Project Proposal

2017
PLASTIC SHOES FACTORY PROJECT PROPOSAL
AMASILLA CONSULTING ARCHITECTS & ENGINEERS

Summary
 Project name: Food processing plant
 Project Type: Industrial buildings
 Nationality: Ethiopian
 Project Owner: Ato/ Nedib Abdulahi
 Project location: Harari regional state, Harar city
 Project composition: Factory Buildings (3* G+0) used for manufacturing
flour, biscuit& bread. Administration building, restaurant, café building and
store.
 Premises Required: 17,500 m2
 Total investment Cost: 60,650,000 ETB is required from this amount 30%
from owner equity and the rest 70% from bank loan.
 Employment opportunity: 114 individuals on permanent 200 on casual basis
 Social and Economic Benefit: provide better product, employment
opportunities, generation of income and benefits for the local people.

TABLE OF CONTENTS
1. EXCUTIVE SUMMARY 6
2. PRODUCTION DESCRIPTION & APPLICATION 6
3. MARKET STUDY AND PLANT CAPACITY 8
3.1 MARKET STUDY 8

I PAST SUPPLY AND PRESENT DEMAND 8
II DEMAND PROJECTION 11
III PRICING AND DISTRIBUTION 13
3.2 PLANT CAPACITY AND PRODUCTION PROGRAMME 14

I PLANT CAPACITY 14
II PRODUCTION PROGRAM 14
4. MATERIALS AND INPUTS 16
4.1 RAW AND AUXILIARY MATERIALS 16
4.2 UTILITIES 18
5. TECHNOLOGY AND ENGINEERING 19

I PRODUCTION PROCESS OF WHEAT FLOUR 19
II PRODUCTION PROCESS OF BISCUIT 19
III PRODUCTION PROCESS OF BREAD 20
IV SOURCE OF TECHNOLOGY 20
5.2 ENGINEERING 21
I MACHINERY AND EQUIPMENT 21
II LAND, BUILDING AND CIVIL WORKS 23
III PROPOSED LOCATION 24
6. MANPOWER AND TRAINING REQUIREMENT 25
6.1 MANPOWER REQUIREMENT 25

6.2 TRAINING REQUIREMENT 26
7. FINANCIAL ANALYSIS 26
7.1 TOTAL INITIAL INVESTMENT COST 27
7.2 PRODUCTION COST 27

I PRODUCTION COST OF WHEAT FLOUR 27
II PRODUCTION COST OF BISCUIT 28
7.3 FINANCIAL EVALUATION 29

I PROFITABILITY 29
II BREAK-EVEN ANALYSIS 30
III PAY BACK PERIOD 30
IV INTERNAL RATE OF RETURN AND NET PRESENT VALUE 30
7.4 ECONOMIC BENEFITS 31
8. ENVIRONMENTAL IMPACT OF THE PROJECT 32

LIST OF TABLES
TABLE 3.1 APPARENT CONSUMPTION OF WHEAT FLOUR 1995-2004 (TONNES)---------------------8

TABLE 3.2 DOMESTIC PRODUCTION OF BISCUITS (TONS)--------------------------------------------------9
TABLE 3.3 IMPORT OF BISCUITS (TONS)-----------------------------------------------------------------------10
TABLE 3.4 PROJECTED DEMAND FOR WHEAT FLOUR (TONNES) (2006-2020)----------------------11
TABLE 3.5 PROJECTED DEMAND, DOMESTIC SUPPLY AND UNSATISFIED DEMAND FOR
BISCUITS (TONS)--------------------------------------------------------------------------------------------12
TABLE 3.6 ANNUAL BISCUIT PRODUCTION PROGRAM AT FULL CAPACITY OPERATION----------15
TABLE 3.7 ANNUAL FLOUR PRODUCTION PROGRAM AT FULL CAPACITY OPERATION------------15
TABLE 4.1 RAW & AUXILIARY MATERIALS REQUIREMENT & COST-------------------------------------16
TABLE 4.2 ANNUAL RAW & AUXILIARY MATERIALS REQUIREMENT FOR BISCUIT PRODUCTION
AND ESTIMATED COST------------------------------------------------------------------------------------17
TABLE 4.3 ANNUAL UTILITIES REQUIREMENT& ESTIMATED COST------------------------------------18
TABLE 5.1 MACHINERY AND EQUIPMENT REQUIREMENT (FLOUR)------------------------------------21
TABLE 5.2 MACHINERY AND EQUIPMENT REQUIREMENT AND ESTIMATED COSTS (BISCUIT)--22
TABLE 5.3 MACHINERY AND EQUIPMENT REQUIREMENT (BREAD)-----------------------------------23
TABLE 6.1 MANPOWER REQUIREMENT AND ANNUAL SALARY EXPENDITURE----------------------25
TABLE 7.1 INITIAL INVESTMENT COST------------------------------------------------------------------------27
TABLE 7.2 ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)-----------------------------28
TABLE 7.3 ANNUAL PRODUCTION COST AT FULL CAPACITY (YEAR THREE)----------------------------29

1. EXCUTIVE SUMMARY
This profile envisages the establishment of a plant for the production of canvas shoe with a
capacity of 490,000 pair per annum. Canvas shoe is a stiff-soled, protective foot wears that
encloses the whole foot that can be worn by men, women and children alike.
The demand for canvas shoe is met through domestic production and import. The present
(2012) demand for canvas shoe is estimated at 2, 944,585 pairs. The demand for canvas shoe
is projected to reach 4,176,203 pairs and 5,588,701 pairs by the year 2017 and 2022,
respectively.
The principal raw materials required are canvas fabrics (upper), lining and rubber sole.
Canvas fabrics (upper) and lining are available locally while rubber sole has to be imported.
The total investment cost of the project including working capital is estimated at Birr 19.42
million. From the total investment cost the highest share (Birr 12.82 million or 66.00%) is
accounted by fixed investment cost followed by initial working capital (Birr 4.55 million or
23.45%) and pre operation cost (Birr 2.05 million or 10.56%). From the total investment cost
Birr 3.98 million or 20.50% is required in foreign currency.
The project is financially viable with an internal rate of return (IRR) of 14.22% and a net
present value (NPV) of Birr 4.47 million discounted at 10%.
The project can create employment for 25 persons. The establishment of such factory will
have a foreign exchange saving effect to the country by substituting the current imports. The
project will also create backward linkage with the textile and shoe manufacturing sub sectors
and also generates income for the Government in terms of tax revenue and payroll tax.

2. PRODUCTION DESCRIPTION AND APPLICATION
A canvas shoe is a stiff-soled, protective foot wears that encloses the whole foot. The upper
part is made up to a closely woven, plain-woven fabric made of natural or synthetic fibers
and the sole part is a plastic material. With the growing interest in exercise for physical
fitness, canvas shoes will become standard footwear for men, women and children alike for
the lower and middle income group of the society.
Canvas shoe production involves designing of the upper and inner parts, cutting of the canvas
to fit, and assembling of the various parts. The insole fixing and trimming upper edge
binding, bottom gluing is carried out in the finishing section. The environmental impact of
canvas shoe production is negligible.
3. MARKET STUDY AND PALNT CAPACITY
3.1 MARKET STUDY
I Past Supply and Present Demand
The data in the last many years show that majority of Ethiopia’s demand for canvas shoes are
met through import. The country imports various types of canvas shoe like training shoes
with rubber or plastic soles, sports foot wears with rubber or plastic soles and footwear with
leather or composition leather soles. Import of canvas shoe (with different soles and different
uses) during the period 2000-2011 is given in Table 3.1 below.

Table 3.1
IMPORT OF CANVAS SHOES (PAIR)
Year Quantity
2000 1,480,685
2001 2,121,846
2002 3,767,052
2003 4,042,244
2004 4,880,920
2005 2,654,649
2006 2,497,775
2007 3,439,689
2008 1,566,882
2009 1,027683
2010 1,733,684
2011 1,304,294

Total 30,517,403
Average 2,543,117
Source: - Ethiopian Revenue & Customs Authority.
Table 3.1 shows that the imported quantity of the various types of canvas shoes in the period
2000 - 2004 had been increasing consistently. However, the imported quantity declined from
4,880,920 pairs in 2004 to 2,654,649 pairs in 2005. From 2005 --2010, (except in 2007) the
data has revealed a declining trend. The average yearly import of the first five years (2000-
2004) was about 3.3 million pairs. This figure decreased to about 2.03 million pairs during
the period 2005 -2011. During the period of analysis import of the product has registered an
average annual growth rate of about 8%, and the over all average (2000-2010) is 2,543,117
pairs.
With regard to the domestic production, data obtained from CSA Statistical Abstract is shown
in Table 3.2 below.
Table 3.2
DOMESTIC SUPPLY OF CANVAS SHOE
Year Supply
2001 193,628
2002 215,625
2003 147,947
2004 281,625
2005 143396
2006 316,972
2007 336572
2008 107,385
2009 126,125
2010 214,111

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Total 2,083,3386
Average 208,339
Source: - CSA, Statistical Abstract of Ethiopia
The data in table 3.2 shows that in the past ten years (2001-2010) the average production was
around 208,339 pairs. This shows that compared to the average import of the product during
the same period the share of domestic production in the total supply is only about 8%.
To estimate the current effective demand, the following assumptions have been taken.
Since the data of both imported and domestically produced canvas shoes are inconsistent and
do not show a good trend, the average quantity of domestically produced (2001-2010) and
imported canvas shoes during the period 2000 -2010 has been taken as effective demand for
the year 2011. This is estimated to be 2,751,456 pairs, that is, 2,543,117 pairs from import
and 208,339 pairs from domestic production.
As has been shown above the annual average growth rate of import of canvas shoes for
twelve years is 8%. Hence, considering the combination of this rate and the growth rate of
urban population, which is assumed to be 5% per annum7%, has been taken.
The present annual average (208,339 pairs) is assumed to be constant for the projected
period.
Based on the above assumptions, the present effective demand for canvas shoes has been
estimated at 2, 944,585 pairs.
2. Projected Demand

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The demand for canvas shoe is mainly related with factors like population growth, income,
urbanization as well as with sports and interest in exercise for physical fitness and health.
Hence, considering these combined factors that influence the demand for canvas shoes, it is
assumed to grow annually by 6%. The total projected demand and the unsatisfied demand is
shown in Table 3.3 below.

Table 3.3
PROJECTED UNSATISFIED DEMAND FOR CANVAS SHOES (PAIR)
Projected Domestic Unsatisfied

Year Demand Production Demand
2012 3,120,701 208,339

2,912,362
2013 3,307,944 208,339 3,099,605
2014 3,506420 208,339 3,298,081
2015 3,716,805 208,339 3,508,466
2016 3,939,814 208,339 3,731,475
2017 4,176,203 208,339 3,967,864
2018 4,426,775 208,339 4,218,436
2019 4,692,381 208,339 4,484,042
2020 4,973,924 208,339 4,765,585
2021 5,272,359 208,339 5,064,020
2022 5,588,701 208,339 5,380,362
2023 5,924,023 208,339 5,715,684
2024 6,279,465 208,339 6,071,126
2025 6,656,232 208,339 6,447,893
3. Pricing and Distribution
According to the information obtained from various shoe selling shops, the price of canvas
shoes varies depending on the size, quality of the material used as well as the model.
Assuming this project will produce canvas shoes that are mostly demanded by different
groups of people (upper lower and middle income groups), an average price of Birr 50 per
pair is recommended.

7

Regarding distribution, the product will find its market outlet through the existing plastic and
canvas shoe distributing enterprises.
B. PLANT CAPACITY AND PRODUCTION PROGRAMME
1. Plant Capacity
The projected demand for the product shown in Table 3.3 indicates that the unsatisfied
demand for canvas shoes in the year 2014 is 3,298,081 pairs and this figure would grow to
6,447,893 by the year 2025.
Based on the demand projection indicated and minimum economies of scale, the proposed
plant will have a production capacity of 490,000 pair of canvas shoes per annum. The plant
will operate single shift, 8 hours a day, and for 300 days a year. Production can be doubled or
tripled by increasing the number of shifts as required.
2. Production Programme
The production programme is prepared based on the selected plant capacity and expected
market share to be captured by the project. At the initial stage of production, the plant may
require some years to penetrate into the market. Therefore, the plant will initially be operated
at 75% of its full capacity, and gradually increase its annual production to 85%, and finally to
100% in the third year and then after. Table 3.4 shows the proposed production programme.
Table 3.4
PRODUCTION PROGRAMME
Sr. production year

No. Description 1 2 3
1 Capacity utilization rate ( %) 75.00 85.00 100.00
2 Pair of canvas shoes 367,500.00 416,500.00 490,000.00

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IV. MATERIALS AND INPUTS
A. RAW MATERIALS
The major raw materials used in the production of canvas shoes are canvas fabrics (upper),
lining and rubber sole. Annual cost of raw materials is estimated at Birr 13,341.97. The
annual requirement for raw materials at 100% capacity utilization and costs of these materials
are indicated in Table 4.1.
Table 4.1
ANNUAL REQUIREMENTS OF RAW MATERIALS AND COSTS
Annual unit Cost ( "000 ) Birr

Sr. cost
No. Description consumption unit ( Birr) LC FC Total ( Birr)
Canvas fabrics
1 (upper) 58,800 15.85 931.98 931.98
m2
2
2 73,500 m 10.91 801.89 801.89
Lining
3 490,000 pair 20.60 10,094.00 10,094.00
Rubber sole
Total FOB 10,094.00 10,094.00

4 CIF( 15%) 1,514.10 1,514.10
Total Raw material Annual cost 3,247.97 10,094.00 13,341.97
Auxiliary materials required for the production of canvas shoes include laces, insole (texone),
eyelets, and miscellaneous (including sewing thread, glue, packing materials). Table 4.2
below depicts the annual requirements of auxiliary materials at full production capacity of
canvas shoes, plant.

9

Table 4.2
ANNUAL REQUIREMENTS OF AUXILIARY MATERIALS AND COST
Unit Cost ( `000 Birr )
Cost Total
NO. Description Qty Unit (Birr) LC FC ( Birr)
1 490,000 Pair 3 1,470.00 - 1,470.00
Laces
2 24,500 m2 16 - 392.00 392.00
Insole (texone)
3 490,000 set 5 2,450.00 - 2,450.00
Eyelet
Miscellaneous Lump
4 Lump sum sum 970.20 323.40 1,293.60
Total FOB 715.40 715.40
7 CIF( 15%) 107.31 107.31
Total Auxiliary material Annual cost 4,997.51 715.40 5,712.91
B. UTILITIES
Electricity and water are the major utilities required by the plant. The annual expenditure on
utilities will be Birr 106,820.00. The total annual requirement at 100% capacity utilization
rate and the estimated costs are given in Table 4.3 below.
Table 4.3
UTILITIES REQUIREMENT AND ESTIMATED COST
Sr. Unit Cost Total Cost

No. Description Quantity Unit ( Birr) (000 Birr)
1 Electricity 149,000 kwh 0.58 86.82
2 Water 2,000 m³ 10.00 20.00
Total Annual cost 106.82

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VI. TECHNOLOGY AND ENGINEERING
A. TECHNOLOGY
1. Production Process
The production process of canvas shoes starts by preparing three dimensional model and hard
board patterns of the full range of sizes.
Then the first samples are produced and checked. Once the hand made models are approved,
the final design is carried out according to which the upper and liner parts are cut and the
parts to be assembled together are numbered. This is followed by assembling of the upper
lining, upper stitching and lining trimming, upper edge binding, fixing to the insole, bottom
giving, sole applying and giving are carried out in finishing section.
The production of canvas shoes does not have adverse effect on environment. By - products
of the process are the cuttings and trimmings of canvas linings, rubber sole, etc. These can
easily by collected, stored in containers and disposed of together with solid waste of the
plant. The disposal activity can be carried out by NGO engaged in solid waste disposal.
2. Environmental Impact
The production process of canvas shoes does not have any negative impact on the
environment.
B. ENGINEERING
1. Machinery and Equipment
The total cost of machinery and equipment is estimated at Birr 6.60 million of which Birr
3.98 is required in foreign currency. The list of machinery and equipment required for the
envisaged plant is given in Table 5.1.

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Table 5.1
MACHINERY AND EQUIPMENT REQUIREMENT
Sr. Description Qty.

No. (No.)
1. Single arm hydraulic cutting machine 2
2. Zig Zag machine 1
3. Single needle flat bed machine 4
4. Post bed double needle machine 3
5. Post bed single needle machine 10
6. Skiving machine 3
7. Numbering machine 1
8. Stabling machine 1
9. Toe shaping machine 1
10. Bottom forming 1
11. Molding machine -24 stations 3
2. Building and Civil Works
2 2
The envisaged plant requires a total land area of 2,500 m , out of which 1000 m is required
for setting up buildings. Considering building construction cost of Birr 5,000 per square
meter, the estimated cost of buildings and associated civil works is estimated at Birr 5
million.
According to the Federal Legislation on the Lease Holding of Urban Land (Proclamation No
721/2004) in principle, urban land permit by lease is on auction or negotiation basis,
however, the time and condition of applying the proclamation shall be determined by the
concerned regional or city government depending on the level of development.

The legislation has also set the maximum on lease period and the payment of lease prices.
The lease period ranges from 99 years for education, cultural research health, sport, NGO ,
religious
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and residential area to 80 years for industry and 70 years for trade while the lease payment
period ranges from 10 years to 60 years based on the towns grade and type of investment.
Moreover, advance payment of lease based on the type of investment ranges from 5% to
10%.The lease price is payable after the grace period annually. For those that pay the entire
amount of the lease will receive 0.5% discount from the total lease value and those that pay in
installments will be charged interest based on the prevailing interest rate of banks. Moreover,
based on the type of investment, two to seven years grace period shall also be provided.
However, the Federal Legislation on the Lease Holding of Urban Land apart from setting the
maximum has conferred on regional and city governments the power to issue regulations on
the exact terms based on the development level of each region.
In Addis Ababa, the City’s Land Administration and Development Authority is directly
responsible in dealing with matters concerning land. However, regarding the manufacturing
sector, industrial zone preparation is one of the strategic intervention measures adopted by the
City Administration for the promotion of the sector and all manufacturing projects are
assumed to be located in the developed industrial zones.
Regarding land allocation of industrial zones if the land requirement of the project is below
2
5,000 m , the land lease request is evaluated and decided upon by the Industrial Zone
Development and Coordination Committee of the City’s Investment Authority. However, if
2
the land request is above 5,000 m , the request is evaluated by the City’s Investment
Authority and passed with recommendation to the Land Development and Administration
Authority for decision, while the lease price is the same for both cases.
Moreover, the Addis Ababa City Administration has recently adopted a new land lease floor
price for plots in the city. The new prices will be used as a benchmark for plots that are going
to be auctioned by the city government or transferred under the new “Urban Lands Lease
Holding Proclamation.”
1
3

The new regulation classified the city into three zones. The first Zone is Central Market
District Zone, which is classified in five levels and the floor land lease price ranges from Birr
2
1,686 to Birr 894 per m . The rate for Central Market District Zone will be applicable in most
areas of the city that are considered to be main business areas that entertain high level of
business activities.
The second zone, Transitional Zone, will also have five levels and the floor land lease price
2
ranges from Birr 1,035 to Birr 555 per m .This zone includes places that are surrounding the
city and are occupied by mainly residential units and industries.
The last and the third zone, Expansion Zone, is classified into four levels and covers areas
that are considered to be in the outskirts of the city, where the city is expected to expand in
the future. The floor land lease price in the Expansion Zone ranges from Birr 355 to Birr 191
2
per m (see Table 5.2).
Table 5.2
NEW LAND LEASE FLOOR PRICE FOR PLOTS IN ADDIS ABABA
Floor
Zone Level 2
price/m
1686
1st
1535
2nd
Central Market 1323
District 3rd
1085
4th
894
5th
1035
1st
935
2nd
Transitional zone
3 rd 809
685
4th
555
5th
355
1st
Expansion zone 299
2nd
217
3rd
191
4th

14

Accordingly, in order to estimate the land lease cost of the project profiles it is assumed that
all new manufacturing projects will be located in industrial zones located in expansion zones.
2
Therefore, for the profile a land lease rate of Birr 266 per m which is equivalent to the
average floor price of plots located in expansion zone is adopted.
On the other hand, some of the investment incentives arranged by the Addis Ababa City
Administration on lease payment for industrial projects are granting longer grace period and
extending the lease payment period. The criterions are creation of job opportunity, foreign
exchange saving, investment capital and land utilization tendency etc. Accordingly, Table 5.3
shows incentives for lease payment.
Table 5.3
INCENTIVES FOR LEASE PAYMENT OF INDUSTRIAL PROJECTS
Payment Down
Grace Completion
Scored point period Period Payment
Above 75% 5 Years 30 Years 10%
From 50 - 75% 5 Years 28 Years 10%
From 25 - 49% 4 Years 25 Years 10%
For the purpose of this project profile the average i.e. five years grace period, 28 years
payment completion period and 10% down payment is used. The land lease period for
industry is 60 years.
2
Accordingly, the total land lease cost at a rate of Birr 266 per m is estimated at Birr 665,000
of which 10% or Birr 66,500 will be paid in advance. The remaining Birr 598,500 will be
paid in equal installments with in 28 years i.e. Birr 21,375 annually.
15

NB: The land issue in the above statement narrates or shows only Addis Ababa’s city
administration land lease price, policy and regulations.
Accordingly the project profile prepared based on the land lease price of Addis Ababa region.
To know land lease price, police and regulation of other regional state of the country updated
information is available at Ethiopian Investment Agency’s website www.eia.gov.et on the
factor cost.
VI. HUMAN RESOURCE AND TRAINING REQUIREMENT
A. HUMAN RESOURCE REQUIREMENT
The envisaged project requires a total of 25 employees. The annual salary and wages
including fringe benefits and allowances is estimated at Birr 584,640. The details of human
resource requirement and the estimated annual cost including employees' benefits are shown
in Table 6.1.

1
6

Table 6.1
HUMAN RESOURCE REQUIREMENT AND COST
Monthly
Sr. Annual salary
Description Qty Salary
No. ( "000 ) Birr
( Birr)
1 General manager 1 6,000.00 72.0
2 Secretary 1 1,500.00 18.0
3 Administration and finance 1 3,500.00 42.0
4 Accountant 1 2,000.00 24.0
5 Mechanic 1 2,200.00 26.4
6 Electrician 1 2,200.00 26.4
7 operators 6 1,400.00 100.8
8 production foreman 1 3,000.00 36.0
11 Clerk 1 800.00 9.6
12 Cashier 1 1,000.00 12.0
13 Assistant operator 3 700.00 25.2
14 Quality supervisor 2 1,600.00 38.4
15 store keeper 1 1,400.00 16.8
16 time keeper 1 1,200.00 14.4
17 Guards 3 700.00 25.2
Total 25 29,200.00 487.2
Employees benefit and
18 97.4
allowances 20%
Total 584.6
B. TRAINING REQUIREMENT
Training will be required for supervisor and production workers. It is recommended that
machinery supplier will provide on-job training for about two weeks. The cost of training is
estimated at Birr 60,000.00

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VII. FINANCIAL ANALYSIS
The financial analysis of the canvas shoe project is based on the data presented in the
previous chapters and the following assumptions:-
Construction period 1 year
Source of finance 30 % equity & 70% loan
Tax holidays 3 years
Bank interest 10%
Discount cash flow 10%
Accounts receivable 30 days
Raw material local 30 days
Work in progress 1 day
Finished products 30 days
Cash in hand 5 days
Accounts payable 30 days
Repair and maintenance 5% of machinery cost
A. TOTAL INITIAL INVESTMENT COST
The total investment cost of the project including working capital is estimated at Birr 19.42
million (See Table 7.1). From the total investment cost the highest share (Birr 12.82 million
or 66.00%) is accounted by fixed investment cost followed by initial working capital (Birr
4.55 million or 23.45%) and pre operation cost (Birr 2.05 million or 10.56%). From the total
investment cost Birr 3.98 million or 20.50% is required in foreign currency.

1
8

Table 7.1
INITIAL INVESTMENT COST ( ‘000 Birr)
Sr. Local Foreign Total %

No Cost Items
Cost Cost Cost Share
1 Fixed investment
1.1 Land Lease 66.50 66.50 0.34
1.2 Building and civil work 5,000.00 5,000.00 25.75
1.3 Machinery and equipment 2,620.00 3,980.00 6,600.00 33.99
1.4 Vehicles 900.00 900.00 4.63
1.5 Office furniture and equipment 250.00 250.00 1.29
Sub total 8,836.50 3,980.00 12,816.50 66.00

2 Pre operating cost *
2.1 Pre operating cost 780.00 780.00 4.02
2.2 Interest during construction 1,270.48 1,270.48 6.54
Sub total 2,050.48 2,050.48 10.56
3 Working capital ** 4,553.24 4,553.24 23.45
Grand Total 15,440.23 3,980.00 19,420.23 100
* N.B Pre operating cost include project implementation cost such as installation, startup,
commissioning, project engineering, project management etc and capitalized interest
during construction.
* The total working capital required at full capacity operation is Birr 4.69 million.
However, only the initial working capital of Birr 3.22 million during the first year of
production is assumed to be funded through external sources. During the remaining years
the working capital requirement will be financed by funds to be generated internally (for
detail working capital requirement see Appendix 7.A.1).
B. PRODUCTION COST
The annual production cost at full operation capacity is estimated at Birr 24.10 million (see
Table 7.2). The cost of raw material account for 79.05% of the production cost. The other
major components of the production cost are depreciation, financial cost, labour, and
marketing and distribution which account for 7.80%, 4.35%, 2.02% and 3.11% respectively.
The remaining 3.67% is the share of utility, repair and maintenance, labour overhead and

administration cost. For detail production cost see Appendix 7.A.2.
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Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY (year three)
Items Cost
(000 Birr) %
Raw Material and Inputs 19,055 79.05

Utilities 107 0.44
Maintenance and repair 330 1.37
Labour direct 487 2.02
Labour overheads 97 0.40
Administration Costs 350 1.45
Land lease cost 0 0.00
Cost of marketing and distribution 750 3.11
Total Operating Costs 21,176 87.85
Depreciation 1,881 7.80
Cost of Finance 1,048 4.35
Total Production Cost 24,105 100.00
C. FINANCIAL EVALUATION
1. Profitability
Based on the projected profit and loss statement, the project will generate a profit throughout
its operation life. Annual net profit after tax will grow from Birr 276 thousand to Birr 2.15
million during the life of the project. Moreover, at the end of the project life the accumulated
net cash flow amounts to Birr 19.81 million. For profit and loss statement and cash flow
projection see Appendix 7.A.3 and 7.A.4 respectively.

2
0

2. Ratios
In financial analysis financial ratios and efficiency ratios are used as an index or yardstick for
evaluating the financial position of a firm. It is also an indicator for the strength and
weakness of the firm or a project. Using the year-end balance sheet figures and other relevant
data, the most important ratios such as return on sales which is computed by dividing net
income by revenue, return on assets (operating income divided by assets), return on equity
(net profit divided by equity) and return on total investment (net profit plus interest divided
by total investment) has been carried out over the period of the project life and all the results
are found to be satisfactory.
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 for capacity utilization and sales value estimated by using income statement projection
are computed as followed.
Break Even Sales Value = Fixed Cost + Financial Cost = Birr 10,290,000
Variable Margin ratio (%)
Break Even Capacity utilization = Break even Sales Value X 100 = 43.01
% Sales revenue
4. Pay-back Period
The pay-back period, also called pay – off period is defined as the period required for
recovering 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 9 years.
5. Internal Rate of Return

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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 14.22% indicating the
viability of the project.
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 principle, a project is
accepted if the NPV is non-negative.
Accordingly, the net present value of the project at 10% discount rate is found to be Birr 4.47
million which is acceptable. For detail discounted cash flow see Appendix 7.A.5.
D. ECONOMIC AND SOCIAL BENEFITS
The project can create employment for 25 persons. The project will generate Birr 4.38 million
in terms of tax revenue. The establishment of such factory will have a foreign exchange
saving effect to the country by substituting the current imports. The project will also create
backward linkage with the textile and shoe manufacturing sub sectors and also generates
other income for the Government.

22

Appendix 7.A
FINANCIAL ANALYSES SUPPORTING TABLES
23

Appendix 7.A.1
NET WORKING CAPITAL ( in 000 Birr)
Items Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11
Total inventory 3,334.60 3,810.98 4,287.35 4,763.72 4,763.72 4,763.72 4,763.72 4,763.72 4,763.72 4,763.72
Accounts receivable 1,254.01 1,424.23 1,594.44 1,764.66 1,766.44 1,766.44 1,766.44 1,766.44 1,766.44 1,766.44
Cash-in-hand 12.29 14.04 15.80 17.56 17.85 17.85 17.85 17.85 17.85 17.85
CURRENT ASSETS 4,600.90 5,249.25 5,897.59 6,545.93 6,548.01 6,548.01 6,548.01 6,548.01 6,548.01 6,548.01
Accounts payable 47.66 54.47 61.28 68.08 68.08 68.08 68.08 68.08 68.08 68.08
CURRENT
LIABILITIES 47.66 54.47 61.28 68.08 68.08 68.08 68.08 68.08 68.08 68.08
TOTAL WORKING
CAPITAL 4,553.24 5,194.78 5,836.31 6,477.85 6,479.93 6,479.93 6,479.93 6,479.93 6,479.93 6,479.93

Appendix 7.A.2
PRODUCTION COST ( in 000 Birr)
Item Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11
Raw Material and Inputs 13,338 15,244 17,149 19,055 19,055 19,055 19,055 19,055 19,055 19,055
Utilities 75 86 96 107 107 107 107 107 107 107
Maintenance and repair 231 264 297 330 330 330 330 330 330 330
Labour direct 341 390 438 487 487 487 487 487 487 487
Labour overheads 68 78 87 97 97 97 97 97 97 97
Administration Costs 245 280 315 350 350 350 350 350 350 350
Land lease cost 0 0 0 0 21 21 21 21 21 21
Cost of marketing
and distribution 750 750 750 750 750 750 750 750 750 750
Total Operating Costs 15,048 17,091 19,133 21,176 21,197 21,197 21,197 21,197 21,197 21,197
Depreciation 1,881 1,881 1,881 1,881 1,881 225 225 225 225 225
Cost of Finance 0 1,398 1,223 1,048 873 699 524 349 175 0
Total Production Cost 16,929 20,369 22,237 24,105 23,952 22,121 21,946 21,772 21,597 21,422

Appendix 7.A.3
INCOME STATEMENT ( in 000 Birr)
Year Year Year Year Year Year Year Year Year Year
Item 2 3 4 5 6 7 8 9 10 11
Sales revenue 17,150 22,050 24,500 24,500 24,500 24,500 24,500 24,500 24,500 24,500
Less variable costs 14,298 16,341 18,383 20,426 20,426 20,426 20,426 20,426 20,426 20,426
VARIABLE MARGIN 2,852 5,709 6,117 4,074 4,074 4,074 4,074 4,074 4,074 4,074
in % of sales revenue 16.63 25.89 24.97 16.63 16.63 16.63 16.63 16.63 16.63 16.63
Less fixed costs 2,631 2,631 2,631 2,631 2,652 996 996 996 996 996
OPERATIONAL MARGIN 221 3,078 3,486 1,443 1,422 3,078 3,078 3,078 3,078 3,078
Financial costs 1,398 1,223 1,048 873 699 524 349 175 0
GROSS PROFIT 221 1,681 2,263 395 548 2,379 2,554 2,728 2,903 3,078
Income (corporate) tax 0 0 0 118 164 714 766 819 871 923
NET PROFIT 221 1,681 2,263 276 384 1,665 1,788 1,910 2,032 2,154

Appendix 7.A.4
CASH FLOW FOR FINANCIAL MANAGEMENT ( in 000 Birr)
Item Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Scrap
TOTAL CASH INFLOW 13,597 23,021 22,057 24,507 24,500 24,500 24,500 24,500 24,500 24,500 24,500 10,817
Inflow funds 13,597 5,871 7 7 0 0 0 0 0 0 0 0
Inflow operation 0 17,150 22,050 24,500 24,500 24,500 24,500 24,500 24,500 24,500 24,500 0
Other income 0 0 0 0 0 0 0 0 0 0 0 10,817
TOTAL CASH
OUTFLOW 13,597 20,920 20,883 22,751 24,738 23,984 24,357 24,234 24,112 23,990 22,121 0
Increase in fixed assets 13,597 0 0 0 0 0 0 0 0 0 0 0
Increase in current assets 0 4,601 648 648 648 2 0 0 0 0 0 0
Operating costs 0 14,298 16,341 18,383 20,426 20,447 20,447 20,447 20,447 20,447 20,447 0
Marketing and
Distribution cost 0 750 750 750 750 750 750 750 750 750 750 0
Income tax 0 0 0 0 118 164 714 766 819 871 923 0
Financial costs 0 1,270 1,398 1,223 1,048 873 699 524 349 175 0 0
Loan repayment 0 0 1,747 1,747 1,747 1,747 1,747 1,747 1,747 1,747 0 0
SURPLUS (DEFICIT) 0 2,102 1,173 1,755 -238 516 143 266 388 510 2,379 10,817
CUMULATIVE CASH
BALANCE 0 2,102 3,275 5,031 4,793 5,309 5,452 5,718 6,106 6,616 8,995 19,812
Appendix 7.A.5
DISCOUNTED CASH FLOW ( in 000 Birr)
Year Year Year Year Year

Year Year
Item Year 1 2 Year 3 4 Year 5 6 7 8 Year 9 10 11 Scrap
TOTAL CASH INFLOW 0 17,150 22,050 24,500 24,500 24,500 24,500 24,500 24,500 24,500 24,500 10,817
Inflow operation 0 17,150 22,050 24,500 24,500 24,500 24,500 24,500 24,500 24,500 24,500 0
Other income 0 0 0 0 0 0 0 0 0 0 0 10,817
TOTAL CASH OUTFLOW 18,150 15,690 17,732 19,775 21,296 21,362 21,911 21,963 22,016 22,068 22,121 0
Increase in fixed assets 13,597 0 0 0 0 0 0 0 0 0 0 0
Increase in net working capital 4,553 642 642 642 2 0 0 0 0 0 0 0
Operating costs 0 14,298 16,341 18,383 20,426 20,447 20,447 20,447 20,447 20,447 20,447 0
Marketing and Distribution cost 0 750 750 750 750 750 750 750 750 750 750 0
Income (corporate) tax 0 0 0 118 164 714 766 819 871 923 0

NET CASH FLOW -18,150 1,460 4,318 4,725 3,204 3,138 2,589 2,537 2,484 2,432 2,379 10,817
-
CUMULATIVE NET CASH
FLOW -18,150 16,689 -12,372 -7,646 -4,443 -1,305 1,284 3,821 6,305 8,737 11,117 21,933
Net present value -18,150 1,328 3,568 3,550 2,188 1,949 1,461 1,302 1,159 1,031 917 4,170
-
Cumulative net present value -18,150 16,822 -13,254 -9,704 -7,516 -5,567 -4,106 -2,804 -1,645 -614 304 4,474
NET PRESENT VALUE 4,474

INTERNAL RATE OF RETURN 14.22%
NORMAL PAYBACK 9 years
26

4. ENVIRONMENTAL IMPACT OF THE PROJECT
The EIA of the project activities was determined by identifying the environmental aspects and then undertaking an environmental risk
assessment to determine the significant environmental aspects. The environmental impact assessment has included all phases of the project
namely construction phase and operational phase.
The building has both positive and negative impact
Positive impact of the project
The positive impact of the project is: -
 Generation of employment opportunity
 Source income for the government through business income tax
 Income generation for the promoter
 Being exemplary for other investors who want to engage in the same business line.
Negative impact of the project
The project has the following negative impacts:
1. Noise and Dust emission during Construction
There are some noises during the construction due to the construction operation and the company will use construct the construction
during the daytime. Again there is the emission of dust, which will be mitigated by sprinkling water on the service.
2. Problem on workers on construction

During construction there are some problems that will materialize on workers. These are: damage on operation by using machines, construction
materials and others. To mitigate such impact the company will provide safety insurance and safety equipment’s.

3. Swages during operation
During operation there are some wastes emitting from the mixed-use building. These are wastes from the latrine and will be mitigated by using
modern waste treatment technology.
4. Air quality
Air quality impairment during the operation of the plant may be associated with generators, boilers and de-husking operations; destining; raw
material unloading; polishing; pre-cleaning; vibratory screening etc.
5. Noise
The envisaged heavy traffic of vehicles off-loading and loading raw materials and finished products; generators; boilers and other machinery
will increase noise levels within and in the vicinity of the plant. Other sources of noise include, destining; vibratory screen for sorting; fans; de-
husking; polishing; blowing, paddy cleaning; packaging etc.
Mitigation measures on negative impact of the project

The project will take the following mitigation measures:
 Implementation of dust suppression technique such as application of water or non-toxic chemicals to minimize dust from vehicular
movement.
 Minimization of dust from open area sources by using water suppression, bag house etc.
 Appropriate management of emissions from mobile sources.
 Monitor noise level monthly throughout the construction periods.

 Hearing protectors shall be given to staff members.

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2017

PLASTIC SHOES FACTORY PROJECT PROPOSAL

AMASILLA CONSULTING ARCHITECTS & ENGINEERS

PLASTIC SHOES FACTORY PROJECT PROPOSAL

2. PRODUCTION DESCRIPTION & APPLICATION 6

3. MARKET STUDY AND PLANT CAPACITY 8

3.1 MARKET STUDY 8

3.2 PLANT CAPACITY AND PRODUCTION PROGRAMME 14

4. MATERIALS AND INPUTS 16

4.1 RAW AND AUXILIARY MATERIALS 16

5. TECHNOLOGY AND ENGINEERING 19

6. MANPOWER AND TRAINING REQUIREMENT 25

6.1 MANPOWER REQUIREMENT 25

PLASTIC SHOES FACTORY PROJECT PROPOSAL

7.1 TOTAL INITIAL INVESTMENT COST 27

7.2 PRODUCTION COST 27

7.3 FINANCIAL EVALUATION 29

7.4 ECONOMIC BENEFITS 31

8. ENVIRONMENTAL IMPACT OF THE PROJECT 32

PLASTIC SHOES FACTORY PROJECT PROPOSAL

TABLE 3.1 APPARENT CONSUMPTION OF WHEAT FLOUR 1995-2004 (TONNES)---------------------8

PLASTIC SHOES FACTORY PROJECT PROPOSAL

PLASTIC SHOES FACTORY PROJECT PROPOSAL

3. MARKET STUDY AND PALNT CAPACITY

3.1 MARKET STUDY

I Past Supply and Present Demand

PLASTIC SHOES FACTORY PROJECT PROPOSAL

PLASTIC SHOES FACTORY PROJECT PROPOSAL

Source: - Ethiopian Revenue & Customs Authority.

DOMESTIC SUPPLY OF CANVAS SHOE

PLASTIC SHOES FACTORY PROJECT PROPOSAL

PLASTIC SHOES FACTORY PROJECT PROPOSAL

Source: - CSA, Statistical Abstract of Ethiopia

PLASTIC SHOES FACTORY PROJECT PROPOSAL

PLASTIC SHOES FACTORY PROJECT PROPOSAL

PLASTIC SHOES FACTORY PROJECT PROPOSAL

PROJECTED UNSATISFIED DEMAND FOR CANVAS SHOES (PAIR)

Projected Domestic Unsatisfied

2012 3,120,701 208,339

2013 3,307,944 208,339 3,099,605

2014 3,506420 208,339 3,298,081

2015 3,716,805 208,339 3,508,466

2016 3,939,814 208,339 3,731,475

2017 4,176,203 208,339 3,967,864

2018 4,426,775 208,339 4,218,436

2019 4,692,381 208,339 4,484,042

2020 4,973,924 208,339 4,765,585

2021 5,272,359 208,339 5,064,020

2022 5,588,701 208,339 5,380,362

2023 5,924,023 208,339 5,715,684

2024 6,279,465 208,339 6,071,126

2025 6,656,232 208,339 6,447,893

3. Pricing and Distribution

PLASTIC SHOES FACTORY PROJECT PROPOSAL

PLASTIC SHOES FACTORY PROJECT PROPOSAL

B. PLANT CAPACITY AND PRODUCTION PROGRAMME

Sr. production year

PLASTIC SHOES FACTORY PROJECT PROPOSAL

PLASTIC SHOES FACTORY PROJECT PROPOSAL

ANNUAL REQUIREMENTS OF RAW MATERIALS AND COSTS