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Project profile on garment industry

TABLE OF CONTENTS
Contents

Page
s

Table of contents...................................................................................................................................
Tables: .....................................................................................................................................................
1. Executive Summary....................................................................................................................
2. Product Description and Application.....................................................................................
3. Market Study, Plant Capacity and Production Program....................................................
3.1

I
II
1
2
2

Market Study....................................................................................................................

3.1.1

Supply-Demand Analysis.........................................................................................

3.1.2

Projected Demand...................................................................................................

3.1.3

Pricing and Distribution..........................................................................................

12

Plant Capacity and production capacity......................................................................

13

Plant Capacity............................................................................................................

13

3.2.2
Production program.................................................................................................
4. Raw Materials and Utilities.....................................................................................................

14
15

3.2
3.2.1

4.1

Raw Materials....................................................................................................................

15

4.2
Utilities...................................................................................................................
5. Location and Site........................................................................................................................
6. Technology
and

16
16
17

Engineering......................................................................................................
6.1
6.2

17

Production

22

Process............................................................................................................

22

Source

of

23

technology.......................................................................................................
6.3

Machinery and Equipment...............................................................................................

6.4

Land

use,

building

and

works..................................................................................
7. Manpower
and

civil
Training

24

Requirement......................................................................................

24

7.1

25

Manpower
requirement.................................................................................................

7.2

Training

requirement.....................................................................................................
8. Financial

25

Analysis.........................................................................................................................

25
2

8.1
8.2

Underlying

26

Assumption....................................................................................................

26

Pre-production

27

cost..........................................................................................................
8.3

Total

investment

cost......................................................................................................
8.4

Production

Costs................................................................................................................
9. Financial

27

Evaluation.....................................................................................................................

TABLES

Table

Pages

Table: 3.1 Export plans of knitted and woven garments......................................................................

Table: 3.2 Apparel products exported from year 2002 up to 2011.................................................

Table: 3.3 Apparel products imported from year 2002 up to 2011..................................................

Table: 3.4 World and Ethiopias Apparel import demand projection for years 2011-2022........

Table: 3.5 Apparel supply gaps projected for years 2011-2022.......................................................

Table: 3.6 Summary of apparel surplus import demand projected for years 2011-2022.........

10

Table: 3.7 Sales plan for the envisaged plant........................................................................................

11

Table: 3.8 Estimated Average selling prices of unit kilogram for different product
categories.........................................................................................................................................

12

Table: 3.9 Annual sales plan for the envisaged plant...........................................................................

13

Table: 3.10 Production plan.........................................................................................................................

14

Table: 4.1 Raw materials requirement and cost at full capacity........................................................

15

Table: 4.2 Utilities requirement and cost at full capacity..................................................................

16

Table: 6.2 Machinery and equipment requirement and cost...............................................................

22

Table: 7.1 Manpower requirement and annual salary............................................................................

24

Table: 8.1 Financial assumptions................................................................................................................

25
3

Table: 8.2 Design, consultancy, training and test run costs...............................................................

26

Table: 4.2 Investment cost........................................................................................................................

26

Table: 4.2 Production cost at full capacity.............................................................................................

27

1. Executive Summary

According to 2011 trade report, by International Trade Center (ITC), the total apparel
products imported by the world was about 196,786,089,000 USD in value, from which
about 83,324,000.00 USD was imported by Ethiopia. Taking these values as a base line
and average growth rate of 2% and 4% respectively, the present (2013s) world import
demand for apparel products is estimated to be 204,736,247,000.00 USD, which is
approximately about 50 billion pieces/year, and the amount to be imported by Ethiopia
is estimated to reach 90,123,238.00 USD, which is approximately about 22million
pieces/year. There is a total production capacity of about 73 million woven and knitted
garments existing current in the country, from which only about 75% (56.25 million
pieces) is utilized yet. In the previous year, about 27.5% (15.48 million pieces) of total
production was exported by the country.

Based on the above assumptions, there

exists about 25% (18.25 million pieces) unutilized capacity, currently, which would
cover about 13 million pieces of local demand proportionately. Hence, deducting 13
million from 22 million, we get 9 million capacity gaps to meet only the local extra
demands for various garment products. The import demand is likely to reach at 60
billion pieces/year globally, and 31.5 million pieces/year for Ethiopia by the year 2022.

This project profile envisages the establishment of a garment factory which is to be


engaged in production of different apparel products such as trouser, jacket, coat,
shirt, blouses, baby garments, etc with a capacity of 1,500,000pcs/annum. The
envisaged factory is intended to sale 69% of its products to the international market
and the rest 31% to the domestic market so that it enables the project promoter to
reach the vast market opportunities both internationally and locally.
The total investment cost is estimated to be Birr 48,004,668.50, out of which 14.3% is
required for plant and machinery, 13.5% is for working capital, 45% for building and
civil work, and the rest 27.2% is to be expended for land lease, vehicle, office
equipment, and other prep-production expenses. The project will create employment
opportunity for 499 persons.
The project is financially viable that it will reach breakeven point approximately at
28% of the capacity and has a payback period of 3years.
Generally, the project has a backward linkage effect with textile industries, which are
enormously developing throughout the country. The establishment of such factory will
have a foreign exchange saving and earning effect to the country by exporting to the
world market and substituting the current imports.

2. Product description and application


Apparels are ready to wear garment products produced through different
manufacturing processes that involve different steps, beginning with the idea or
design concept and ending with a finished product.
The major products of the envisaged factory include trousers, coats, jackets,
shirts, blouses, baby garments, and etc. They can be used either as casual clothes
or working clothes under different operations accordingly.

Different fabric types; such as cotton fabrics, polyester fabrics, nylon fabrics,
polyester-cotton blended fabrics, denim fabrics, and others, are used to
manufacture these products tailored to customers requirement.
3. MARKET STUDY AND PLANT CAPACITY
3.1 MARKET STUDY
3.1.1. Supply-Demand Analysis
The population of the world is ever growing and almost reaching seven billion at this
point in time. Besides this, the economy of majority of the world population is also
seen increasing from time to time. This was due to the economic policy
improvements adopted by most part of the world continents like Africa, East and
Middle Asia, and South America to increase the welfare of their people. And it is
obvious that the more improved the economic welfare of people, the more they
expend on purchase of apparel and food.
Therefore, as long as the peoples expending capacity continues improving parallel
with population growth, it makes this time the most strategic for textile industries
in general and garment factories in particular than ever before.
Besides the globally increasing demands for textile products, there are also a
number of advantages and incentives that motivate project promoters in Africa in
general and in Ethiopia in particular. Among these are:
Tax free and unlimited quota market for textile products in economic giant
continents like US and Europe.

70% by 30% loan scheme of Development Bank of Ethiopia

Provision of land necessary for investment at reduced rate

Duty free import of machineries and equipments, construction materials


(those not available locally), and spare parts (whose value not greater than
15% of that of investment capital goods)
Exemption from export tax on local products
Duty drawback schemes on export sales
2 to 7 or more years income tax exemption, for exporting investors
3 to 5 years holyday for loan repayment
Provisions of loss carry forward privileges, for about half of the tax
exemption period, and other.
Along with the above incentives and motivations the textile manufacturing industries
are migrating to Africa and other poor countries due to the increase of labor cost in
countries like Turkey, Italy and others. On the contrary, Ethiopia has relatively lower
cost labor force and good source of raw material. All the listed reasons fueled the
textile sector to show up dramatic change in number and influence the economy of the
country.
Even though, there is apparel production capacity of about 20 million pieces of woven
garment and 53 million pieces of knitted garments per year in the country ( attainable

capacity in 2012/13- source TIDI), there is still bigger domestic and international
apparel product demand.
The market segment for proposed project is 69% targeted to the international market
and 31% to local market for the coming 10 years. Ethiopia has exported few amount of
apparel products for the past 10 years despite the fact that the market for
developing nations are still at large and the government had planned in its five years
7

Growth and transformation plan to export apparel products as it is depicted in the


following table.
Table 3.1 Export plan of knitted and woven garment
Year(EC)

Knitted Garment

Weaved Garment

Total

Growth Rate

(million USD)

(million USD)

(million USD)

(%)

2010/11

35

30

65

2011/12

70

60

130

100

2012/13

158

135

293

125

2013/14

245

210

455

55

2014/15

350

300

650

43

Table 3.2 List of apparel products exported from year 2002 up to 2011
a/ Export in Net-Mass (Kg)
2002
2003
Products Category
GC
GC
2004 GC
Men's suits, jackets,
trousers etc & shorts

159.00

Men's Shirts

Women's blouses and shirt


Women's suits, jackets,
dresses skirts etc & shorts

Babies Garment
Sub Total
Others

TOTAL SUM

2005 GC

35,781.00

26,074.80

73,497.80

26,898.00

113,882.10

34,918.02

16,053.00

3,343.10

2006
GC
127,464.7
3
137,871.6
8

2010
GC

2009 GC

2011
GC

2007 GC

2008 GC

101,580.33

230,794.83

63,259.93

79,146.87

34,035.38

133,414.37

37,887.51

84,623.30

2,608.00

10,929.00

56,354.30

168,343.60

14,044.80
132,173.7
5

4,588.74

3,329.15

79,551.63

17,302.40

114,430.25

178,382.56

29,748.88

15,147.27

12,000.00
14,767.0
0

3,206.00
76,814.0
0

1,617.00
213,981.2
0

190.00
280,292.5
2

60.00
411,614.
96

0
254,634.7
0

0
545,920.9
1

619.00
211,066.9
5

35,716.00

41,306.00

481,825.90

156,163.38

90,865.30

97,335.35

251,502.14

172,913.76

62.00
196,281.
84
573,969.2
3

50,483.
00

118,120
.00

695,807.
10

436,455.
90

502,480
.26

351,970.
05

797,423.
05

383,980.
71

770,251
.07

NA
NA
NA
NA
NA
NA
NA

NA

Source: Extracted from Ethiopian Custom & Revenue Authoritys Report Data Base

b/ Export in CIF Value (USD)


Products
Category
Men's suits, jackets,
trousers etc & shorts
Men's Shirts
Women's blouses and
shirt
Women's suits, jackets,
dresses skirts etc &
shorts
Babies Garment
Sub Total
Others

2002
GC

2003
GC

2004 GC

2005 GC

2006 GC

2007 GC

2008 GC

2009 GC

2010 GC

1252.66

109,395.3
8

133,701.84

416,199.55

256,069.92

383,349.92

640,583.54

181,833.87

372,782.61

81,672.84

296,523.54

150,779.52

332,130.43

161,705.54

897,504.22

173,275.85

302,803.55

104,850.00

9,673.67

24,351.95

15,328.78

17,170.95

134,671.80

114,523.37

5,523,000.0
0
3,010,000.0
0
1,707,000.0
0

29,985.7
0
14,927.5
2
46,165.8
8

109,022.9
4

252,770.04

558,504.26

387,911.84

180,010.20

932,301.12

80,681.26

75,125.11

934,000.00

4,789.11
304,880.
27

2,601.42
790,446.8
4

913.75
1,136,070
.75

651.59
1,001,115
.73

0
740,394.4
4

0
2,487,559
.83

4,465.41
574,928.1
9

556.88
865,791.5
2

11,175,000.
00

93,812.
56

136,632
.52

1,281,53
0.73

712,240.
8

283,456.
27

389,269.
79

1,211,13
5.26

949,765.
65

5,504,11
7.22

2011 GC

1,000.00

3,904,000
9

TOTAL SUM

139,97
8.44

441,512
.79

2,071,97
7.57

1,848,31
1.55

1,284,57
2.00

1,129,66
4.23

3,698,69
5.09

1,524,69
3.84

6,369,90
8.74

.00
15,079,00
0.00

Source: Extracted from Ethiopian Custom & Revenue Authoritys Report Data Base (for 2002-2010) and from International Trade
Centers Report Data Base (for 2011)

Table 3.3 List of apparel products imported from year 2002 up to 2011
a/ Import in Net-Mass (Kg)
Products
Category
Men's suits,
jackets, trousers
etc & shorts
Men's Shirts
Womens Blouse
& Shirts
Women's suits,
jackets, dresses
skirts etc &
shorts
Babies Garments
Sub Total
Others

TOTAL SUM

2011
GC

2002 GC

2003 GC

2004 GC

2005 GC

2006 GC

2007 GC

2008 GC

2009 GC

2010 GC

3,386,339
1,058,841.0
0
1,424,375.0
0

3,158,269
1,075,427.0
0
3,352,335.0
0

3,117,306.1
1,166,219.6
7
4,408,382.1
5

3,338,977.9
1,362,717.4
4
5,282,327.2
5

3,975,624.0
3
1,400,606.9
3
4,428,796.8
6

4,607,668.0
3
1,261,987.1
8
3,909,073.7
2

4,174,741.2
9
1,090,756.9
6
3,793,738.6
7

2,803,183.5
6

2,567,027.7
1
1,089,465.7
8
3,559,410.1
9

858,196.92
3,086,521.8
2

NA
NA
NA
NA

733,204.00
1,024,064.0
0
7,626,823.
00

1,094,561.0
0
1,091,768.0
0
9,772,360.
00

1,732,912.6
3
1,272,262.0
0
11,697,082
.55

2,025,307.7
5
1,332,488.8
6
13,341,819
.20

1,895,197.3
3
1,930,724.1
7
13,630,949
.32

1,940,545.2
1
1,564,047.9
8
13,283,322
.12

2,158,051.1
9
1,517,166.1
8
12,734,454
.29

2,386,480.4
3
1,822,585.2
5
10,956,967
.98

3,126,041.4
6
1,879,744.8
6
12,221,690
.00

2,475,49
2.00

3,875,49
5.00

3,467,175
.47

3,505,380
.22

3,782,793
.26

4,237,241
.26

4,048,017
.78

4,080,570
.40

4,672,460
.83

NA

10,102,31 13,647,85
15,164,25
16,847,19
17,413,74
17,520,56
5.00
5.00
8.02
9.42
2.58
3.38
Source: Extracted from Ethiopian Custom & Revenue Authoritys Report Data Base

16,782,47
2.07

15,037,53
8.38

16,894,15
0.83

NA

NA
NA

b/ Import in CIF Value (USD)


Products
Category
Men's suits,
jackets, trousers
etc & shorts
Men's Shirts

2002 GC

2003 GC

2004 GC

2005 GC

2006 GC

2007 GC

2008 GC

2009 GC

2010 GC

13,766,670.
83
2,789,159.2
5

13,130,278.
60
3,120,870.9
3

15,001,308.
90
4,394,774.9
3

17,974,381.
63
5,401,072.2
7

21,889,123.
00
6,247,318.3
9

27,225,822.
62
5,660,860.3
2

23,062,478.
78
4,315,687.6
5

18,855,294.
69
3,953,866.7
0

18,717,243.
38
5,282,019.7
4

2011 GC
27,843,000.
00
18,992,000.
00

10

Womens Blouse
& Shirts
Women's suits,
jackets, dresses
skirts etc & shorts
Babies Garments
Sub Total
Others
TOTAL SUM

4,045,438.9
5

7,245,238.5
8

10,129,091.
21

15,484,537.
70

3,264,093.3 5,306,697.1 7,667,497.7 9,547,458.5


2
3
5
1
2,963,509.0 3,761,129.4 5,278,856.5 5,986,315.1
5
4
5
8
26,828,87
32,564,21
42,471,52
54,393,76
1.40
4.68
9.34
5.29
7,855,640.
12,833,37
11,622,54
13,378,08
01
9.91
2.29
2.75
34,684,51
45,397,59
54,094,07
67,771,84
1.41
4.59
1.63
8.04
Source: Extracted from Ethiopian Custom & Revenue

14,248,330.
31

15,172,403.
72

15,250,053.
17

14,174,649.
41

18,983,938.
03

7,109,000.0
0

8,900,725.8 11,233,351. 11,693,413. 15,651,913. 21,326,958.


5,801,000.0
1
41
43
47
79
0
9,204,267.3 7,254,710.4 5,974,899.6 8,188,282.5 8,610,384.6
2,402,000.0
1
3
7
3
9
0
60,489,76
66,547,14
60,296,53
60,824,00
72,920,54
62,147,00
4.82
8.50
2.70
6.80
4.63
0.00
14,295,12
18,309,52
18,820,71
22,052,31
25,984,85 21,179,000
8.35
6.87
9.88
4.54
8.8
.00
74,784,89
84,856,67
79,117,25
82,876,32
98,905,40 83,326,000
3.17
5.37
2.58
1.34
3.43
.00
Authoritys Report Data Base (for 2002-2010) and from International Trade

Centers Report Data Base (for 2011)

11

3. 1.2. Projected Demand


From previously presented export and import records (Table 3.2 a, b and Table 3.3 a,
b) of apparel products of the nation, the following facts could be recognized after
thorough analysis made on it.
Export on apparel products in general and some products like: womens blouses, shirts,
skirts, trousers shorts, and Mens shirts, trousers and shorts in particular had been
increasing from year to year for the last ten years. Only in 2011, about 11 million USD
total sales had been made for the mentioned products, which is about 136% greater
than that of the preceding year, 2010 (Table 3.2 b).
Import of these same products had been also increasing consecutively from year 2002
(which was about 26.8 million USD) to year 2010 (which was about million 72.9 USD).
The increment from year 2002 to 2010 was 172%. In 2011, the sales became 62.15
million USD which was by 14.7% less than that of 2010. The reduction in import could
be logically related to the increment in production and local sales of the nation,
although there is large imbalance still, which is about -51.15 million USD, when
calculated for the mentioned products only for the year, 2011 (Table 3.2, 3.3).
From this analysis it can be reasonably concluded that export of apparel products in
general and those mentioned products in particular, will be expected to increase for
the coming ten years also.
Besides these analyses, the report of International Trade Center (ITC) indicates
that for the year 2011, the total world import of apparel products was about
196,786,089,000.00 USD, from which about 83,324,000.00 USD (0.04%) was
imported by Ethiopia. On the other hand, the total value exported by Ethiopia in this
same year was only 15,078,000.00 USD, according to the report, which amounts to only
0.008% of the total amount imported by the world (196,702,765,000.00 USD),
excluding that of Ethiopia.

12

According to this report (ITC report), the average growth rate for apparels world
import for the years 2007 - 2011 was 2%, and about 16% for the years 2010-2011.
The Import growth rate for Ethiopia was reported as 4% for the years 2007 -2011
and 7% for the years 2010-2011. (But according to data obtained from ECRA, it was
indicated that there was reduction in import by 14.7% for the year 2010-2011, which
was noted as the result of data differences from one source to the other).
Likewise; regarding export, it was indicated in the ITC report that the growth rate
was 93% for the year 2007-2011 and 267% for the years 2010-2011, for Ethiopia.
According to the Growth and Transformation Plan (GTP) of the country, it was
targeted to increase the export of apparel products, in general, as presented in table
3.1 above.
Therefore, assuming that the world and national imports continues to increase with
the same average growth rate of the year 2007 2011, which is 2% and 4%
respectively; and taking the values of 2011 as the base line, which was
196,786,089,000.00 USD and 83,324,000.00 USD respectively, we can predict that
the demands of apparel products in general to have the following trends.

Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

World Import (USD)


196,786,089,000.00
200,721,810,800.00
204,736,247,000.00
208,830,971,900,00
213,007,591,400.00
217,267,743,200.00
221,613,098,100.00
226,045,360,000.00
230,566,267,200.00
235,177,592,600.00
239,881,144,400.00
244,678,767,300.00

National Import

World /Except Ethiopia/

(USD)

Import (USD)

83,324,000.00
86,656,960.00
90,123,238.40
93,728,167.94
97,477,294.65
101,376,386.40
105,431,441.90
109,648,699.60
114,034,647.60
118,596,033.50
123,339,874.80
128,273,469.80

196,702,765,000.00
200,635,153,840.00
204,646,123,761.60
208,737,243,732.06
212,910,114,105.35
217,166,366,813.60
221,507,666,658.10
225,935,711,300.40
230,452,232,552.40
235,058,996,566.50
239,757,804,525.20
244,550,493,830.20

Table 3.4: World and Ethiopian Apparel Import projections for years 2011 -2022

13

Assuming that the factories available in the year 2011 are remaining to exist and
continue to produce and sale the amount imported in that year, we can calculate the
supply gaps resulted in the market because of the demand growths in the following
consecutive years. These can be obtained by deducting the supply of the year 2011
from the projected ones for the years covered in the plan, as presented in Table 3.5.

Considering the export and import situations of apparel products at national and global
levels, we can reasonably conclude that there is very huge market demand for the
mentioned products both locally and globally. Therefore, it will be the matter of
competing and taking the market share

Table 3.5: Apparel Supply Gaps Projected for the years 2011-2022
a/ National supply gap

Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

National Import

National Supply

Supply Gap

(USD)

(USD)

(USD)

83,324,000.00
86,656,960.00
90,123,238.40
93,728,167.94
97,477,294.65
101,376,386.40
105,431,441.90
109,648,699.60
114,034,647.60
118,596,033.50
123,339,874.80
128,273,469.80

83,324,000.00
83,324,000.00
83,324,000.00
83,324,000.00
83,324,000.00
83,324,000.00
83,324,000.00
83,324,000.00
83,324,000.00
83,324,000.00
83,324,000.00
83,324,000.00

0.0
3,332,960.00
6,799,238.40
10,404,167.94
14,153,294.65
18,052,386.40
22,107,441.90
26,324,699.60
30,710,647.60
35,272,033.50
40,015,874.80
44,949,469.80

b/ World supply gap

14

Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

World /Except Ethiopia/

World /Except for

World Supply Gap

Import (USD)

Ethiopia/ Supply (USD)

(USD)

196,702,765,000.00
200,635,153,840.00
204,646,123,761.60
208,737,243,732.06
212,910,114,105.35
217,166,366,813.60
221,507,666,658.10
225,935,711,300.40
230,452,232,552.40
235,058,996,566.50
239,757,804,525.20
244,550,493,830.20

196,702,765,000.00
196,702,765,000.00
196,702,765,000.00
196,702,765,000.00
196,702,765,000.00
196,702,765,000.00
196,702,765,000.00
196,702,765,000.00
196,702,765,000.00
196,702,765,000.00
196,702,765,000.00
196,702,765,000.00

0.0
3,932,388,840.00
7,943,358,761.60
12,034,478,732.06
16,207,349,105.35
20,463,601,813.60
24,804,901,658.10
29,232,946,300.40
33,749,467,552.40
38,356,231,566.50
43,055,039,525.20
47,847,728,830.20

Therefore, surplus demands for apparel products at world level and national level could
be summarized as follows.
Table 3.6 Summary of Apparel Surplus Import Demand Projected for the coming ten
years
Year
World Surplus Import National Surplus Import
Total Surplus Import

Demand (USD)
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

7,943,358,761.60
12,034,478,732.06
16,207,349,105.35
20,463,601,813.60
24,804,901,658.10
29,232,946,300.40
33,749,467,552.40
38,356,231,566.50
43,055,039,525.20
47,847,728,830.20

Demand (USD)
6,799,238.40
10,404,167.94
14,153,294.65
18,052,386.40
22,107,441.90
26,324,699.60
30,710,647.60
35,272,033.50
40,015,874.80
44,949,469.80

Demand (USD)
7,950,160,013.00
12,044,884,914.00
16,221,504,415.00
20,481,656,216.00
24,827,011,117.00
29,259,273,018.00
33,780,180,219.00
38,391,505,610.00
43,095,057,411.00
47,892,680,312.00

Therefore; the world surplus demand presented in table 3.6 can be taken as a base to
set the capacity of the plant for export sales, and the total national demand for
import, as projected and presented in Table 3.5, can be used as a base to set the
15

capacity of the plant for local market. Accordingly, 0.05% of the world surplus demand
of year 2013s projection for apparel demand, which is 3,971,679.00 USD, for export;
and 2% of the 2013s national total demand, which is 1,802,465.00 USD, for local
market are considered to set the total production capacity of the plant to be
envisaged.
The average price per unit kilogram of garment products varies from year to year due
to the effect of factors like inflation and others. An average of 5% increment in
average selling price per unit kilogram of the products is assumed to calculate the
sales achievement over the plan year.
The following Table portrays the amount planned for export and local market, which is
calculated based on assumptions stated above.
Table 3.7 Sales plan for the envisaged project (Export & Local sales)
Yea
r

World Surplus
Import Demand
(USD)

Export Plan
(USD)

National Total
Import
Demand
(USD)

7,943,358,761.60

3,971,679.00

90,123,238.40

1,802,465.00

12,034,478,732.06

4,170,263.00

93,728,167.94

1,892,588.00

16,207,349,105.35

4,378,776.00

97,477,294.65

1,987,217.00

20,463,601,813.60

4,597,715.00

101,376,386.40

2,086,578.00

24,804,901,658.10

4,827,600.00

105,431,441.90

2,190,907.00

29,232,946,300.40

5,068,980.00

109,648,699.60

2,300,452.00

33,749,467,552.40

5,322,430.00

114,034,647.60

2,415,475.00

38,356,231,566.50

5,588,551.00

118,596,033.50

2,536,248.00

43,055,039,525.20
47,847,728,830.20

5,867,978.00
6,161,378.00

123,339,874.80
128,273,469.80

2,663,061.00
2,796,214.00

Local Sales
Plan (USD)

2013
2014
2015
2016
2017
2018
2019

2020
2021
2022

Total
Sales Plan

5,774,14
4.00
6,062,85
1.00
6,365,99
3.00
6,684,29
3.00
7,018,50
7.00
7,369,43
2.00
7,737,90
5.00
8,124,79
9.00
8,531,03
9.00
8,957,59
16

2.00
As presented in the table about 69% of the total sale will be targeted for export and
the remaining 31% is reserved for local market.

3.1.3 Pricing and Distribution


Based on import data analyzed for the year 2012, the average price per unit kilogram
of garment products was 7.40 USD, which is equivalent to Birr 136.00. ( Source: Data

analyzed by Marketing Directorate of TIDI, based on ERCAs Annual Import Report )


Assuming this price to increase by 5% in the coming year, 7.80 USD is taken as the
average selling price for products of the envisaged company.
Table 3.8 Estimated Average selling price per unit kilogram for different product
categories
Product Mix

U/M

Unit Price

Men's suits, jackets, trousers

Kg

(USD/Kg)
8.00

etc & shorts


Men's Shirts
Women's blouses and shirts
Women's suits, jackets, dresses

Kg
Kg
Kg

7.80
7.25
7.50

25
20
20

1.95
1.45
1.50

skirts etc & shorts


Babies Garments

Kg

9.00

10

0.90

100

7.80

Average Selling Price

Share of Product Price Share


Mix (%)
25

(USD)
2.00

Note that products mentioned as mens and womens covers all the sizes from
small to extra large sizes, which are dressed by boys, girls, men, and women.

17

3.2 Plant capacity and production program


3.2.1 Plant capacity
Based on sales plan presented under Table 3.7 and the average sales price presented
under Table 3.8, we can get that the annual production capacity of the plant will be
740,275 Kg of garments totally. From the total products: - 25% (185,068Kg) will be:
Men's suits, jackets, trousers etc & shorts; 25% (185,068Kg) will be: Men's Shirts; 20%
(156,058Kg) will be: Women's blouses and shirt; 20% (148,055) will be: Women's suits,
jackets, dresses skirts etc & shorts; and 10% (74,027Kg) will be: Babies Garments.

The following Table presents summary of the production capacity of the plant,
converting the measuring units from Kg to pieces. Total of 320 working days per
annum, 8 hour per day in one shift is assumed to set the plant capacity.
Accordingly, a total of 1,493,242 pieces of different garments will be produced on
100% capacity utilization, and a total of 5,774,140 USD (Birr 106,821,600, with
average exchange rate of 1 USD = 18.5 Birr) sales is planned to be achieved.
Table: 3.9 Annual Sales plan for the envisaged plant
Product Mix

Annual Production

Average Unit

Capacity

Price /piece

Quantity

Quantity

Men's suits, jackets, trousers

(Kg)
185,069

(Piece)
105,754

etc & shorts (1 pc = 1.75kg)


Men's Shirts (1 pc = 350gm)
Women's blouses and shirts

185,068
148,055

(1 pc = 300gm)
Women's suits, jackets, dresses

(USD)

Selling Price
(USD)

(Birr 000)

14.00

1,480,552.00

27,390.20

528,766
493,517

2.73
2.18

1,443,530.00
1,073,398.00

26,705.30
19,857.85

148,055

118,444

9.38

1,110,412.00

20,542.60

Babies Garments (1 pc = 300gm)

74,028

246,760

2.70

666,252.00

12,325.65

Total

780,289

1,493,241

3.87

5,774,144.00

106,821.60

skirts etc & shorts (1 pc =


1.25kg)

18

Note that the average weight for unit product categories is taken by estimation,
taking the size (small extra large) and material variations (cotton, polyester,
nylon, etc...) in to considerations.
3.2.2 Production program
The planned capacity will be achieved in the fourth year of the establishment year of
the factory. In a period of 12 months project time, the project will be realized. It is
estimated that production starts at 85% plant capacity in the first year, 95% in the
second year, and 100% in the third year and will continue to work with this capacity
for the coming 10 years. Since production capacity of garment factory is highly
dependent on operators performance, here the average attainable Ethiopian machine
operators performance is taken in to consideration to determine the overall capacity
of the envisaged plant. The factory is assumed to work 300 days in a year and 8 hours
per day in a single shift.
Table 3:10 Production Program
Plant Capacity Utilization
Product Categories

3rd
year
and
above (100%)

U/M

1 year (85%)

etc & shorts

Pcs

89,891

100,466

105,754

Men's Shirts

>>

449,451

502,328

528,766

Women's blouses and shirts


Women's suits, jackets, dresses

>>

419,489

468,841

493,517

skirts etc & shorts

>>

100,677

112,522

118,444

Babies Garments

>>

209,746

234,422

246,760

>>

1,269,254

1,418,579

1,493,241

st

nd

year (95%)

Men's suits, jackets, trousers

Total

The factory will have a set up to accommodate production facilities for both knitted
and woven garment products. Based on assumptions stated above the plant will have a
total capacity of manufacturing 5000 pieces of varies woven and knitted garments on
average per day in one shift. Depending on the simplicity of the product type and
19

improvement in operators performance, even more production capacity could be


achieved with the same plant setup.
4. Raw Materials and utilities
4.1 Raw Materials

The raw materials required to produce garments include fabrics, buttons, sewing
threads, and accessories like zipper, shoulder pad, labels etc. Except some
materials and accessories which are not produced locally, for a short run, all the
raw materials will be purchased locally. However, in the near future all the raw
materials will be expected to be available locally as there are a number of projects
in the pipeline and also some bonded warehouses to be opened locally by foreign
manufacturers.
Table 4.1 below presents annual requirements and corresponding costs of raw
materials at full production capacity.
Table 4.1 Raw materials requirement and Cost at full capacity

S/
N
1
2

Material
type
Fabric
Buttons

Sewing

thread
Accessorie

s
Packing

U/

Qty

Unit
Price

M
kg

780,28

85.0

56375880.00

9948685.00

66,324,565.00

kg

9
15,554

0
50.8

118,638.00

672,283.00

790,921.00

8,789

5
74.5

98,283.00

556,937.00

655,220.00

516,040.00

2924223.00

3,440,263.00

2,064,158.00

2,064,158.00

Grand Total

59,172,999.0

14,102,128.0

73,275,127.0

kg

LC

Cost (Birr)
FC

Total Cost

Lump
sum

>> >>

material

20

4.2 Utilities
Electricity and water are the two major utilities required by the envisaged plant. Total
annual cost of major utility items at full operation capacity of the plant is Birr
281,300.00. Details are shown in the table below:
Table 4.2 Utilities Requirement and Cost at full capacity
Annual Requirement
(KWh/year)

S/N Utility
1

Electric power

2
3

Unit
price/KWh

Total
Cost(Birr)

Remarks
350m/n * 150W/m/n *

126,000KWh

0.55

69,300.00

8hrs/day * 300days/year

Water

10,000 M3

3.80

38,000.00

20M3/day*300day/year

Fuel and oils

12,000lit

14.5

174,000.00

40lit/day*300day/year

Total

281,300.00

5. Location and Site


Location of the plant is determined on the proximity of raw materials, availability of
infrastructure, availability of skilled man power and distance to potential market
outlet.
In view of this, the envisaged plant will be established in one of the following potential
investment areas in Orimia regional state such as Gelan, Dukem, Bishoftu, Laga Tafo,
Sebeta, others, which are located near Addis Ababa.

21

6. Technology and Engineering


6.1 Production process
Generally, apparel manufacturing process involves Product Design, Fabric Selection and
Inspection, Patternmaking, Grading, Marking, Spreading, Cutting, Bundling, Sewing,
Pressing or Folding, Finishing and Detailing, Dyeing and Washing, QC etc.
The major processes involved in the production processes of apparel products of the
envisaged factory are discussed as under.

Receiving fabrics
Under this process step the fabric to be used in production process of apparels will be
received from the supplier. Depending on the type of procurement and type of
products, the supplier could be either the manufacturer, or whole seller or retailer.
The fabrics received from the supplier are preserved in the raw material stores
temporarily before they are issued for next step.

Fabric Relaxing
Relaxing refers to the process that allows material to relax and contract prior to
being manufactured. This step is necessary because the material is continually under
tension throughout the various stages of the textile manufacturing process, including
weaving, dyeing, and other finishing processes. The relaxing process allows fabrics to
shrink so that further shrinkage during customer use is minimized.

22

Fabric relaxing could be done either manually or mechanically. Manual fabric relaxing
typically entails loading the bolt of fabric on a spinner and manually feeding the
material through a piece of equipment that relieves tension in the fabric as it is pulled
through. Mechanical fabric relaxing performs this same process in an automated
manner.
Quality assurance process is integrated into this process to ensure that the quality of
the fabric meets customer standards. This step is performed by manually spotchecking each bolt of fabric using a backlit surface to identify manufacturing defects
such as color inconsistency or flaws in the material. Fabrics that fail to meet customer
standards are returned to the supplier (manufacturer or whole seller of retailer).

Spreading, Form Layout, and cutting


After fabric has been relaxed, it is transferred to the spreading and cutting area of
the garment manufacturing facility. The fabric is first cut into uniform plies and then
spread either manually or using a computer-controlled system in preparation for the
cutting process. Fabric is spread to:

allow operators to identify fabric defects;

control the tension and slack of the fabric during cutting; and

Ensure each ply is accurately aligned on top of the others.

The number of plies in each spread is dependent on the fabric type, spreading method,
cutting equipment, and size of the garment order.
Next, garment formsor patternsare laid out on top of the spread, either manually
or programmed into an automated cutting system. Lastly, the fabric is cut to the shape

23

of the garment forms using either manually operated cutting equipment or a


computerized cutting system.

Embroidery and Screen Printing


Embroidery and screen printing are two processes that occur only if directly specified
by the customer; therefore, these processes are commonly subcontracted to off-site
facilities. Embroidery is performed using automated equipment, often with many
machines concurrently embroidering the same pattern on multiple garments. Each
production line may include between 10 and 20 embroidery stations. Customers may
request embroidery to put logos or other embellishments on garments.
Screen printing is the process of applying paint-based graphics to fabric using presses
and textile dryers. Specifically, screen printing involves sweeping a rubber blade
across a porous screen, transferring ink through a stencil and onto the fabric. The
screen printed pieces of fabric are then dried to set the ink. This process may have
varying levels of automation or may largely be completed at manually operated stations.
Like embroidery, screen printing is wholly determined by the customer and may be
requested to put logos or other graphics on garments or to print brand and size
information in place of affixing tags.

Sewing
Garments are sewn in an assembly line, with the garment becoming more complete as it
progresses down the sewing line. Sewing machine operators receive a bundle of cut
fabric and repeatedly sew the same portion of the garment, passing that completed
portion to the next operator. For example, the first operator may sew the collar to
the body of the garment and the next operator may sew a sleeve to the body. Quality
assurance is performed at the end of the sewing line to ensure that the garment has
been properly assembled and that no manufacturing defects exist. When needed, the
24

garment will be reworked or mended at designated sewing stations. This laborintensive process progressively transforms pieces of fabric into designer garments.

Spot Cleaning and Laundry


In addition to identifying manufacturing defects, employees tasked with performing
quality assurance are also looking for cosmetic flaws, stains, or other spots on the
garment that may have occurred during the cutting and sewing processes. Spots are
often marked with a sticker and taken to a spot-cleaning area where the garment is
cleaned using steam, hot water, or chemical stain removers.
Some customers request that a garment be fully laundered after it is sewn and
assembled; therefore, garment factories often have an on-site laundry or have
subcontract agreements with off-site laundry operations. Commercial laundry facilities
are equipped with at least three types of machines: washers, spinners, and dryers.
Some facilities also have the capability to perform special treatments, such as stoneor acid-washing.

Ironing
After a garment is fully sewn and assembled, it is transferred to the ironing section of
the facility for final pressing. Each ironing station consists of an iron and an ironing
platform. The irons are similar looking to residential models, but have steam supplied
by an on-site boiler. Workers control the steam with foot pedals and the steam is
delivered via overhead hoses directly to the iron. In most facilities, the ironing
platforms are equipped with a ventilation system that draws steam through the ironing
table and exhausts it outside the factory.

Packaging and Shipping

25

In the last steps of making a product retail-ready, garments are folded, tagged, sized,
and packaged according to customer specifications. Also, garments may be placed in
protective plastic bags, either manually or using an automated system, to ensure that
the material stays clean and pressed during shipping. Lastly, garments are placed in
cardboard boxes or pp bags and shipped to client distribution centers to eventually be
sold in retail stores, or to customers, if they are produced on orders.

Chart-1 Apparel production process flow chart


Fabric Reception

Fabric Relaxing

Fabric Spreading, Form


Layout, and Cutting

Sewing

Inspection

Spot cleaning and


Laundry

Ironing
26

Packing

Apparel Shipping

6.2 Source of Technology


The machinery and equipments required to manufacture apparel products are
conventional and available in different technological levels, in general. Selection among
alternatives was made based on the competitive advantages it provides to the
stakeholder in the context of the country. The major criterions taken in to
consideration are: resource utilization (especially labor), job opportunity, operability,
and maintainability. Therefore; the labor intensive machineries and equipments are
selected for the envisaged plant. Suppliers of labor intensive technologies are available
in Europe, Asia and Far East.
6.3 Machinery and Equipment
The envisaged plant is planned to produce 50% knitted and 50% woven garments and
therefore the machineries and equipments to be purchased will be in such a way as to
accommodate all required facilities. The list of machinery and equipment, quantity and
associated costs are presented in Table 6.1. As shown in the table, the total cost of
machinery and equipment is estimated at 355,789.65 USD (Birr 6,582,108.50) of which
288,043.00 USD is required in foreign currency and the remaining 37,594.50 USD (Birr
695,498.25) is in local currency.

Table 6.1 Machinery and Equipment Requirement and Cost


27

Sr.
No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23

Description

Qty.

Single needle stitching machine


Double needle stitching machine
Over lock machine
Inter lock (cover stitch) machine
Bar tacking machine
Blind stitch machine
Zigzag sewing machine
Waist stitching machine
Button hole making machine
Button attaching machine
Thread winding machine
Collar turning machine
Cuff turning machine
Band knife
Vertical blade cutter
Drilling machine
Spreading and Cutting Table (manual)
Spreading machine with Table
Fusing machine
Electrical portable ironing machine
Steam ironing machine
Vacuum Ironing table
Plotter with full SW & accessories (set)

FOB price

176
19
55
42
9
3
4
3
7
7
1
2
2
4
8
2
4
1
2
20
20
4
1
396

Unit
Price

Cost of Machine (USD)


LC
FC
TC

600.00
750.00
800.00
800.00
800.00
225.00
2,500.00
600.00
1,500.00
1,500.00
80.00
1,350.00
1,350.00
2,700.00
570.00
570.00
1,350.00
20,000.00
270.00
54.00
267.00
267.00
15,000.00

Freight, Insurance, customs & Bank charges, Material handling cost (10%)
Sub total
Contingency (5%)

CIF Landed Cost

5,400.00

105,600.00
14,250.00
44,000.00
33,600.00
7,200.00
675.00
10,000.00
1,800.00
10,500.00
10,500.00
80.00
2,700.00
2,700.00
10,800.00
4,560.00
1,140.00
0
20,000.00
450.00
1,080.00
5,340.00
1,068.00
15,000.00
303,043.0

105,600.00
14,250.00
44,000.00
33,600.00
7,200.00
675.00
10,000.00
1,800.00
10,500.00
10,500.00
80.00
2,700.00
2,700.00
10,800.00
4,560.00
1,140.00
5,400.00
20,000.00
450.00
1,080.00
5,340.00
1,068.00
15,000.00
308,443.0

30,404.30
35,804.30

0
303,043.0

0
30,404.30
338,847.3

1790.20
37,594.50

0
15,152.15
318,195.1

0
16,942.35
355,789.6

5,400.00

6.4 Land use, building and civil work


The proposed plant requires a total land area of 5950m 2. The building includes
production hall, warehouses both for raw material and finished products, design and
pattern making room, product display room, canteen both for workers and staffs,
toilet and shower/wash room, security room, offices and other facilities. The total

28

floor space of the buildings will cover total area of 3600m 2 (See Appendix-1). The
total estimated cost of building at the rate of Birr 6,000 per m2 is Birr 21,600,000.00.
The lease period for the land is 80 years on average, and the payment of lease prices
is in 40 years. The land lease rate of Birr 6.5 /M 2/year is adopted, which is the
minimum lease rate in Oromia 1st grade towns. 10% down payment is expected at the
initial year of land acquisition. Accordingly, the total lease cost of Birr 3,094,000, of
which Birr 309,400.00 will be paid in advance in the first year and the remaining Birr
2,784,600 will be paid in equal installments of Birr 69,615 .00 within 40 years, after
the grace period of 3 years annually.
7. Man power and training requirements
7.1 Man power requirement
The manpower requirement is considered at 499 personnel for various levels. This
includes Machine operators, helpers, technicians, supervisors, Marketing, and
administrative staffs. Table below, shows the list of manpower required along with
annual labor cost.
Table 7.1 Man power Requirement and annual salary
S/
N

Description

No

1
2
3
4
5
6
7
8
9
11
12
13
14
15
16
17
18

Factory Manager
Executive Secretary
Departmental Secretaries
Departmental Clerks
Production and Tech Manager
Production Head
Technical Head
Quality Head
Production supervisor
Quality Control supervisor
Mechanical maintenance supervisor
Electrical maintenance Supervisor
Machine Operators & helpers
Quality Inspectors
Mechanic
Electrician
Marketing Manager

1
1
4
5
1
1
1
1
9
4
1
1
416
11
4
3
1

Monthly salary
10,000.00
3,000.00
10,000.00
5,000.00
7,500.00
5,000.00
5000.00
5,000.00
31,500.00
14,000.00
3,500.00
3,500.00
416,000.00
11,000.00
5,200.00
3,900.00
7,500.00

Annual salary
120,000.00
36,000.00
120,000.00
60,000.00
90,000.00
60,000.00
60,000.00
60,000.00
378,000.00
168,000.00
42,000.00
42,000.00
4,992,000.00
132,000.00
62,400.00
46,800.00
90,000.00

29

19
20
21

Sales person
Administration manager
General service personnel

2
1
1

5,000.00
7,500.00
2,500.00

60,000.00
90,000.00
30,000.00

22
23
24
25
26
27
28
29
30
31
32

HR Personnel
Nurse
Guard
Messengers
Driver
Cleaner
Financial manager
Accountant
Cashier
Purchasers
Store Keepers

1
2
8
3
3
5
1
2
1
2
2

2,500.00
4,000.00
6,400.00
1,800.00
3,000.00
3,000.00
7,500.00
7,000.00
1,500.00
3,000.00
3,000.00

30,000.00
48,000.00
76,800.00
21,600.00
36,000.00
36,000.00
90,000.00
84,000.00
18,000.00
36,000.00
36,000.00

Sub Total
Employee Benefit (15%)

499

Grand Total
7.2 Training requirement

604,300.00
90645.00

7,251,600.00
1,087,740.00

694,945.00

8,339,340.00

On job training for operators and short term trainings for supervisors, technicians,
and designers is planned, with estimated cost of Birr 100,000.00.
8. Financial Analysis
8.1 Underlying Assumption
The financial analysis of the envisaged plant is based on the data provided in the
preceding chapters and the following assumptions.
Table: 8.1 Financial Assumptions
A. Construction and Finance
Construction period
Source of Finance
Tax Holidays
Bank Interest rate
Discount for cash flow
Value of Land
Spare parts & Repair and Maintenance

12 months
30% equity and 70% Loan from bank
5 years
8.50%
8.50%
Birr 6.50/M2/year
5% of the fixed investment

B. Depreciation & Amortization


Building

5%
30

Machinery and Equipment


Office Furniture
Vehicles
Pre-Production (Amortization)

10%
10%
20%
20%

C. Working Capital(Minimum day of coverage)


Raw Material Local
30 days
Raw Material Foreign
120 days
Factories supplies in stock
30 days
Spare part in stock and Maintenance
60 days
Work in Progress
5 days
Finished Product
20 days
Account receivable
30 days
Cash in Hand
20 days
Accounts payable
30 days
8.2 Pre-production Expenses
The total cost required for design, consultancy, training and commissioning is
estimated to be Birr 3.66 million.

Table 8.2 Design, consultancy ,training and test run cost


S/
N
Description

Estimated
Budget(Birr)

1
2

Engineering, Design & consultancy fee


Training

300,000.00
100,000.00

Commissioning and test run with 10% contingency

200,000.00

Other pre-production expenses

500,000.00

Interest during construction

Total

2,558,500.00

3,658,500.00

Remark: Other pre-production expenses include costs like costs of registration,


licensing and formation of the company including legal fees, commissioning
expenses, etc.
8.3 Investment Cost

31

The investment cost of the project including working capital is estimated at Birr 34.27
million. The owner shall contribute 30% (12,335,100.00) of the finance in the form of
equity while the remaining 70% (28,781,913.00) is to be financed by bank loan.
Table 8.3 Total Initial Investment
Item
Land
Building and Civil Work

LC

FC

Total

3,094,000.00
14,040,000.00

7,560,000.00

3,094,000.00
21,600,000.00

Office Equipment

600,000.00

600,000.00

Vehicles
Plant machinery and equipment

6,000,000.00
6,582,108.50

6,000,000.00
6,582,108.50

17,134,000.00

20,742,108.50

37,876,108.50

3,658,500.00

3,658,500.00

17,134,000.00
6,470,060.00

24,400,608.50
-

41,534,608.50
6,470,060.00

Total Fixed investment cost


Pre-Production

Total initial investment cost


Working capital at full capacity

Total
8.4 Production Cost

23,604,060.00

24,400,608.50 48,004,668.50

The total production cost at full capacity operation is estimated at Birr 88.077million.
Raw materials and utilities account for 83.20%, while the rest together costs 16.80%
of the total production cost.
Table 8.4 Total Production cost at full capacity

Items
1. Raw Material

%age share

Cost
73,275,127.00

83.20

281,300.00

0.32

3.Wages and salaries

7,101,480.00

8.06

4.Spares and Maintenance (5% of F.I)

1,533,640.00

1.74

5. Depreciation & Amortization

3,729,910.00

4.23

6.Marketing and Promotion (salary*3)

952,200.00

1.08

7.Adminstrative Expense (salary *1.2)

1,203,900.00

1.37

88,077,557.00

100

2.Utilities

Total Production cost

32

9 Financial Evaluations
9.1 Profitability
Based on the projected profit and loss statement (see appendix 2), the project will
generate a profit beginning from the first year of operation and increase on wards
throughout its operation life. Annual net profit after tax will grow from Birr 10.856
million to Birr 16.15 million during the life of the project. Moreover, at the end of the
project life the accumulated cash flow amounts to Birr 154.45 million.
9.2 Financial Ratios
In financial analysis financial ratios and efficiency ratios are used as an index or yard
stick for evaluating the financial position of a firm.

It is also an indicator for the

strength and weakness of the firm or a project. Some of these ratios calculated for the
first year of the project life are:

Return on sales = Net income/Revenue


= 10,855,794/90,798,360
= 0.12 (12%)
Return on equity = Net profit/Equity
= 10,855,794/14,401,400
= 0.75 (75%)
Return on investment = Net profit/Total Investment
= 10,855,794/48,004,668
= 0.23 (23%)
These financial ratios for all years of the operation life of the project are found to be
satisfactory and hence indicate that it is profitable and viable.

33

9.3 Break-even Analysis


The break-even analysis establishes a relationship between operation costs and
revenues. It indicates the level at which costs and revenue are in equilibrium. To this
end, the break-even point of the project including cost of finance when it starts to
operate at full capacity (year 3) is estimated by using income statement projection.
BEP

= Fixed Cost/ (Average Unit selling price Average Variable cost per unit

product)
= 6,523,870 (71.22 - 55.54) = 6,523,870/15.68
= 616, 055 pieces (BEP in production volume)
= Birr 29,629,939.00 (BEP in Sales volume)
= 27.74% (BEP in percentage)
9.4 Payback Period
The payback period is defined as the period required to recover the original
investment outlay through the accumulated net cash flows earned by the project.
Accordingly, based on the projected cash flow it is estimated that the projects initial
investment will be fully recovered within 3 years.
9.5 Internal Rate of Return
The internal rate of return (IRR) is the annualized effective compounded return rate
that can be earned on the invested capital, i.e., the yield on the investment. Put
another way, the internal rate of return for an investment is the discount rate that
makes the net present value of the investment's income stream total to zero. It is an
indicator of the efficiency or quality of an investment. A project is a good investment
proposition if its IRR is greater than the rate of return that could be earned by
alternate investments or putting the money in a bank account. Accordingly, the IRR of
this project is computed to be 28.71 % indicating the viability of the project.
34

9.6 Net Present Value


Net present value (NPV) is defined as the total present (discounted) value of a time
series of cash flows. NPV aggregates cash flows that occur during different periods of
time during the life of a project in to a common measuring unit i.e. present value. It is
a standard method for using the time value of money to appraise long-term projects.
NPV is an indicator of how much value an investment or project adds to the capital
invested. In principal a project is accepted if the NPV is non-negative. Accordingly, the
net present value of the project at 8.5% discount rate is found to be Birr 52.75 million
which is acceptable.

9.7 ECONOMIC BENEFITS


9.7.1 Earning Foreign currency
I addition to saving hard currency by substituting import of garment products, the
project will have a role of earning of foreign currencies by exporting 69% of its
products. Accordingly, an average of 91.22 million USD sales each year during
operation life of the project and a total of 910.8 million USD export sales will be made
at the end of the project life (ten years).
9.7.2 Job creation
This project creates permanent job opportunities for 499 persons.
9.7.3 Tax Revenue
In the project life under consideration, the region will collect about Birr 39.5million
from corporate income tax. Such result create additional fund for the government
that will be used in expanding social and other basic services in the region.
35

9.7.4 Impact on Environment


The project is purely environment friendly.

36