Analysis on garment industry in

Ethiopia

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 TABLE OF CONTENTS

Contents Page

1.
2.
2.1.1
3. Raw Materials and Utilities..................................................................................................... 15
3.1 Raw Materials.................................................................................................................... 15
3.2 Utilities................................................................................................................... 16
4. Location and Site........................................................................................................................ 16
5. Technology and 17
Engineering...................................................................................................... 17
5.1 Production 22
Process............................................................................................................ 22
5.2 Source of 23
technology.......................................................................................................
5.3 Machinery and Equipment...............................................................................................
5.4 Land use, building and civil
works..................................................................................
6. Manpower and Training 24
Requirement...................................................................................... 24
6.1 Manpower 25
requirement.................................................................................................
6.2 Training
requirement.....................................................................................................
7. Financial 25
Analysis......................................................................................................................... 25
7.1 Underlying 26
Assumption.................................................................................................... 26
7.2 Pre-production 27
cost..........................................................................................................

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 7.3 Total investment
cost......................................................................................................
7.4 Production
Costs................................................................................................................
8. Financial 27
Evaluation.....................................................................................................................

TABLES

Table Pages
Table: 3.1 Export plans of knitted and woven garments...................................................................... 4

Table: 3.2 Apparel products exported from year 2002 up to 2011................................................. 5

Table: 3.3 Apparel products imported from year 2002 up to 2011.................................................. 6

Table: 3.4 World and Ethiopia’s Apparel import demand projection for years 2011-2022........ 8

Table: 3.5 Apparel supply gaps projected for years 2011-2022....................................................... 9

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

Table: 8.2 Design, consultancy, training and test run costs............................................................... 26

Table: 4.2 Investment cost........................................................................................................................ 26

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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 (2013’s) 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,

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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.

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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 people’s 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

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  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’

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

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2012/13 158 135 293 125
2013/14 245 210 455 55
2014/15 350 300 650 43

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 Table 3.2 List of apparel products exported from year 2002 up to 2011

a/ Export in Net-Mass (Kg)

Products Category 2002 GC 2003 GC 2004 GC 2005 GC 2006 GC 2007 GC 2008 GC 2009 GC 2010 GC 2011 GC
Men's suits, jackets, trousers etc
& shorts 0.00 0.00 00 00 0 0 0 0 0 NA
NA
Men's Shirts 0 26,898.00 113,882.10 34,918.02 137,871.68 34,035.38 133,414.37 37,887.51 84,623.30
NA
Women's blouses and shirt 0 0 16,053.00 3,343.10 14,044.80 4,588.74 3,329.15 79,551.63 17,302.40
Women's suits, jackets, dresses NA
skirts etc & shorts 0.00 0.00 129935.10 38261.120 151916.48 38624.12 136743.52 117439.14 101925.7
NA
Babies Garment 12,000.00 3,206.00 1,617.00 190.00 60.00 0  0 619.00 62.00
Sub Total 12000.00 3206.00 261487.20 190 60 00 273487.04 619 62 NA
NA
Others 24000.00 6412.00 522974.40 380 1200 0 546974.08 1238 124
TOTAL SUM 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
Source: Extracted from Ethiopian Custom & Revenue Authority’s Report Data Base

b/ Export in CIF Value (USD)

Products Category 2002 GC 2003 GC 2004 GC 2005 GC 2006 GC 2007 GC 2008 GC 2009 GC 2010 GC 2011 GC
Men's suits, jackets, trousers
etc & shorts 0 0 0 0 0 0 0 0 0 5,523,000.00
Men's Shirts 0 81,672.84 296,523.54 150,779.52 332,130.43 161,705.54 897,504.22 173,275.85 302,803.55 3,010,000.00
Women's blouses and shirt 0 0 104,850.00 9,673.67 24,351.95 15,328.78 17,170.95 134,671.80 114,523.37 1,707,000.00
Women's suits, jackets,
dresses skirts etc & shorts 00 0 401373.54 160453.19 356482.38 177034.320 914675.17 307947.65 417326.92 934,000.00
Babies Garment 14,927.52 4,789.11 2,601.42 913.75 651.59 0 0 4,465.41 556.88 1,000.00
Sub Total 14927.52 4789.11 805348.5 913.75 651.59 0 0 620360.71 556.88 11175000.00
Others 29855.04 9578.22 1610697 1827.5 1303.18 0 0 1240721.42 1113.76 22350000.00
6,369,908.7
TOTAL SUM 139,978.44 441,512.79 2,071,977.57 1,848,311.55 1,284,572.00 1,129,664.23 3,698,695.09 1,524,693.84 4 15,079,000.00
Source: Extracted from Ethiopian Custom & Revenue Authority’s Report Data Base (for 2002-2010) and from International Trade

Center’s Report Data Base (for 2011)

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 Table 3.3 List of apparel products imported from year 2002 up to 2011

a/ Import in Net-Mass (Kg)

Products
Category 2002 GC 2003 GC 2004 GC 2005 GC 2006 GC 2007 GC 2008 GC 2009 GC 2010 GC 2011 GC
Men's suits, jackets,
trousers etc & shorts 0 0 0 0 0 0 0 0 0 NA
NA
Men's Shirts 1,058,841.00 1,075,427.00 1,166,219.67 1,362,717.44 1,400,606.93 1,261,987.18 1,090,756.96 858,196.92 1,089,465.78
Women’s Blouse & NA
Shirts 1,424,375.00 3,352,335.00 4,408,382.15 5,282,327.25 4,428,796.86 3,909,073.72 3,793,738.67 3,086,521.82 3,559,410.19
Women's suits, NA
jackets, dresses skirts
etc & shorts 2483216.00 4427762.00 5574601.82 6645044.69 5829403.79 5171060.9 4884495.63 3944718.74 4648875.97
NA
Babies Garments 1,024,064.00 1,091,768.00 1,272,262.00 1,332,488.86 1,930,724.17 1,564,047.98 1,517,166.18 1,822,585.25 1,879,744.86
Sub Total 5990496.00 9947292.00 12421465.64 14622578.240 13589531.75 11906169.78 11286157.44 9712022.73 11177496.8.00 NA

Others 11980992.00 19894584.00 24842931.28 29245156.48 27179063.5 23812339.56 22572314.88 19424045.460 22354993.6 NA
13,647,855.0 NA
TOTAL SUM 10,102,315.00 0 15,164,258.02 16,847,199.42 17,413,742.58 17,520,563.38 16,782,472.07 15,037,538.38 16,894,150.83
Source: Extracted from Ethiopian Custom & Revenue Authority’s Report Data Base

b/ Import in CIF Value (USD)

Products Category 2002 GC 2003 GC 2004 GC 2005 GC 2006 GC 2007 GC 2008 GC 2009 GC 2010 GC 2011 GC
Men's suits, jackets,
trousers etc & shorts 0 00 00 0 0.00 0 0 0 0 27,843,000.00
Men's Shirts 2,789,159.25 3,120,870.93 4,394,774.93 5,401,072.27 6,247,318.39 5,660,860.32 4,315,687.65 3,953,866.70 5,282,019.74 18,992,000.00
Women’s Blouse &
Shirts 4,045,438.95 7,245,238.58 10,129,091.21 15,484,537.70 14,248,330.31 15,172,403.72 15,250,053.17 14,174,649.41 18,983,938.03 7,109,000.00
Women's suits,
jackets, dresses skirts
etc & shorts 6834598.2 10366109.51 14523866.14 20885609.97 20495648.7 20833264.04 19565740.82 18128516.11 24265957.77 5,801,000.00
Babies Garments 2,963,509.05 3,761,129.44 5,278,856.55 5,986,315.18 9,204,267.31 7,254,710.43 5,974,899.67 8,188,282.53 8,610,384.69 2,402,000.00
Sub Total 16632705.450 24493348.46 34326588.83 47757535.12 50195564.71 48921238.510 45106381.310 44445314.750 57142300.23 62147000.00
Others 33265410.9 48986696.92 68653177.66 95515070.24 100391129.42 97842477.02 90212762.62 88890629.5 114284600.46 124294000.00
TOTAL SUM 34,684,511.41 45,397,594.59 54,094,071.63 67,771,848.04 74,784,893.17 84,856,675.37 79,117,252.58 82,876,321.34 98,905,403.43 83,326,000.00
Source: Extracted from Ethiopian Custom & Revenue Authority’s Report Data Base (for 2002-2010) and from International Trade

Center’s Report Data Base (for 2011)

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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: women’s blouses, shirts,

skirts, trousers shorts, and Men’s 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.

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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 World Import (USD) National Import World /Except Ethiopia/

(USD) Import (USD)
2011 196,786,089,000.00 83,324,000.00 196869415011.00
2012 200,721,810,800.00 86,656,960.00 200808469772.00
2013 204,736,247,000.00 90,123,238.40 204826372251.40
2014 208,830,971,900,00 93,728,167.94 93730181.94
2015 213,007,591,400.00 97,477,294.65 213105070709.65
2016 217,267,743,200.00 101,376,386.40 217369121602.40
2017 221,613,098,100.00 105,431,441.90 221718531558.90
2018 226,045,360,000.00 109,648,699.60 226155010717.60
2019 230,566,267,200.00 114,034,647.60 230680303866.60
2020 235,177,592,600.00 118,596,033.50 235296190653.50
2021 239,881,144,400.00 123,339,874.80 240004486295.80
2022 244,678,767,300.00 128,273,469.80 244807042791.80

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

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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 National Import National Supply Supply Gap

(USD) (USD) (USD)
2011 83,324,000.00 83,324,000.00 166650011
2012 86,656,960.00 83,324,000.00 169982972.00
2013 90,123,238.40 83,324,000.00 173449251.40
2014 93,728,167.94 83,324,000.00 177054181.94
2015 97,477,294.65 83,324,000.00 180803309.65
2016 101,376,386.40 83,324,000.00 184702402.40
2017 105,431,441.90 83,324,000.00 188757458.90
2018 109,648,699.60 83,324,000.00 192974717.60
2019 114,034,647.60 83,324,000.00 197360666.60
2020 118,596,033.50 83,324,000.00 201922053.50
2021 123,339,874.80 83,324,000.00 206665895.80
2022 128,273,469.80 83,324,000.00 211599491.80

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 b/ World supply gap

Year World /Except Ethiopia/ World /Except for World Supply Gap
Import (USD) Ethiopia/ Supply (USD) (USD)
2011 2011.00 4022.00 8044
2012 2012.00 4024.00 8048.00
2013 20130 4026.00 80520
2014 2014 4028.00 8056
2015 2015 4030.00 8060
2016 20160 4032.00 80640
2017 20170 4034.00 80680
2018 20180 4036.00 80720
2019 20190 4038.00 80760
2020 20200 4040.00 80800
2021 20210 4042.00 80840
2022 20220 4044.00 80880

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) Demand (USD) Demand (USD)
2013 20130 40260 8052.00
2014 2014 4028 8056.00
2015 2015 4030 8060.00
2016 20160 40320 8064.00
2017 20170 40340 8068.00
2018 20180 40360 8072.00
2019 20190 40380 8076.00
2020 20200 40400 8080.00
2021 20210 40420 8084.00
2022 20220 40440 8088.00

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 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

capacity of the plant for local market. Accordingly, 0.05% of the world surplus demand

of year 2013’s projection for apparel demand, which is 3,971,679.00 USD, for export;

and 2% of the 2013’s 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)
Year World Surplus National Total
Import Demand Export Plan Import Local Sales Plan Total Sales
(USD) (USD) Demand (USD) (USD) Plan
2013 20130 3,971,679.00 90,123,238.40 1,802,465.00 5,774,144.00
2014 2014 4,170,263.00 93,728,167.94 1,892,588.00 6,062,851.00
2015 2015 4,378,776.00 97,477,294.65 1,987,217.00 6,365,993.00
2016 20160 4,597,715.00 101,376,386.40 2,086,578.00 6,684,293.00
2017 20170 4,827,600.00 105,431,441.90 2,190,907.00 7,018,507.00
2018 20180 5,068,980.00 109,648,699.60 2,300,452.00 7,369,432.00
2019 20190 5,322,430.00 114,034,647.60 2,415,475.00 7,737,905.00
2020 20200 5,588,551.00 118,596,033.50 2,536,248.00 8,124,799.00
2021 20210 5,867,978.00 123,339,874.80 2,663,061.00 8,531,039.00
2022 20220 6,161,378.00 128,273,469.80 2,796,214.00 8,957,592.00

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.

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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 ERCA’s 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 Share of Product Price Share

(USD/Kg) Mix (%) (USD)
Men's suits, jackets, trousers Kg 8.00 25 2.00
etc & shorts
Kg 7.80 25 1.95
Men's Shirts
Kg 7.25 20 1.45
Women's blouses and shirts
Women's suits, jackets, dresses Kg 7.50 20 1.50
skirts etc & shorts
Kg 9.00 10 0.90
Babies Garments
Average Selling Price 100 1000

Note that products mentioned as “men’s …” and “women’s …” covers all the sizes from

small to extra large sizes, which are dressed by boys, girls, men, and women.

3.2 Plant capacity and production program

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 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

Annual Production Average Unit Selling Price

Product Mix Capacity Price /piece
Quantity Quantity (USD) (USD) (Birr ’000)
(Kg) (Piece)
Men's suits, jackets, trousers 185,069 105,754 14.00 1,480,552.00 27,390.20
etc & shorts (1 pc = 1.75kg)
Men's Shirts (1 pc = 350gm) 185,068 528,766 2.73 1,443,530.00 26,705.30
Women's blouses and shirts 148,055 493,517 2.18 1,073,398.00 19,857.85
(1 pc = 300gm)
Women's suits, jackets, dresses 148,055 118,444 9.38 1,110,412.00 20,542.60
skirts etc & shorts (1 pc =
1.25kg)

Babies Garments (1 pc = 300gm) 74,028 246,760 2.70 666,252.00 12,325.65

740275 1493241 3.87 57741445774 106821.60

Total 144.00

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

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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 operator’s performance, here the average attainable Ethiopian machine

operator’s 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

3rd year and
Product Categories U/M st
1 year (85%) 2nd
year (95%) above (100%)
Men's suits, jackets, trousers
etc & shorts Pcs 89,891 100,466 105,754

Men's Shirts >> 449,451 502,328 528,766

Women's blouses and shirts >> 419,489 468,841 493,517

Women's suits, jackets, dresses
skirts etc & shorts >> 100,677 112,522 118,444

Babies Garments >> 209,746 234,422 246,760

Total >> 1269254 1418579 1493241

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

improvement in operators’ performance, even more production capacity could be

achieved with the same plant setup.

4. Raw Materials and utilities

18
 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

Material Unit Cost (Birr)

S/ type U/M Qty Price LC FC Total Cost
N
1 Fabric kg 0 85.0 56375880.00 9948685.00 66,324,565.00
0
2 Buttons kg 15,554 50.8 118,638.00 672,283.00 790,921.00
5
3 Sewing kg 8,789 74.5 98,283.00 556,937.00 655,220.00
thread 5

4 Accessories - Lump - 516,040.00 2924223.00 3,440,263.00

sum
5 Packing - >> >> - 2,064,158.00 0 2,064,158.00
material
Grand Total 0.00 0.00 24343.00

19
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 Unit Total

S/N Utility (KWh/year) price/KWh Cost(Birr) Remarks
350m/n * 150W/m/n *
1 Electric power 126,000KWh 0.55 69,300.00 8hrs/day * 300days/year

2 Water 10,000 M3 3.80 38,000.00 20M3/day*300day/year

3 Fuel and oils 12,000lit 14.5 174,000.00 40lit/day*300day/year

Total 18.85.00

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.

20
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.

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.

21
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 spot-

checking 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 forms—or patterns—are laid out on top of the spread, either manually

or programmed into an automated cutting system. Lastly, the fabric is cut to the shape

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

22
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

garment will be reworked or mended at designated sewing stations. This labor-

intensive 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

23
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 stone-

or 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

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.

24
Chart-1 Apparel production process flow chart

Fabric Reception

Fabric Relaxing

Fabric Spreading, Form

Layout, and Cutting

Sewing

Inspection

Spot cleaning and

Laundry

Ironing

Packing

Apparel Shipping

25
 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

Sr. Unit Cost of Machine (USD)

No. Description Qty. Price LC FC TC
1 Single needle stitching machine 176 600.00 105,600.00 105,600.00
2 Double needle stitching machine 19 750.00 14,250.00 14,250.00
3 Over lock machine 55 800.00 44,000.00 44,000.00
4 Inter lock (cover stitch) machine 42 800.00 33,600.00 33,600.00
5 Bar tacking machine 9 800.00 7,200.00 7,200.00
6 Blind stitch machine 3 225.00 675.00 675.00
7 Zigzag sewing machine 4 2,500.00 10,000.00 10,000.00
8 Waist stitching machine 3 600.00 1,800.00 1,800.00
9 Button hole making machine 7 1,500.00 10,500.00 10,500.00
10 Button attaching machine 7 1,500.00 10,500.00 10,500.00

26
11 Thread winding machine 1 80.00 80.00 80.00
12 Collar turning machine 2 1,350.00 2,700.00 2,700.00
13 Cuff turning machine 2 1,350.00 2,700.00 2,700.00
14 Band knife 4 2,700.00 10,800.00 10,800.00
15 Vertical blade cutter 8 570.00 4,560.00 4,560.00
16 Drilling machine 2 570.00 1,140.00 1,140.00
17 Spreading and Cutting Table (manual) 4 1,350.00 5,400.00 0 5,400.00
18 Spreading machine with Table 1 20,000.00 20,000.00 20,000.00
19 Fusing machine 2 270.00 450.00 450.00
20 Electrical portable ironing machine 20 54.00 1,080.00 1,080.00
21 Steam ironing machine 20 267.00 5,340.00 5,340.00
22 Vacuum Ironing table 4 267.00 1,068.00 1,068.00
23 Plotter with full SW & accessories (set) 1 15,000.00 15,000.00 15,000.00
FOB price 396 5,400.00 22938.00 22938.00
Freight, Insurance, customs & Bank charges, Material handling cost (10%) 30,404.30 - 30,404.30
Sub total 95899.30 421880.3.0 173818.60
0
Contingency (5%) - - 1790.20 15,152.15 16,942.35
CIF Landed Cost - - 1790.20 15152.15 16942.35

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

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

27
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 Monthly salary Annual salary
1 Factory Manager 1 10,000.00 120,000.00
2 Executive Secretary 1 3,000.00 36,000.00
3 Departmental Secretaries 4 10,000.00 120,000.00
4 Departmental Clerks 5 5,000.00 60,000.00
5 Production and Tech Manager 1 7,500.00 90,000.00
6 Production Head 1 5,000.00 60,000.00
7 Technical Head 1 5000.00 60,000.00
8 Quality Head 1 5,000.00 60,000.00
9 Production supervisor 9 31,500.00 378,000.00
11 Quality Control supervisor 4 14,000.00 168,000.00
12 Mechanical maintenance supervisor 1 3,500.00 42,000.00
13 Electrical maintenance Supervisor 1 3,500.00 42,000.00
14 Machine Operators & helpers 416 416,000.00 4,992,000.00
15 Quality Inspectors 11 11,000.00 132,000.00
16 Mechanic 4 5,200.00 62,400.00
17 Electrician 3 3,900.00 46,800.00
18 Marketing Manager 1 7,500.00 90,000.00
19 Sales person 2 5,000.00 60,000.00
20 Administration manager 1 7,500.00 90,000.00
21 General service personnel 1 2,500.00 30,000.00
22 HR Personnel 1 2,500.00 30,000.00
23 Nurse 2 4,000.00 48,000.00
24 Guard 8 6,400.00 76,800.00
25 Messengers 3 1,800.00 21,600.00
26 Driver 3 3,000.00 36,000.00
27 Cleaner 5 3,000.00 36,000.00
28 Financial manager 1 7,500.00 90,000.00
29 Accountant 2 7,000.00 84,000.00
30 Cashier 1 1,500.00 18,000.00

28
 31 Purchasers 2 3,000.00 36,000.00
32 Store Keepers 2 3,000.00 36,000.00
Sub Total 0 499.00 563800.00
Employee Benefit (15%) 90645.00 1,087,740.00
Grand Total 499.00 90645.00
7.2 Training requirement

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 12 months
Source of Finance 30% equity and 70% Loan from bank
Tax Holidays 5 years
Bank Interest rate 8.50%
Discount for cash flow 8.50%
Value of Land Birr 6.50/M2/year
Spare parts & Repair and Maintenance 5% of the fixed investment
B. Depreciation & Amortization
Building 5%
Machinery and Equipment 10%
Office Furniture 10%
Vehicles 20%
Pre-Production (Amortization) 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

29
 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

Estimated
S/N Description Budget(Birr)
1 Engineering, Design & consultancy fee 300,000.00
2 Training 100,000.00
3 Commissioning and test run with 10% contingency 200,000.00

4 Other pre-production expenses 500,000.00

5 Interest during construction 2,558,500.00
Total 0.00
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

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 LC FC Total
Land 3,094,000.00 - 3,094,000.00
Building and Civil Work 14,040,000.00 7,560,000.00 21,600,000.00
Office Equipment - 600,000.00 600,000.00
Vehicles  - 6,000,000.00 6,000,000.00
Plant machinery and equipment  - 6,582,108.50 6,582,108.50

30
Total Fixed investment cost 17134000.00 20742108.50 37876108.50
Pre-Production - 41484217.00 75752217.00
Total initial investment cost 34268000.00 829684340 1515044340
Working capital at full capacity 6,470,060.00 - 6,470,060.00
Total 75006060.00 1659368680 3094789280
8.4 Production Cost

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 Cost %age share

1. Raw Material 0.00 83.20

2.Utilities 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

Total Production cost 100.00 100

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

31
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.

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

32
 = 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 project’s 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.

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

33
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.

9.7.4 Impact on Environment

The project is purely environment friendly.

34
35