improved version of OEM, except that the
manufacturers are responsible for coming up with their own designs and signing
domestic and foreign goods’ supply contracts for their own brands. Manufacturers
in their domestic in developing economies following OBM method mainly
distribute products in their domestic market and markets of neighboring countries.
 Apparel producing countries are often categorized according to the functional
capabilities of the majority of apparel manufacturing firms with in the country
(despite important variation within countries).

Table 2 functional categories

Functional Manufacturing capabilities Countries example

categories
Cambodia, Myanmar, sub-Saharan
CMT Africa including Ethiopia (with the
Marginal supplier, low cost volume producers
(Assembly) exception of South Africa and
Mauritius), Caribbean and central
America.
OEM/FOB: Preferred supplier, scale economies in volume Bangladesh, Indonesia, Pakistan,
Full package production, Vietnam.
provider Niche supplier, specialization in specific Sri Lanka, Mexico, Morocco,
product areas Mauritius.
ODM: Full Strategic supplier export high value, complex China, India, Turkey, South
package with products or volume, Brand development for Africa.
design domestic market, potential development to
national and international brand owner and
lead firm.
Full package Coordinate supply chain and OEM or ODM Hong Kong, South Korea, Taiwan
service activities, contract out manufacturing or (1980), Malaysia, Singapore
provider investment in production in foreign countries. (1995), Thailand (2010).
Global lead Global brand owner, marketing and retailing EU, USA, Japan
firm

Table 3 comparing capabilities of Ethiopia with other garment exporting countries

Country Capabilities Pros Cons

Ethiopia CM Jersey, Work wear, Good working ethics, Have to import

uniforms, non woven, productivity increasing, everything, fabric,
light shirts, t-shirts, existing infrastructure, trims, accessories,
polo shirt. GSP through AGOA & components.
EBA
Myanmar CMP Sport wear, Jackets, Good production Korean and
Woven items environment, commitment, Japanese have
and speed. invested heavily,
productivity needs
improvement.
Vietnam CMPT Both woven and knits, Good work man ship, Becoming
& FOB formal wear, fashion speed, quality expensive,
garments, sport wear pressure on cost
Cambodia CM & Sport wear, Jackets, t- Good production Labor unrest and
CMT shirts, polo formal. environment and speed wages
Madagascar CMT& Knit wear, heavy Zero duty, easy entry in to Dominated by
FOB sweaters and cashmere EU, speed French, social
unrest, political
risk
Pakistan FOB Leather, Jeans, GSP in effect good Increasing cost,
Motorcycle suits, sport workmanship political risk
wear, sweat shirts.
3.1 Marketing Mix for Ethiopia’s Textile and Garment Export Sector

Table3.1Marketing Mix

Product Place
Basic products : T-shirt, polo shirts Primary: US(AGOA), EU (EBA)
Knit wear: Cardigan, pullovers Home furnishing Buyer: PVH, H&M, Premark and
ASDA
High value:(only lingerie and sport accessories Wal-Mart, secondary: GCC & Israel
using mix media) tertiary: COMESA, Regional Market
Fast fashion: Quality and precision be made a
standard for the industry made in Ethiopia

3.2 Product Basket of Ethiopia for Export Market

Ethiopia’s future textiles and apparel production base lies in natural fiber, particularly
cotton. The country should focus on cotton-based garment manufacturing as the demand
for cotton- based apparel dominates the world market. Therefore, Ethiopia can focus on
cotton-based apparel in both woven and knits along with home furnishings, like bed
sheets, terry towel and kitchen and bath made-ups.

In addition, many cotton-based products that are large volume basic T-shirts, polo-shirts,
denim, and khaki pants- are generally less complex to produce and should be the fox for
the export market in GTP in fact Ethiopia’s garment export basket is dominated by these
products only.

Although various types of garments are manufactured in the country only in few
categories such as shirts, t-shirts, trousers, jackets and jerseys, constitute the major
production-share in Ethiopia. Although there are similarities and differences in both the
important traditional markets EU and USA, their import basket from developing
countries are dominated by knit and woven shirts and Blouses, Trousers, skirts, shorts
jackets, sweaters, sportswear and many more causal and fashion apparels, home
furnishings, bath and bed linen.

The US market is huge and fragmented. The age classification for different types and
styles of garment are blurred in US market, thus creating a larger opportunity for the
basic garments like T-shirts, polo shirts, trousers jackets, jeans produced in majority, of
the low- income countries. Therefore, building competencies in these product categories
can attract many buyers for US market.

Ethiopia can focus on following products to US market.

 Men’s/Boys shirts, of cotton, knitted and woven.

 Women’s/ girl’s blouses and shirts, of cotton, not knitted.
 Women’s / girl’s skirts of cotton, knitted.
 Night dress and Pyjama of cotton
 Women’s trousers and shorts of cotton, knitted.
 Babies garments of cotton
 Underpants and briefs of cotton
 Dresses of cotton
 Cotton bed sheets
 Cotton pillow cases
 Cotton terry towels

1.3. Domestic demand apparel

Ethiopia is a big country with a population size of about 100 million people. The demand
for apparel by this huge population is obviously famous. Data published by Central
Statistics Authority (CSA) and unpublished data from Ethiopians customs Authority
reveals that domestic production and import.

Data from customs authority revealed that the trend in import of apparel is increasing.
Most residents of mainly middle and high income group prefer imported apparels, as the
products are better quality and more fashionable. Domestic consumption of apparel for
the year 2011-2015 is shown in the table.

Table 4 domestic consumption of apparel (ton)

Description Year
2011 2012 2013 2014 2014 2015
Import 18,785 19,303 22,415 22,894 28,599 16%
Domestic 6,955 6,574 4,978 5,171 6,087 2%
production
Total demand 22,700 21,877 27,393 27,065 32,686 10%
Value of 341,923 405,327 536,030 650,023 909,128 28%
import (CIF)
According to the above table, the import of apparel increased at a rate of 16%, while the
value of import increased by 28% which is almost double of the quantity increment. This
depicts how Ethiopia is spending its currency for the product it could have produced at
home.

Therefore, based on the fact that serving the local marker will have a profound effect in
addressing the issue of import substitution.

3.3. Product description and application

The major products of the envisaged factory include T-shirt, ladies tight, ladies shier,
men’s shirt, formal trouser, track suit and ladies dress, etc. They can be used either as
casual clothes or working clothes under different occasion.

Different fabric types, such as cotton fabrics, polyester fabrics, nylon fabrics, polyester-
cotton blended fabrics, and others, are used to manufacture these products tailored to
customers’ requirement.

Polo shirt

T-shirt, track suit, legging picture

3.4. Pricing and Distribution

3.4.1. Pricing

Fixing the right price is one of the most important factors in order to sustain in the
market. In the domestic market beside a high amount of imported garment products with
different pricing trend, there are also many factories engaged in the production of
garment products in the country. As a result of this, the envisaged project has to work
within a competitive environment. In a competitive market, a straight cost plus pricing is
alone not desirable as it is not sensitive to demand and competitors’ price.

Hence, competition based or going rate pricing coupled with cost plus approach is
unavoidable as charging for a product more than the going rate would not attract
consumers and would eventually force the product out of the market.

In order to determine a competitive factory wholesale price for each product produced by
the envisaged firm the average FOB price, the current selling price in the domestic
market Addis Ababa and price of the competitors’ firms are taken into consideration.
Beside this, the projected price for the subsequent periods would be calculated by taking
5% average growth rate of the price increment of the respective product mixes.

Here, it is believed that the pricing should not be identical to the domestic as well as to
the export market. Hence, the price projection proposed here under is for the domestic
market.

Table 5projected whole sale price

S/N Product mix Average market price at Whole sale price of products
the time of study by the envisaged project
1. Men’s/ women’s t-shirt 30-40 30
2. Ladies’ tight 40-50 35
3. Polo shirt 50-60 45
4. track suit 120-250 115
3.4.2. Marketing channel and Distribution

A marketing channel is the people, organizations, and activities necessary to transfer the
ownership of goods from the point of production to the point of consumption. It is the
way products and services get to the end used.

There are basically our types of marketing channels.

 Direct selling (producer consumer).

 Selling through intermediaries (producer Retailer consumer).
 Dual distribution and (producer Wholesaler consumer).

Hence the envisaged project opted to follow the second model for the first two
operational years. Then, the project has planned to distribute the products to the end users
directly i.e. following model (l) by opening its own chain of wholesale outlets in Addis
Ababa city as well as regional cities.

4. Technical study

4.1. Product quality

Quality of the product is the most important factor. Quality product can be ensured
through the adoption of best manufacturing process including the implementation of best
quality management system right from raw material sourcing to final shipment of
finished products. TG Garment Manufacturing Company planned to be recognized as the
supplier of quality product through the adoption of state of the art manufacturing process
augmented with properly selected and well trained operators at all level and through
intensive use of work aids (folders and attachments) throughout the manufacturing
process to boost quality and productivity.

4.2. Production process and product description

4.2.1. Garment manufacturing process

Garments manufacturing follows a flowchart where in each steps definite works are
completed to carried out a complete garment. Following are the basic garment
manufacturing process that any garment manufacturing unit follow depending to follow.
Similarly, TAG Garment manufacturing unit’s production will follow the following
pattern.

Design/ Sketch:

For the production of knit garments, or woven garments a sketch of a particular garment
including its design features is essential to produce on paper. This is basically the process
in which a designer converts the design inspiration into certain garment styles and it gives
the base for the pattern making stage.
 Fabric Reception

Fabric Relaxing

Fabric spreading, form lay

out, and cutting

Sewing

Inspection

Spot cleaning and laundry

Ironing

Packing

Apparel shipping

Figure 1 Garment manufacturing process

Pattern making

In sewing and fashion design, a pattern is an original garment from which other garments
of a similar style are copied. It can also refer to the parts of the paper or cardboard
templates from which the parts of a garment are traced onto fabric before cutting out and
assembling.

Sample Making:

The patterns are used to cut the fabric. Then the garment components in fabric from are
used to sew/assemble the garment. Sample garment manufacturing is to be done by a
very efficient and technically sound person.

Production Pattern:

The pattern of the approved sample garment are used for making production
pattern. During production pattern making, sometimes it may be necessary to modify
patterns design if buyer or appropriate authority suggests any minor modification.

Grading:

Normally for large scale garments production any style needs different size to produce
from a set of particular size of patterns, the patterns of different size are produced by
using grade rule which called grading.

Marker Making:

All the pattern pieces or all the required size are arranged on the paper in such a way so
that maximum number of garments could be produced with minimum fabric wastage.
Markers are made for 6,12,18,24 etc. pieces; marker is also useful to estimate fabric
consumption calculations.

Spreading
It is process of arranging fabrics on the spreading table as pre length and width of the
marker in stack from. Normally height of the lay/fabric is limited up to maximum six
inches high. But 4 inch to 5 inch height of the lay is safe.

Fabric Cutting

On the fabric lay/spread the marker paper is placed carefully and accurately, and pinned
with the fabric or clamped against the fabric to avoid unwanted movement or
displacement of the marker paper. Normally straight knife cutting machine is used to cut
out the garment component as per exact dimension of each pattern in stack, care must be
taken to avoid cutting defect.

Sorting/Bundling:

After cutting the entire fabric lay, all the garments components in stack form is sorted out
as per size and color. To avoid mistake in sorting, it is better to use code number on each
pattern.

Sewing or Assembling:

It is the most important department/ section of a garment manufacturing industry. Sewing

machines of different types are arranged as a vertical line/whichever convenient setup to
assemble the garments. Sequence of types of sewing machine arrangement depends on
sequence of \assembling operations.

Inspection:

Each and every garment after sewing passes through the inspection label/ point where the
garments are thoroughly and carefully checked to detect/find any defect may be for
example variation of measurement, sewing defect, fabric defect, spots etc. if possible to
overcome, and then the garment is sent to the respective person for correction. If the
defect is not able to be corrected, then the garment is separated as wastage/ defective.

Pressing/ Finishing:
After passing through the inspection table, each garment is normally ironed/pressed to
remove UN wanted crease and to improve the smoothness and also presentation, so that
the garments look nice to the customer. Folding of the garment is also done here for poly
packing of the garments as per required dimension.

Final inspection:

It is the last stage of inspection of the manufactured garments on behalf of the garment
manufacturing organization, to detect any defective garments before packing.

Packing:

After final inspection, the garments are poly- packed, dozen-wise, color wise, size ratio
wise, bundled and packed in the carton. The carton is marked with important information
in printed form which is seen from outside the carton easily.

Dispatch:

The cartoons of the manufactured garments are delivered or placed in the dispatch
department or finished products go down from where the garments lot is delivered for
shipment.

4.3. Technology

In this technological advancement era, there are also enormous technological

advancements in the field of textile and apparel sectors as well. These technological
advancements helped the sector in productivity and quality improvements throughout the
overall value chain of textile and apparel manufacturing.

However, the acquisition of these technologies requires an outlay of huge capital

investments and also their maintenance and spare part cost also considerably high. Hence,
such technologies are not advisable and/or not feasible for startup businesses like apparel
manufacturing because the business is labor intensive by its nature. And countries like
Ethiopia there are huge potential for easily trainable and comparatively cheap labor force.
Therefore, in this project proposal average technologies that enable the project to achieve
its objectives are considered throughout the manufacturing process.

4.3.1. Plant and machinery

The main plant that is required for the project is the installation of sewing machines,
cutting equipment, backup electric power generator as wee as compressor and the total
cost is estimated at ETB 4,141,763.7

S/N QTY Rate/unit Total Total cost

M/C USD ETB cost (ETB)
description (USD)
1 Manual pattern 10 11 7000 110 70,000
making table
2 Chairs 25 16 1000 400 25,000
3 Scissors 10 3 200 30 2000
5 Straight ruler 20 1 50 20 1000

6 Curved rulers 20 3 200 60 4000

7 Pins 3 0.4 25 1.2 75
9 Pattern paper 300 0.1 10 30 3000
10 Sketching books 20 4.7 300 94 6000
11 Draping tool 20 1.9 120 38 2400
14 Soft lead pencil 48 0.1 10 4.8 480
15 Marking pen 30 0.5 35 15 1050
16 Mannequins 5 127 8000 635 40,000
17 Hangers 50 0.9 60 45 3000
18 Labels & tags 100 0.01 1 1 100
19 Packaging materials 200 0.07 5 14 1000
20 Pressing irons 4 20.6 1300 82.4 5200
22 Single needle 40 571.4 36,000 22,856 1,440,000
machine
23 Over lock machine 5 603.1 38,000 3,015.5 190,000
24 Sewing m/n needles 20 1.6 100 32 2000
25 Straight knife cutter 2 317.5 20,000 635 40,000
 26 Hand sewing 100 0.03 2 3 200
needles
27 Threads 100 0.8 50 80 5000
Total 14,964.6 1,841,505
Freight (2.5% of clf) 374.115 25,187.6
Insurance(2% of clf) 299.3 20,150
Port handing (1.5% of clf) 224.5 15,112.6
Installation (4% of clf) 598.9 40,300
Total cost of Freight, insurance,& other cost 1496.8 100,750.2
Total 16,461.4 2,043,005.4

Table: machineries and equipment

1.1. utilities
1.1.1. Electricity and power supply
The electric power will provide power required to run machineries and light for
the building. And the overall requirement estimated as follows:

Lighting requirement
S/N Area (sq.m) Wattage required No. of tube lights
1 600 10800 270
2 200 3600 90
3 150 2700 67.5
4 30 540 13.5
5 5 90 2.25
Total 17730 443
Total after reducing due to 800 222
accession to natural light
KVA required for lighting 11.08
Total in kw 8.87
Total in kwh/day 70.92

Table: power requirement for lighting

 Power requirement by machinery and equipment
S/N Equipment quantity Wattage/unite Total Total
wattage power
(KVA)

1 Straight knife 2 550 1100 1.375

cutter
2 Single needle 20 450 15750 19.6875
machine
3 Over lock machine 3 450 5400 6.75
4 Ironing box 5 1000 7000 8.75
Total 29,250 36.5675
Total in kw 29.25
Total in 234
kwh/day

Table: power requirement for machineries and equipment

Power requirement summary

S/N KVA KW KWH/day

(8 working Hrs)

1 11.08 8.87 70.92

2 36.6 29.25 234
47.68 38.12 304.92

Table: Total power requirement

 The required total KVA is 47.68 and assuming an 8 hours production day a total of
304.92 KWH is required.

1.1.2. Utilities consumption and cost

Assumptions:

- Water: 10 liters/employee
- Generator fuel: 3 liter/hr @ full load
- Power usage: 85% from main grid (EEPCO)
- Car fuel: 100km/day & 10km/liter

Utilities consumption and cost

S/N Area Unit Consumption/day Rate Cost/day Cost/month Cost/annum

1 Electricity KWH 304.92 0.578 293.69 7,636.03 84,583.69

2 Water by Liters 1470 0.025 36.75 955.50 10,584.00
employees
3 Generator fuel Liters 5 17 85.00 2,210.00 24.480.00
4 Car fuel Liters 15 17 255.00 6,630.00 73,440.00
5 telecommunications Minutes 200.00 5,200.00 57.600.00
Total 870.44 22,631.53 250,687.69

Table: total utility consumption and cost

Therefore, as shown from the above table, total utilities cost per annum is
estimated to be ETB 250,687.69

1.2. Plant location /technical feasibility of location

The project is located in Addis Ababa city, in nfas silk sub city. The project site is
presumed to be ideal for the abundance and supply of easily trainable man power
specially teachers.
1.3. Building and civil work
The main planned building and civil work for the project is a standard school shed
for class ,raw material store, finished goods store, GM office and other staff
facilities, guard house, rest rooms are also include.

S/N Category Area

1
School shed(pattern making +sewing + 600
finishing)
2
Raw material store 200
3 Fished goods store
150
4 Gm office and other staff facilities
30.0
5 Guard house
5.0
6 Rest room
15.0
1000.00
Total covered and to be covered area(sq.m)

Table: area calculation

Therefore, assuming there is no land acquiring and land development cost, shed
leasing cost is assumed to be ETB 40,000 per month and this is assumed to cost
the promoter approx a total of ETB 480,000 per annum.
1.4. Office furniture
The office furniture requirement of the project has been determined based on the
proposed number of office and man power required in the plant.

Rate /unity Total cost

S/ Description Section QTY USD ETB USD ETB
N
1 Chair 5 95 6000 475 30,000
2 Table 2 159 10,000 318 20,000
3 Computer 3 133 8000 399 24,000
4 Teachers table 3 79 5000 237 15,000
5 Printer 1 317 20,000 317 20,000
6 Ups 2 317 20,000 634 40,000
7 Stapler Office 3 7 470 21 1,410
8 Puncher 3 9 550 27 1,650
9 Pin tray 3 0.4 25 1.2 75
10 Paper tray 3 16 1000 48 3000
11 Waste basket 3 5 300 15 900
12 File cabinets 1 270 17,000 270 17,000
13 Shelf 1 238 15,000 238 15,000
14 File box 8 2 140 16 1,120
15 Cash register 1 238 15,000 238 15,000
machine
Total 1885.4 204,155
Contingency @ 5% 177.73 10,207.75
Grand total 2063.13 214,362.75
Table: list of office furniture and equipment
The current market price of each item is used in estimation of the total cost of
office furniture and equipment. The total cost as shown in the above table is ETB
214,362.75.

1.5. Vehicle

The main vehicle planned to facilitate the travel requirements by the business is a
van with an estimated cost of ETB 600,000
Plant macro layout
 Pattern making room

Sewing room

Store

Fig: macro layout

2. Organizational and management

2.1. Organizational structure

 The organizational structure of the school depicted in following chart as
follows

General Manager

Secretary

Registrar Finance Accountant Human recourse Coaches

2.1.1. Man power requirement and cost

S/N Position No Rate(ETB) Total/month Total/annum

1 General manager 1 18,000 15,000 180,000

2 Secretary 1 4000 4000 48,000
3 Registrar 1 3000 3000 36,000
4 Finance 1 6,000 6000 72,000
5 Accountant 1 6000 6000 72,000
6 Human resource 1 6000 6000 72,000
7 Coaches 3 7,070 21,210 254,520
8 Cleaning/massager 1 1500 1500 18,000
9 Security 2 3000 6000 72,000
Total 12 54,570 47,521.21 824,520
Direct labor expense 15,000 35,600.00
Salary and wages 32,521.21 788,924.00
Employer pension contribution @11% 5227,33 90,697.64

Table: man power requirement and cost

3. Operational and sales plan
3.1. Learning plan
Parameters like capacity of machineries to be installed, operational hour and
factors are taken in to account in determining plant capacity. Accordingly, the
following assumptions are considered:

assumption

No. of working 8 Hrs Raw materials stock in days 60

hours/day

Working minutes/day 480 Work in progress (WIP) IN days 3

No. of working 26 Finished goods in days 5

days /month

No. of production 300 Initial efficiency 65%

days/ year

Table: basic production assumption

As shown in the above assumption initial efficiency is estimated to be 60% and it

is assumed to increase progressively to hit 85% through learning excellence.
 3.2. Service plan
3.2.1. Annual revenue projection
Revenue projection
Category Yr-1 Yr-2 Yr3 Yr4 Yr5
Short term 240 360 540 810 1215
training
Level 200 300 450 675 1,012.5
Amount of payment

Monthly payment Total payment Monthly payment Total payment for 1 year
for 6 months
Short term 24,000
training 2,416.6 14,500 level 2000

Total / annum
Category Yr-1 Yr-2 Yr3 Yr4 Yr5
Short term 6,959,808 10,439,712 15,659,568 23,489,352 35,225,280
training
Level 4,800,000 7,200,000 10,800,000 16,200,000 24,300,000
Total 11,759,808 17,639,712 26,459,568 39,689,352 59,525,280

3.2.2. Implementation plan

Activities Months
1 2 3 4 5 6 7 8 9 10 11 12 13
bank loan processing

Leasing shed

Purchase of machinery
& equipment
Learning operation
commencement

Table: action plan

4. Environment
The project is environmental friendly.

5. Financial study
5.1. Investment costs
The financial analysis is made on the assumption that all planned investments are
made at the same time and during the initial years.

5.1.1. Fixed investment cost

The fixed investment costs are building and construction, plant and machinery,
vehicle, and office furniture and equipment. Most of the investments will be
made during the first year. The total fixed investment cost is estimated to be
about ETB 2,857,368 the summary of the required fixed investment costs is
presented in table below.

Fixed investment

Item description Total costs

Fixed investment costs Total costs
Plant & machinery 2,043,005.4
Vehicle-van 600,000

Office furniture & equipment 214,362.75

Total fixed investment costs 2,857,368

Table: Total fixed investment cost

 5.1.2. Pre-operative expenses
Pre- production costs include expenses for feasibility study, environmental impact
study and services and interest as well as other technical study costs. The total
pre-production cost for this project is ETB 146,210

Pre-operative expenses

Hiring cost (one month salary for key staffs) 25,000

Coaches half one month salary while training 21,210

Installations professional fee 100,000

Total pre-operative expenses 146,210

Table: pre-operative expenses

5.1.3. Total investment costs

The total investment costs include the estimated fixed investment costs and pre-
production costs. As the project is new, working capital is also included. The total
investment cost including working capital is estimated to be ETB 4,137,652.9the
details are shown in the table below:
 Total investment

Item description Total costs

Fixed investment costs Total cost

Plant & machinery 2,043,005.4

Vehicle-van 600,000

Office furniture & equipment 214,362.75

Total fixed 2,857,368

investment costs
Pre-operative expense
Hiring cost(one month salary for key staffs) 25,000

Coaches half one month salary while training 21,210

Installations professional fee 100,000

Total pre-operative 146,210

expenses
Working capital
Working capital (2 month of direct and indirect expenses) 3,003,578
Grand total 6,007,156
(ETB)
Grand total (USD) $ 95,351.7

Table: estimated total investment cost

5.2. Operating costs
5.2.1. Direct operating costs
The direct operating cost items of the project are coach’s remuneration and raw
materials (fabric, accessories). The total cost for the first years is EBT 884,520 and
it’s assumed that this cost will increase by 3% annually.

Summary of direct cost

Description Projected years (5% increment)
1 2 3 4 5
man power 824,520 849,225.6 874,702 900,943 927,971
requirement
Thread 60,000 61800 63,654 65,564 67,531
Total direct cost 884,520 911,026 938,356 966,507 995,502
(FOB)

Table: Direct cost

5.2.2. Indirect operating cost

The indirect costs of the project are those which do not vary with the production
scale of the project. The annual indirect cost is ETB 1,081,947.92

And it is assumed this will increase by 5% each year.

Summary of indirect cost

Description Projected years (5%increment)
1 2 3 4 5
Salary and wages 788,924.0 828,370.2 869,788. 913.278 958,942
0 71
Electric power 84,583.69 88,812.9 93,253 97,915.7 102,811.5
cost
Fuel and oil 97,920.00 102,816 107,956. 113,354.6 119,022.3
8
Water 10,584.00 11,113.2 11,668.8 12,252.3 12,864.9
consumption cost 6
Tele 57.600.00 60,480 63,504 66,679.2 70,013.1
communication
Services cost - - - - -
Total insurance 42,336.23 44,453 46,675.6 49,009 51,459
cost
Total indirect cost 1,081,947. 1,081,947.9 1,136,04 1,192,847 1,252,489
(CM/FOB) 92 5

Table: indirect cost

5.3. Financing plan

Total project cost is estimated to be ETB 4.1 million the project will be financed through lease financing
80:20 debt ratios. Total plant & machinery cost is estimated to be ETB 1.1 Million out of which will be
financed through lease financing the rest 1.14 thousand will be financed by the project owner.

The total working capital requirement i.e. assuming 60 days of direct and indirect expenses is estimated
to be ETB 2.0 million. It is planned to finance the working capital requirement.

Total investment and source of finance

Item description Owner’s equity Bank loan Total costs

Fixed investment costs Total cost

Plant & machinery 221,651.00 1,821,354.40 2,043,005.4
Vehicle-van 600,000 600,000
Office furniture & equipment 214,362.75 214,362.75
Total fixed investment costs 1,036,013.75 1,821,354.40 2,857,368
Pre-operative expense
Hiring cost(one month salary for key staffs) 25,000 25,000
Coaches half one month salary while training 21,210 21,210
Electrical installations (Installation materials + 100,000 100,000
payments)
Total pre-operative expenses 146,210 146,210
Working capital -
Working capital (direct and indirect expenses for - 3,003,578 3,003,578
60 days)
Total working capital - 3,003,578 3,003,578
working capital

Grand total 1,182,223.75 4,824,932.4 6,007,156

(FOB)

Table: financing plant

5.4. Loan repayment schedule

The total proposed loan shall be repaid in 5 years which includes one year of grace period.

An interest rate of 12.5% per annum will be charged on the outstanding loan balance per annum. The
annual principal loan repayment including interest payable is shown in the following table.

Repayment date Interest Principal Amount payment Outstanding

repayment per year (int. + balance
loan)

Year 0 4,824,932.40

Year 1 603,116.55 603,116.55 4,824,932.40

Year 2 603,116.55 1,206,233.10 1,809,349.65 3,618,699.30

Year 3 452,337.41 1,206,233.10 1,658,570.51 2,412,466.20

Year 4 301,558.28 1,206,233.10 1,507,791.38 1,206,233.10

Year 5 150,779.14 1,206,233.10 1,357,012.24 -

Table: loan repayment schedule

 5.5. Financial statements

Business results include the projected income statement, and projected cash flow. Each of the business
results are described in the following sections.

5.5.1. Projected income statement

Projected income statement indicates that the Net profit after tax will be ETB 6.2 million in the
first year and ETB 38million.

Description Projected years

1 2 3 4 5
Service 11,759,808 17,639,712 26,459,568 39,689,352 59,525,280
Less direct costs of 884,520 911,026 938,356 966,507 995,502
goods sold

Gross profit 10,875,288 16,728,686 25,521,212 38,722,845 58,529,778

Less indirect cost 1,081,947.92 1,081,947.9 1,136,045 1,192,847 1,252,489

Profit before 9,793,340.08 15,646,738.1 24,385,167 37,529,998 57,277,289

Dep.int & tax
Less depreciation 309,049 618.098 927,147 1,236,196 1,545,245

Profit before 9,484,291.08 15,646,120.0 23,458,020 36,293,802 55,732,044

Dep.int & tax
Less financial costs 603,116.55 1,809,343.65 1,658,570.51 1,507,791.38 1,357,012,24

Profit before tax 8,881,174.53 13,836,776.35 21,799,449.5 34,786,010.62 54,375,031.76

Less profit tax 2,664,352.35 4,151,032.9 6,539,834.85 10,435,803.2 16,312,509.5

9
Net profit/loss 6,216,822.17 9,685,743.45 15,259,614.65 24,350,207.42 38,062,522.26
1
Retained Earning 1,554,205.54 2,421,435.86 2,288,942.19 3,652,531.113 9,515,630.56

Retained earnings - 1,554,205.54 3,975,641.4 6,264,583.59 9,917,114.70

previous
Retained earnings 1,554,205.54 3,975,641.4 6,264,583.59 9,917,114.70 19,432,745.26
cumulative
Dividend 4,662,616.62 7,264,307.58 11,444,710.98 18,262,655.56 28,546,891.69

Table: projected income statement

 5.5.2. Projected cash flow
The cash flow analysis shows surplus for all of the year and the volume is affected by different cash flow
components mainly of operating costs. As financial costs the volume of surplus concomitantly grows. At
the end of the fifth years, the cumulative cash balance reaches ETB 30.4 million.

Description Projected year

0 1 2 3 4 5
Cash flows from
operating activities
Cash received from - 11,759,808 17,639,712 26,459,568 39,689,352 59,525,280
customers
Indirect operating - 1,081,947.92 1,081,947.9 1,136,045 1,192,847 1,252,489
expense
Direct operating - 884,520 911,026 938,356 966,507 995,502
expense
Employers pension
contribution
Corporate tax 2,664,352.359 4,151,032.9 6,539,834.85 10,435,803.2 16,312,509.5
Net balance - 7,128,987.72 11,495,705.2 17,845,332.1 27,094,194.8 40,964,779.5
5
Cash flows from
financing activities
Loan from bank 1,821,354
.40
Promoters 4,185,801.
contribution(equity) 6
Interest payable 603,116.55 1,809,343.65 1,658,570.51 1,507,791.38 1,357,012,24

Dividend 4,662,616.62 7,264,307.58 11,444,710.9 18,262,655.5 28,546,891.69

8 6

Net balance 6,007,156 5,265,733.17 9,073,651.23 13,103,281.4 19,770,446.9 29,903,903.93

9 3

Cash flow from

investing activities
Purchase of fixed 2,857,368 - - - - -
assets
Pre- operative 146,210 - - - - -
expenses
Net balance 3,003,578 - - - - -

Previous year cash - 3,003,578 4,866,832.55 7,288,886.52 12,030,937.1 19,354,685.05

balance 8

Current year cash 3,003,578 1,863,254.55 2,422,053.97 4,742,050.66 7,323,747.87 11,060,875.57

balance

Cumulative cash 3,003,578 4,866,832.55 7,288,886.52 12,030,937.1 19,354,685.0 30,415,560.62

balance 8 5

Table: projected cash flow

5.6. Financial indicators

The net present worth of benefits of the project has been measured by discounting the cash flow of the
project at 12.5%. The net present value (NPV) of the project is found to be ETB 48,030,174.07 and an IRR
this acceptable and reveals financial viability of the project.

Moreover, the project is presumed to recover its initial capital outlay in less than two years of time i.e.
2.4 year.

NPV (at 12.5% discounted rate)

Year cumulative cash flow present value (PV) IRR

0 (6,007,156) (6,007,156) 61.9%

 1 4,866,832.55 4,866,832.55

2 7,288,886.52 5,754,120.21

3 12,030,937.18 8,449,711.71

4 19,354,685.05 12,083,034.593

5 30,415,560.62 16,876,475.01

NPV 48,030,174.07

Table: NPV analysis

Payback period
Year cumulative cash flow recovery of outlay payback year

Needed balance

0 6,007,156 6,007,156 1.0

1 4,866,832.55 6,007,156 1,140,323.45 1.0

2 7,288,886.52 1,140,323.45 0.4

3 12,030,937.18

4 19,354,685.05

5 30,415,560.62

Payback period

Table: payback period analysis

6. Economic and social benefits
 Employment opportunity: when it operates at its full capacity. The
project will create an employment opportunity for about 150 employees on
permanent basis.
 Tax payment: the company also contributes of the income of the
government from its profit tax obligation
 Foreign currency saving: the company also saves some amount of
foreign currency though import substitution as most of the schools rely on
imported fabric and learning materials.

 Social benefits: Provides educational opportunities for the cannot afford to

pay for education and it creates job for the community.

7. Conclusion
The study shows that the company is not only technically, financially,
environmental and socio- economically viable, but it well be of strategic
importance in the development of textile and garment sector of the country
which are the pillars of industrial development of the country. Therefore,
supporting the company by availing loan working capitals well as fixed
investments will be a wise decision to be made by the bank under consideration

8. Annex
Man power requirement and cost

S/N Position No Rate(ETB) Total/month Total/annum

1 General manager 1 18,000 15,000 180,000

2 Secretary 1 4000 4000 48,000

3 Registrar 1 3000 3000 36,000

4 Finance 1 6,000 6000 72,000

5 Accountant 1 6000 6000 72,000

6 Human resource 1 6000 6000 72,000

7 Coaches 3 7,070 21,210 254,520

8 Cleaning/massager 1 1500 1500 18,000

9 Security 2 3000 6000 72,000

Total 12 54,570 47,521.21 824,520

Direct labor expense 15,000 35,600.00

Salary and wages 32,521.21 788,924.00

Employer pension contribution @11% 5227,33 90,697.64

8.1. Plant and machinery

S/N Section QTY Rate/unit Total Total cost
M/C USD ETB cost (ETB)
description (USD)
1 Manual pattern 10 11 7000 110 70,000
making table
2 Chairs 25 16 1000 400 25,000
3 Scissors 10 3 200 30 2000
5 Straight ruler 20 1 50 20 1000
Design
6 And
Curved rulers 20 3 200 60 4000
Pattern
7 Pins 3 0.4 25 1.2 75
9 Pattern paper 300 0.1 10 30 3000
10 Sketching books 20 4.7 300 94 6000
11 Draping tool 20 1.9 120 38 2400
14 Soft lead pencil 48 0.1 10 4.8 480
15 Marking pen 30 0.5 35 15 1050
16 Single needle 40 571.4 36,000 22,856 1,440,000
machine
17 Over lock 5 603.1 38,000 3,015.5 190,000
machine
18 Sewing m/n 20 1.6 100 32 2000
needles Sewing
19 Straight knife 2 317.5 20,000 635 40,000
cutter
20 Hand sewing 100 0.03 2 3 200
needles
21 Threads 100 0.8 50 80 5000
22 Mannequins 5 127 8000 635 40,000
23 Hangers 50 0.9 60 45 3000
24 Labels & tags Finishing 100 0.01 1 1 100
25 Packaging 200 0.07 5 14 1000
materials
26 Pressing irons 4 20.6 1300 82.4 5200
Total 14,964.6 1,841,505
Freight (2.5% of clf) 374.115 25,187.6
Insurance(2% of clf) 299.3 20,150
Port handing (1.5% of clf) 224.5 15,112.6
 Installation (4% of clf) 598.9 40,300
Total cost of Freight, insurance,& other 1496.8 100,750.2
cost
Total 16,461.4 2,043,005.4

8.2. Direct and indirect cost

Summary of direct cost
Description Projected years (5% increment)
1 2 3 4 5
man power requirement 824,520 849,225.6 874,702 900,943 927,971
Thread 60,000 61800 63,654 65,564 67,531
Total direct cost (FOB) 884,520 911,026 938,356 966,507 995,502

Summary of indirect cost

Description Projected years (5%increment)
1 2 3 4 5
Salary and wages 788,924.00 828,370.2 869,788.71 913.278 958,942
Electric power cost 84,583.69 88,812.9 93,253 97,915.7 102,811.5
Fuel and oil 97,920.00 102,816 107,956.8 113,354.6 119,022.3
Water consumption 10,584.00 11,113.2 11,668.86 12,252.3 12,864.9
cost
Tele communication 57.600.00 60,480 63,504 66,679.2 70,013.1
Services cost - - - - -
Total insurance cost 42,336.23 44,453 46,675.6 49,009 51,459
Total indirect cost 1,081,947.92 1,081,947.9 1,136,045 1,192,847 1,252,489
(CM/FOB)

8.3. Total investment and financing plan

 Total investment

Item description Total costs

Fixed investment costs Total cost

Plant & machinery 2,043,005.4

Vehicle-van 600,000

Office furniture & equipment 214,362.75

Total fixed investment costs 2,857,368

Pre-operative expense

Hiring cost(one month salary for key staffs) 25,000

Coaches half one month salary while training 21,210

Installations professional fee 100,000

Total pre-operative expenses 146,210

Working capital

Working capital (2 month of direct and indirect expenses) 3,003,578

Grand total (ETB) 6,007,156

Grand total (USD) $ 95,351.7

Total investment and source of finance

Item description Owner’s equity Bank loan Total costs

Fixed investment costs Total cost

Plant & machinery 221,651.00 1,821,354.40 2,043,005.4

Vehicle-van 600,000 600,000

Office furniture & equipment 214,362.75 214,362.75

Total fixed investment costs 1,036,013.75 1,821,354.40 2,857,368

Pre-operative expense

Hiring cost(one month salary for key staffs) 25,000 25,000

Coaches half one month salary while training 21,210 21,210

Electrical installations (Installation materials + 100,000 100,000

payments)
Total pre-operative expenses 146,210 146,210

Working capital -

Working capital (direct and indirect expenses - 3,003,578 3,003,578

for 60 days)
Total working capital - 3,003,578 3,003,578
Total working capital

Grand total 1,182,223.75 4,824,932.4 6,007,156

(FOB)

8.4. Depreciation
projection
description Dep 0 1 2 3 4 5
 .
rate
Building & 5% - - - - - -
constriction
Deprecatio - - - - - -
n amount
Plant & 15% 2,043,005.4 1,736,554.5 1,430,103.7 1,123,652.9 817,202.1 510,751.3
machinery 0 9 8 7 6 5
Deprecatio 306,450.81 306,450.81 306,450.81 306,450.8 306,450.8
n amount 1 1
Vehicle 15% 600,000.00 510,000.00 420,000.00 330,000.00 240,000.0 150,000.0
0 0
Deprecatio 90,000.00 90,000.00 90,000.00 90,000.00 90,000.00
n amount
Office 20% 214,362.75 171,490.20 128,617.65 85,745.10 42,872.55 -
furniture &
equipment
Depreciatio 42,872.55 42,872.55 42,872.55 42,872.55 42,872.55
n amount
Total 439,323.36 439,323.36 439,323.36 439,323.3 439,323.3
depreciatio 6 6
n

8.5. Loan repayment schedule

Repayment date Interest Principal Amount payment Outstanding
repayment per year (int. + balance
loan)
Year 0 4,824,932.40
Year 1 603,116.55 603,116.55 4,824,932.40
Year 2 603,116.55 1,206,233.10 1,809,349.65 3,618,699.30
Year 3 452,337.41 1,206,233.10 1,658,570.51 2,412,466.20
Year 4 301,558.28 1,206,233.10 1,507,791.38 1,206,233.10
Year 5 150,779.14 1,206,233.10 1,357,012.24 -

8.6. Learning plan

assumption
No.of working 8 Hrs Raw materials stock in days 60
hours/day
Working minutes/day 480 Work in progress (WIP) IN days 3
No.of working 26 Finished goods in days 5
days /month
No. of production 300 Initial efficiency 65%
days/ year

8.7. Service plan

Annual revenue projection
Revenue projection

Category Yr-1 Yr-2 Yr3 Yr4 Yr5

Short term 240 360 540 810 1215

training

Level 200 300 450 675 1,012.5

Amount of payment

Monthly payment Total payment Monthly payment Total payment for 1

for 6 months year

Short term 24,000

training 2,416.6 14,500 level 2000

Total / annum

Category Yr-1 Yr-2 Yr3 Yr4 Yr5

Short term 6,959,808 10,439,712 15,659,568 23,489,352 35,225,280

training
 Level 4,800,000 7,200,000 10,800,000 16,200,000 24,300,000

Total 11,759,808 17,639,712 26,459,568 39,689,352 59,525,280

8.8. Projected income statement

Description Projected years
1 2 3 4 5
Service 11,759,808 17,639,712 26,459,568 39,689,352 59,525,280
Less direct costs of 884,520 911,026 938,356 966,507 995,502
goods sold

Gross profit 10,875,288 16,728,686 25,521,212 38,722,845 58,529,778

Less indirect cost 1,081,947.92 1,081,947.9 1,136,045 1,192,847 1,252,489

Profit before 9,793,340.08 15,646,738.1 24,385,167 37,529,998 57,277,289

Dep.int & tax

Less depreciation 309,049 618.098 927,147 1,236,196 1,545,245

Profit before 9,484,291.08 15,646,120.0 23,458,020 36,293,802 55,732,044

Dep.int & tax

Less financial costs 603,116.55 1,809,343.65 1,658,570.51 1,507,791.38 1,357,012,24

Profit before tax 8,881,174.53 13,836,776.35 21,799,449.5 34,786,010.62 54,375,031.76

Less profit tax 2,664,352.359 4,151,032.9 6,539,834.85 10,435,803.2 16,312,509.5

Net profit/loss 6,216,822.171 9,685,743.45 15,259,614.65 24,350,207.42 38,062,522.26

Retained Earning 1,554,205.54 2,421,435.86 2,288,942.19 3,652,531.113 9,515,630.56

Retained earnings - 1,554,205.54 3,975,641.4 6,264,583.59 9,917,114.70

previous

Retained earnings 1,554,205.54 6,264,583.59 9,917,114.70 19,432,745.26

cumulative
3,975,641.
 4
Dividend 4,662,616.62 7,264,307.58 11,444,710.98 18,262,655.56 28,546,891.69

8.9. Projected cash flow

Description Projected year
0 1 2 3 4 5
Cash flows from
operating activities
Cash received from - 11,759,808 17,639,712 26,459,568 39,689,352 59,525,280
customers
Indirect operating - 1,081,947.92 1,081,947.9 1,136,045 1,192,847 1,252,489
expense
Direct operating - 884,520 911,026 938,356 966,507 995,502
expense
Employers pension
contribution
Corporate tax 2,664,352.359 4,151,032.9 6,539,834.85 10,435,803.2 16,312,509.5
Net balance - 7,128,987.72 11,495,705.2 17,845,332.1 27,094,194.8 40,964,779.5
5
Cash flows from
financing activities
Loan from bank 1,821,354.
40
Promoters 4,185,801.
contribution(equity) 6
Interest payable 603,116.55 1,809,343.65 1,658,570.51 1,507,791.38 1,357,012,24
Dividend 4,662,616.62 7,264,307.58 11,444,710.9 18,262,655.5 28,546,891.69
8 6
Net balance 6,007,156 5,265,733.17 9,073,651.23 13,103,281.4 19,770,446.9 29,903,903.93
9 3
Cash flow from
investing activities
Purchase of fixed assets 2,857,368 - - - - -
Pre- operative expenses 146,210 - - - - -
Net balance 3,003,578 - - - - -
Previous year cash - 3,003,578 4,866,832.55 7,288,886.52 12,030,937.1 19,354,685.05
balance 8
Current year cash 3,003,578 1,863,254.55 2,422,053.97 4,742,050.66 7,323,747.87 11,060,875.57
balance
Cumulative cash 3,003,578 4,866,832.55 7,288,886.52 12,030,937.1 19,354,685.0 30,415,560.62
balance 8 5