Project Proposal of Integrated

Five Star Lodge

Location:Oromia Regional State, East Shoa Zone,Adama District

Promoter: Fikru Garedew and Eyob Yohanes

March,2022

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 Adama, Ethiopia

Table of Contents
I. Executive Summary 4
CHAPTER ONE 5
1. Introduction 5
1.1. Country background..............................................................................................................5
1.2. The region.............................................................................................................................6
1.3. The economy.........................................................................................................................7
1.4. Markets..................................................................................................................................8
1.5. Company Description...........................................................................................................9
1.5.1. Project rationale..............................................................................................................9
1.5.2. Policy environment.......................................................................................................10
1.5.3. Market prospect............................................................................................................10
1.5. 4. Project Description......................................................................................................10
1.5.5. Other Economic activities................................................................................................13
1.5.6. Suitability.....................................................................................................................13
1.6. Production Process..............................................................................................................13
1.7. Machinery and Equipment..................................................................................................13
1.8. Tourism...............................................................................................................................14
CHAPTER TWO 15
2. ORGANIZATION AND STRUCTURE 15
2.1. The General Manager’s Duties and Responsibilities..........................................................17
2.2. The Accounting Department of the Hotel is responsible for undertaking the following
activities.....................................................................................................................................17
2. 3. The marketing Department................................................................................................17
2.4. The General Service Department........................................................................................17
2.2. Man power requirement with qualification.........................................................................18
CHAPTER THREE 20
3. Introduction to Economic overview 20
3.2 The Economic significance of the project............................................................................22
3.2.1 Source of Employment..................................................................................................22

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 3.2.2 Source of Government Revenue....................................................................................23
3.2.3 Sources of social service...............................................................................................23
3.3 Brief History........................................................................................................................23
3.3.1 Brief history of the promoter.........................................................................................23
3.3 vision....................................................................................................................................24
3.4 Mission.................................................................................................................................24
3.4.1 Economic mission.........................................................................................................24
3.4.2 Service mission..............................................................................................................24
3.4.3 Community mission......................................................................................................24
3.5 .Key success factors.............................................................................................................24
4. Project area 25
4.1. Background of the zone:.....................................................................................................25
4.2. Economic activity................................................................Error! Bookmark not defined.
4.3. Suitability..........................................................................Error! Bookmark not defined.
4.4. Description of the project area..............................................Error! Bookmark not defined.
4.5. Infrastructure and premises required....................................Error! Bookmark not defined.
4.6. Premises Required...............................................................................................................
5. The market demand potential 28
5.1. Market Study.......................................................................................................................28
5.1.2 Projected Demand.........................................................................................................28
5.1.2 Project Capacity............................................................................................................29
5.1.3. Pricing and Distribution...............................................................................................30
5.2. Target customers.................................................................................................................30
5.3. Competition.........................................................................................................................31
5.4. The production and the sales plan.......................................................................................32
5.4.1 .Production Plan............................................................................................................33
5.4.2. Sales Plan.....................................................................................................................34
6. Financial Requirement 35
6.1. Fixed Investment.................................................................................................................35
6.1.1 Building and construction.............................................................................................35

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 6.1.1 Building and Construction.............................................................................................35
6.1.2 Vehicles and Motors......................................................................................................36
6.1.3 Hotel Equipments..........................................................................................................36
6.1.4 Office Equipments.........................................................................................................36
6.1.5 Amusement, Gymnasium Equipments..........................................................................37
6.2. Operating Expense..............................................................................................................37
6.2.1. Raw Material Purchase for cafeteria Service...............................................................37
6.3. Salary Expense....................................................................................................................38
6.6 Summary of Financial Requirement....................................................................................40
6.7 Sources of fund and loan repayment schedules...................................................................41
6.8 Bank loan repayment schedule in 10 years.............................Error! Bookmark not defined.
6.9. Financial Statements...........................................................................................................41
6.9.1 Profit /Loss statement....................................................................................................41
6.9.2 Cash Flow Statement.....................................................................................................42
6.9.3 Payback period of the project 43
6.9.4. Financial Evaluation 43
6.9.5. Profitability......................................................................................................................43
6.9.7. Breakeven Analysis..........................................................................................................43
6.9.3.8. Payback Period..............................................................................................................44
6.9.9. Simple Rate of Return......................................................................................................44
6.9.10. Internal Rate of Return and Net Present Value..............................................................44
6.9.11. Sensitivity Analysis........................................................................................................44
6.10. Economic and Social Benefit and Justification 44
6.10.1. Profit Generation............................................................................................................44
6.10.2. Tax Revenue..................................................................................................................44
6.10.3. Employment and Income Generation............................................................................44
6.10.4. Pro-Environment Project................................................................................................44
7. Future Development and Exist strategies 45
8. Environmental Impact of the Project 45
9. Implementation schedule plan(G.C) 45

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 I. Executive Summary
1 Project Name Fikru Garedew and Eyob Five star Lodge

2 Project Ownership Fikru Garedew

3 Place of birth Ethiopia

3 Nationality Ethiopian

4 Project location Oromia Regional State, East Shoa Zone, Adama District

5 Project Service of Lodge with cultural rooms, with integrated fresh

Composition fruits and Vegetables farm supply, Fish farm in ponds,
entertainment for children and others, Water park, playing
game area, Micro Zoos like Crocodile, Apes, Monkey, Deer
and forestation

6 Premises Required 20,000m2

7 Start-up Capital For implementing this project a total of 115,740,000 Ethiopian

birr is needed and from this 30%(34,722,000) will be covered
by the promoter of the project while the rest 70%(81,018,000)
will be covered by financial institutions (loan from banks)

8 Employment This project deemed to employ 23[18 skilled (13 female and 5
Opportunity male) and 5 unskilled (3 female and 2 male)] individuals on
permanent bases and 75[65 skilled (45 female and 20 male)
and 10 unskilled (7 female and 3 male)] individuals on a
temporary and totally it will generate employment
opportunities for 98 individuals.

9 Benefits to the Source of revenue for the government through taxation ,

region country increase of tourist follow, profit for the organization, job

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 opportunity for the community and others

CHAPTER ONE

1. Introduction

1.1. Country background

As a landlocked country, Ethiopia shares boundaries with Eritrea to the North, Kenya to the
South, Somalia and Djibouti to the East, and Sudan to the West. The Great Rift Valley runs from
the northeast to the southwest and separates the Central and Eastern Highlands. Altitudes range
from 110 m below sea level at Dallol in the northeast to over 4,600 m at the Semien Mountains
in the northwest. Surrounding the highlands, which constitute 56 percent of the total area of the
country, are extensive lowlands with altitudes of less than 1,000 m. Most economic activity takes
place in the highlands.

Ethiopia is the largest country in East Africa and nearly twice the size of Texas. Its growing
population of nearly 80 million (2007) makes it the second most populous country in Africa,
recently passing Egypt while currently estimated to be about 100 million. The majority of the
population (85 percent) is rural and engaged in agricultural production, spanning 18 agro-
ecological zones and five traditional climatic zones, including alpine (Wurch), temperate (Dega),
subtropical (Woina Dega), tropical (Qolla), and desert (Berha). Government of Ethiopia, Census
2007, op. city.

Although the shortest distance to the seacoast is about 60 km from Ethiopia’s northeastern
border, this route is still inaccessible due to the delicate relationship with Eritrea. The next
closest route is through Djibouti and covers over 700 km. Ethiopia’s population is comprised of
about 80 ethnic groups of which the Oromo is the largest (nearly 40 percent of the total
population), while the Amhara ethnicity accounts for an additional 20 percent. The country’s
major religions are Ethiopian Orthodox Christianity (45 percent) and Islam (40 percent), but
many ethnic groups in the south also practice traditional animist religions (10 percent). The
remainder of the population (5 percent) identify themselves as Catholic or Protestant. As one of
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only two African countries never colonized (Liberia being the other), Ethiopia maintains a
unique role in Africa’s history. It has long been considered as a source of Pan-African culture
and leadership. When the Organization for African Unity (OAU) was established in 1963, Addis
Ababa was chosen as its headquarters. After the OAU was disbanded in 2002, the African Union
(AU) chose to maintain its secretariat in Addis Ababa. Addis (as it is generally known) is also
home to the United Nations Economic Commission for Africa (UNECA) and a major hub of
non-governmental (NGO) activity on the continent.

Since the end of the 2002 recession, Ethiopia’s economy has registered an average real GDP
growth rate of 11.8 percent. In 2006/20076 (the most recent year for which data are available),
the estimated real GDP growth stood at 11.4 percent, with agriculture, services and industry
registering growth rates of 9.4 percent, 13.5 percent, and 11 percent, respectively. Over the past
several years, there has been a boom in the service sector that now represents 41.2 percent of
GDP. Construction activities have shown a similar increase, while agriculture as a share of GDP
has decreased from 56.7 percent in 1996 to 46.3 percent in 2007.

Note: Ethiopia still uses the Julian calendar. Accordingly, its year begins on Sept 11th and ends
on Sept 10th. While the business and financial sectors use the western (Gregorian) calendar,
some governmental accounting is done in accordance with the Julian calendar. The Julian
calendar lags behind the Gregorian calendar by 7-8 years (e.g. the Ethiopian year 1999 would
span 2006/2007). 7 Government of Ethiopia, Annual Report on Macroeconomic Developments:
Macro Economy Policy and Management Department (Addis Ababa: Ministry of Finance and
Economic Development, 2007). The Government has also taken several policy and legal
measures to sustain growth. Since it was first adopted in 1992, the Investment Act has been
revised several times to remove obstacles to foreign direct investment (FDI) in Ethiopia.
Privatization has been ongoing since the Republic’s founding in 1995, and the Government has
sold many mismanaged and poorly performing companies to private investors. While
privatization remains a priority, the Government continues to explore policies and laws to create
a more enabling environment for economic growth and poverty reduction.

1.2. The region

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Historically, Ethiopia has been isolated politically and culturally from its East African neighbors.
This has changed somewhat in recent years as the Government has committed itself to
supporting regional trade and broadening interactions with other African countries. Ethiopia is
now a member of the Common Market for Eastern and Southern Africa (COMESA) and home to
the Africa Union (AU).
In addition, Ethiopia’s skilled and affordable labor market is helping the country quickly expand
its export production into Sudan, Kenya, and Djibouti. From traditional crops such as coffee and
oilseeds to energy, meat, and wood products, Ethiopia is increasingly utilizing its diverse natural
resources and burgeoning private sector to become a leading force among East African countries.

1.3. The economy

The Ethiopian economy has experienced strong economic growth since transitioning to a multi-
party democracy. Since 1995, it has posted a per capita growth rate of 2.4 percent.8 since 2003,
the economy has witnessed an average growth rate of 11.8 percent. Inflation, on the other hand,
reached as high as 41 percent in 2008.

Because of Ethiopia’s recent growth, it has also avoided the need for extensive debt servicing as
the country has benefited from the Highly Indebted Poor Countries (HPIC) initiative,10 as well
as the Multilateral Debt Relief Initiative (MDRI). Reduced debt servicing and increased 0fficial
development assistance (ODA), which amounted to US$1.3 billion in 2007 (of which 53.2
percent came from the US), have also greatly benefited the economic climate.

The Ethiopian Government has continued to emphasize infrastructure modernization, particularly

with respect to roads and hydropower. With the completion of several high profile energy
projects, Ethiopia is expected to begin exporting electricity to Sudan, Djibouti and Kenya in the
coming years. Although agriculture is an important component of the Ethiopian economy (it
employs 85 percent of the workforce), its share as a percentage of GDP is small relative to
industry.

Privatization has also played an important role in helping develop skills and industries. Of the
360 public enterprises chosen for privatization, 294 were offered publicly by the Government
between 1994 and the end of October 2006; 230 properties (worth approximately US$ 460

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million) were sold; and 18 were returned to their original owners. Ten retail shops and one state
farm have closed. None of Ethiopia's public utilities have been privatized to date, although the
Government is looking for foreign investor partners for select telecommunications services. At
the moment, the Government has 91 state enterprises under its control.

1.4. Markets
As one of Africa’s most populous countries, Ethiopia has one of the largest domestic markets on
the continent, although the purchasing power of the population is still limited. The country’s
nearly 80 million people create a large pool of semi-skilled to highly qualified professionals. By
virtue of its membership in COMESA, Ethiopia enjoys regional market access through
preferential tariffs. Potential economic reforms within the African Union would lead to greater
trade liberalization among member states and provide further market access. Ethiopia’s
proximity to the Middle East also offers potential market and export opportunities.

In order to liberalize its markets further, Ethiopia has begun the accession process to the World
Trade Organization (WTO). The country also qualifies for preferential access to European
markets under the European Union’s everything but Arms (EBA) initiative and to US markets
Tourism has been identified as a priority sector in Ethiopia for the country’s economic
diversification. The Government of Ethiopia has set in train an initiative to develop the tourism
sector in Ethiopia. This study supports this objective through in depth analysis of the supply and
demand sides of the sector and by proposing a focused and viable strategy to grow tourist
visitation and revenues whilst supporting the poverty reduction goals. The service sectors Hotel
and Tourism play a major role on the economic development of the country. As technology
overcomes traditional way of living and modernization increases demand of modern
international Hotel services becoming increasing from time to time on our country. Sustained
and increased macro-economic growth is necessary to create the breeding ground for additional
employment and income opportunities for the people in order to bring them out of poverty and
food insecurity. The proposed project envisions the establishment of a new enterprise that will
give Amusement and Hotel services. The enterprise requires a service site (building and land)
and modern equipments. With the purchase of the required equipments, and a complete
construction of the site, service can begin soon.

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International Hotel has been constructing in different urban areas, along the all the main roads
but, very few are on investment basis. Modern service of international Hotel enhances tourist
attraction as well as increase the service capability and accessibility of the services. The
government of Ethiopia undertaking different polices and strategies to expand the service
industries in the country. The Oromia investment commission has been exerting its maximum
effort to expand investment opportunities in the region so as to faster the economic development
of the region and subduing the city’s big enemy that is the trap of poverty. The owner of the
project has been undertaking different business activities such as services business:
manufacturing industry of cement, and in different business. During their stay in business the
company has accumulated diversified skills and also adopted working with many people. Hence,
it is this accumulated experience which initiates them to construct a Five starLodge in Oromia
region, East Shoa Zone, Adama District. The project is located Addis Ababa to Harar which is
one of the areas, which highly growing among East Shoa zone. Therefore, a side with the
government duties and responsibilities vested on it East Shoa Zone investment office has been
preparing a viable business environment to attract many domestic and foreign investors. Hence it
is this viable investment policy which invited promoter to develops the interest and motivation to
build Five star Lodge at Adama District on the way Addis Ababa to Harar.

1.5. Company Description

The owner of the project has been undertaking different courses for many years. During his stay
in academic area, he had accumulated diversified skills and have also been working with many
people, having a good network. Hence, it is this accumulated experience which motivated him to
start Five star Lodge project at Adama District.

1.5.1. Project rationale

The idea of establishing Five star Lodge project has emanated from the existing growing demand
in the future for tourist facilities in the country and specifically in the area. Due to the inability
for tourist facilities and Amusement to meet the demand of services, the country needs expansion
and more existence of such investment. The project aims to construct one complex building
Hotel which enable the owner to have beds rooms, cafeteria, supermarket, GYM, Restaurant and
also to provide Amusement service with reasonable prices for derives and customers crossing the

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main road Addis Ababa to and also separate villas which contains two bed rooms separately. The
project also will have water bathing service, about two swimming pools, childrens playing center
and other services.

1.5.2. Policy environment

The existing environment of investment is good than before. The government has made many
opportunities to the investors like availability of bank loan from finance institutions, availability
of duty free import of machines and other things related to the investment work. The investment
offices also have good attitude in delivering good service for investors.

1.5.3. Market prospect

Due to the fact that the area cross ways of the one main road from Addis Ababa to Harar,
including the newly planned railway as well as being one of the largest nation’s movement to
Harar, it is believed that the project could generate viable business opportunities through the
provision of the international standard Five star Lodge service. The demand for Tourism services
is ever increasing due to the increasing economic activities. Hence, the envisaged project is
planning to be one of the potential International Resort Hotel service center in the area to supply
the required services for the nearby at Adama District and village and also to create market
opportunity for the surrounding retailer and wholesaler who always have a problem of marketing
their Service.

1.5. 4. Project Description

Modern hotels and restaurants are facilities where food, drinks, bed rooms and other services are
provided in an efficient, cordial and pleasant manner and style. Operating hotel and restaurant
businesses, especially at tourist sites, require cleanliness and neatness of services to be provided
and efficiency, cordiality and good manner on the part of hotel and restaurant workers.

This Five Star resort wills incorporate cultural things like culture foods, culture rooms, cultural
horse riding, different games of culture, and also other games and children playing centers.
Natural artificial things like pond with fish will be found which has multipurpose as
entertainment and also supply of fresh fish from pond and make it dish(food) for customers.
A fish pond, or fishpond, is a controlled pond, artificial lake, or reservoir that is stocked with
fish and is used in aquaculture for fish farming, or is used for recreational fishing or for

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ornamental purposes. The water discharged from fish pond during exchange of water will be
taken to the vegetables and fruits planted around the pond which recycles the water and also help

the organization to have supply of vegetables and fruits from its compound.

From the soils excavated during construction will be collected together and artificial hills will be
made and the hills will be used for place of plantation of different plants, vegetables and fruits
which will develop great attraction to the resort and the fruits and vegetables used as supply for
the organization itself.

Different games and children entertainment areas also will be established. The idea of
establishing Recreational center project has emanated from the existing growing demand in the
future for tourist facilities in the country and specifically in the area. Due to the inability for
tourist facilities and Amusement to meet the demand of services, the country needs expansion
and more existence of such investment. The project aims to construct one interesting Children
Recreational center which enable the owner to have different children playing
equipments/materials in addition to get access of soft drinks, Cakes and other children delicious
foods.

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1.5.5. Other Economic activities
Like that of other parts of the country, the majority of the population of the town resides in urban
areas and gets their livelihood from differtent business, government employment, factory
employment and others and also agriculture. The Adama District dwellers, however engaged in
different commercial activities like wholesale and retail trade where agricultural Service and
manufactured industrial goods are traded. Currently private investments activities are also widely
undertaken in the project area. The majority of the population of the town is engaged in factory
employment and also self employees.

1.5.6. Suitability
The proximity, raw material supply and existence of basic infrastructures facilities dictated the
choice of location and site selection of the project. The project site is situated at the strategic
location with easy access to raw material supply. About 52.8% of the total area of the town was
cultivable and cereals covered about 88% of the cultivated land, followed by pulses 10.2% and
oil seeds 1.8% during the summer season. The town has got all basic social and economic
infrastructures like electricity, reliable water supply, and transport and communication faculties.
The site is suitable for the envisaged project and continent even if further expansion is
anticipated.

1.6. Production Process

The main processes of establishing modern Five star Lodge service include: Studying the market,
securing land, constructing buildings, equipping and finishing the buildings and starting the
operations of the businesses.

1.7. Machinery and Equipment

Machinery and equipment required for a modern Five star Lodge service could broadly be
classified into five categories. These are;
• Bed room furniture,(includes beds, mattress, blankets, bed sheets, tables, chairs, cap boards)
• Hotel furniture and equipments (tables, chairs, glasses etc)
• Restaurant furniture and equipments (tables, chairs, refrigerator, glasses, etc)
• Kitchen utensils (forks, spoons, trays, dish, deep freezer, etc)

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1.8. Tourism
Overview
Given its magnificent culture and history, there is a great potential for Ethiopia’s tourism
industry. Its attractions are many: Ethiopia possesses a unique historical and cultural heritage,
breathtaking landscapes, a surprisingly moderate climate, rich flora and fauna, important
archaeological sites and hospitable people.
Tourism has the ability to play an important role in joining different technologies, cultures and
traditions together. As the roads throughout the country continue to improve, it is likely that car-
based tourism will become the predominant means of travel within the region.

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 CHAPTER TWO

2. ORGANIZATION AND STRUCTURE

As indicated in the introductory part of this project proposal, the forms of ownership of this
project are Privet limited Company. Therefore, organizational structure of this project is as
follows:

The organizational structure of the project is designed by including all the necessary personnel
under the right divine at the top of the organizational structure. There will be a general manager
with the responsibility of supervising the overall activity of the plant depending up to the nature
of the center and the amount of work to be performed there will be auxiliary unit under the
general manager Employees under each unit will be supervised by the unit head that is
accountable to the general manager.

Organizing, the process of structuring human and physical resources in order to accomplish
organizational objectives, involves dividing tasks into jobs, specifying the appropriate
department for each job, determining the optimum number of jobs in each department, and
delegating authority within and among departments. One of the most critical challenges facing
managers today is the development of a responsive organizational structure that is committed to
quality the promoter. Therefore, organizational structure of this project is of simple type.

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 Marketing
General
Internal P
Department
Administration e
Audition & r
Department n

As clearly shown in the organizational structure, the Five star Lodge service has three sections
under the general manager. These are the Accounting Department, the Marketing Department,
and the General Service department. Under the Accounting Department there are accountants
and cashiers that will collect money from the customers. The marketing department is
accountable for handling the customers of the project in its different sections, and it consists
marketing officers and the waiters.

Finally, the general service consists of the purchaser, stock keeper, drivers, Janitors and the
guards. Hence, the following section deals with the duties and responsibilities of each section.

These departments are the production Department the marketing Department and the general
service department under each department there are different sections which are undertaking
different activities. Hence the following section deals with the duties and responsibilities of each
division.

As clearly shown in the organizational structure, the project middle has a general manager under
the manager there are two departments. These departments are the administration. Financial
Department and marketing Department. Under each Department there are different sections
which are undertaking different activities. The marketing department is accountable for finding
the market and handling the customers of the project in its different sections, and it is consist of

16
marketing officers and the waiters. In finance section there are accountants, purchaser and
cashers who are responsible to collect money from customers and pay for employees. There are
different workers in general service department including purchaser, stock keeper, drivers,
janitors and guards.

2.1. The General Manager’s Duties and Responsibilities

 He /She will plan, organize, direct and control the overall activities of the project.
 He/She will devise policies and strategies that will enable the project to be profitable.
 He/She will incorporate modern technological innovation that will facilitate the service
delivery of the Hotel and increase customer’s satisfaction.
 He/She will plan, organize, direct and control the human and non-human resources of
the project so as to achieve the short and long run objectives of the organization.

2.2. The Accounting Department of the Hotel is responsible for undertaking the following
activities
 Will plan, organize direct and control the financial transaction of the Hotel by using the
entire necessary document.
 Will develop sound financial control system by developing modern financial control
systems.
 Will prepare the annual financial statements and prepare condensed reports for both the
General Manager and other concerned government body.

2. 3. The marketing Department

 Will handle the overall marketing activities of the organization which include planning,
organized, directing and controlling
 Will develop the marketing strategies for future station’s development.
 Will develop effective customer handling strategies

2.4. The General Service Department

The general service of the Hotel encompasses the following Activities

 Will control the human and non-human resources of the station, which include: effective
handling of the different inventories of the station, and devise strategies of controlling
against fraud and damage.

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  Will provide the right material or inventory to the station right price at the right time.
 Control over the different sections of the station

2.2. Man power requirement with qualification

The required skilled and semi-skill labor forces will be recruited from the project area and
nearby and contractual and daily labors will be recruited from the project one of the most
important factors for successes in agricultural farming is the offering of continuous on the job
training to workers as well as short and medium professional and technical education of
agricultural productivity expansion the expatriate project manager will conduct regular training
seasons for the staff in their various areas of work.

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Table 1.Manpower requirement and estimated annual labor cost

No Description No Qualification Monthly salary in Birr

1 G. Manager 1 BA in management 3,500.00

2 Manager 1 BA in management 3,000.00
3 Accounting Head 1 BA in Accounting 3,500.00
4 Assistant Account 1 BA in Accounting 3500.00
5 Marketing Head 1 BA in Marketing 3,500.00

6 Assistant Market 1 BA in marketing 3,500.00

7 General Service Head 1 BA in management 3,500.00

8 Accountant 2 BA in Accounting 3,500.00
9 Casher 4 BA in Accounting 3,500.00
10 Front head 2 BA in Marketing 1000.00
11 Waiters 10 10+2 500.00
12 Purchaser 2 Basic 1000.00
13 Store keeper 3 Basic 1,500.00
14 Cooker 16 Basic 1,500.00
15 Store keeper 3 Basic 1,500.00
16 Receptionist 6 Basic 500.00
17 Drivers 3 Basic 1000.00
18 Parking workers 5 Basic 1000.00
19 Sheaf 5 Basic 1500.00
20 Cleaner 5 skilled 500.00
21 Secretary 2 10 completed 900.00
22 Guards 8 Basic 800.00

23 Massage 10 10 completed 1,000.00

24 Guide 5 Basic 800.00
1. 98 

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 CHAPTER THREE

3. Introduction to Economic overview

3.1. Review of Tourism sector policy and strategies of Ethiopia

In the 1950s Ethiopia adopted for the first time Tourism development strategy, which provides
various incentives to encourage investment. As a result, a number of service industries, among
which the majority owned by private investor, were established.

However, the subsequent takeover of government power by the Derg regime, i.e. post 1974
period, was marked by extensive nationalization of the service industries establishments owned
by Ethiopians as well as foreigners. Thus, curtailing the encouragingly emerging private sector
participation in the sector. Moreover, the setting of ceilings on amount of investment allowable
to private businesses, the practice of various types of controls and rationing to obtain inputs and
other services has weakened the crucial role of the private sector in the development of the
Tourism sector. Consequently, the performance of the tourism sector has become stagnant.

After the Derg-military government was overthrown by the Ethiopian people’s Revolutionary
Democratic front (EPRDF) in May 1991, the Transitional Government of Ethiopia (TGE) was
established. The first task of the new government was to introduce a new economic policy, the
essence of which is the transformation of the command economy inherited from the previous
regime into a functional market-based economy.

Accordingly, a range or reforms have been implemented including the complete liberalization of
prices, the devaluation of the currency (Birr), the enactment of a new more liberal investment
regime, and the granting of autonomy to public enterprises and under taking of privatization
programmed. Moreover, sweeping reforms have seen the establishment of a more market
determined foreign exchange and interest rates, reduction of inflation through budgetary and
monetary controls, liberalization of foreign trade, abolishing of all export taxes (except on
coffee) an subsidies. Agricultural Development Led industrialization (ADLI) which is a long-
term overall economic strategy has been also enacted.

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Table 1 – Trends in Macroeconomic performance Growth Rate (2001/02-2004/05)

Description 2001/02 2002/03 2003/04 2004/05

GDP in 1990/01 Prices 1.0 -3.3 11.9 10.6

- Agriculture -2.1 -11.4 17.3 13.4

- Industry 8.3 3.0 10.0 8.1

- Distribution Services 3.3 2.9 8.2 7.6

- Other services 0.3 6.1 6.4 9.1

- Private consumption pedicure -0.2 8.6 12.5 23.1

- Gross Domestic Expenditure 10.9 4.5 17.3 15.5

- Inflation -8.5 15.1 8.6 6.8

- Exports 0.6 21.8 18.8 34.2

- Imports 9.4 13.7 25.7 33.3

Source: MoFED, September 2006

Ethiopia- Building on progress, a plan for accelerated and sustained development to end poverty
(PASDEP), volume 1: main Text. As shown in the table, all sectors of the economy have
economy have contributed to the overall GDP growth achieved during the period. The services
sector, which supplies important consumer goods both to the domestic and international markets,
had also registered remarkable performance of 6.4 and 9.1% in the year 2003/04 and 2004/05,
respectively, in the same period Agricultural output has increased by 17.3% and 13.4. As can be
noted from the above table, inflation rate was negative 8.5% in 2001/02. However, it surged to
15.1% in the following year and subsided to 6.8% to 6.8% in the following years probably, the
greatest improvement of the economy comes from the export sector. Import jumped from the low
rate of 9.4% to 13.7% in 200/01 and to 25.7 and 33.3% in the following years. This persistent

21
improvement in the import is accounted for the macroeconomic stabilization policy measures
taken by the country that have resulted in, increase volume of the traditional import commodities
and diversification efforts of new commodities. Macroeconomic stabilization measures
implemented by the government in the past years have generally yielded improved performance
in the economy despite setbacks in certain periods due to recurrent drought that affected service
industry.

Maintaining its leading position in the economy for the second year, service sector contributed
45 percent to GDP last year (2009/10 fiscal year), followed by 42 and 13 percent contributions of
agriculture and industry, respectively.

According to the latest GDP report of the ministry of finance and economic development
released last week, the service sector enjoyed 14 percent growth annual growth last year
(2008/09 fiscal year). While industry followed by 9.7 percent and agriculture grew by 6.4
percent.

It was two years ago that for the first time service sector took the leading position from
agriculture in the overall GDP contribution to Ethiopian economy.

In 2009/10 fiscal year, service sector was leading the two sectors growing at 13 percent followed
by 10.6 and 7.6 percent growth rates of industry, respectively.

3.2 The Economic significance of the project

The envisaged project deemed to contribute to the economic development of the region or
country in the following ways:

3.2.1 Source of Employment

One of the problems that our country is faced is unemployment. Therefore, the current objective
of our government is working on tackling the problem of unemployment either through creating
self-employment or employment in other organization.

Hence, the envisaged Amusement and Hotel deemed to contribute somewhat to solve the
problem of unemployment. Upon completion, the project center assumed to generate
employment opportunities for about 95 individuals.

22
3.2.2 Source of Government Revenue
To redistribute income, the government collects different forms of taxes from different business
undertakings and individuals as income tax. Among the different forms of taxes, business
income taxes are collected from undertaking business activities. Therefore, the envisaged project
will serve as sources of revenue for the region.

3.2.3 Sources of social service

In addition to serving as a source of employment and income for the region, the project renders
social services for different group of people. Hence, it is also provide the following services:

 Serve as a source of mental satisfaction for the different users,

 Since, the center encompasses different resting areas; it will be serving the long drivers
which returning between Addis Ababa to Djibouti.
 It deemed to minimize the demand for bed and other bundles of services in the area.

3.3 Brief History

3.3.1 Brief history of the promoter

The Promoters has a long term business experiences. He has different agricultural farm in
different regions of the country. Currently they plan to establish Five star Lodge at Adama
District. The initial capital of the project is birr 115,700,000.00 cash. The General Manager of
the business is the owner of different projects. The marketing manager, who started professional
career as a business person in diverse areas after completing the study, is now in the right of the
business man. In general, the General Managers are assisted by qualified personnel to carry out
the day to-day activities of the business operations.

As could be deduced from the above information Hotel (Five star Lodge) management as well as
the finance and marketing operations is in the hands of technically capable and dependable
professionals with the necessary experience for the business. Initially, promoters have been
engaged in the business world since 15 years before as owners and managers of various business
organizations.

As stated above, the company has a good vision, readiness and deep assessment of the situation
to implement the project. As the business has not yet secured land, one of the purposes of this

23
feasibility study is to use it as a requirement to acquire the required land and to obtain the
investment certificate for the realization of the project objective.

3.3 vision – Provide globally sound Tourism service through continuous improvement.

3.4 Mission – The project mission is five times with each being an integral part to the success of
the project.

3.4.1 Economic mission – operate and grow at a profitable rate through sound economic
decisions.

3.4.2 Service mission – provide customers the finest quality international standard service in the
most efficient time.

3.4.3 Community mission –provide community support through community development

involvements

3.5 .Key success factors

There are Five keys to success in this business, three of which are virtually the same for any
service industry. In this particular project, it is the Fifth key success factor that will give us extra
milestone in our performance.

1. The greatest location:- visibility, availability of power, high traffic pattern, convenient
access for service deliver.
2. The best services:- consistently providing to bed room, restaurant, cafeteria, Amusement
and bar service etc.
3. The friendliest people:- assigning cheerful, skilled and articulating servers
4. The finest Reputation:- walking our talks especially during donations for community
development programs.

24
 4. Project area
4.1. Background of the zone:
The proposed project is located in Oromia Region, East Shoa Zone,Adama District at about 100
Km’s away from Addis Ababa.

The project area is located in Oromia Region, East Shoa Zone,Adama District along the high
way asphalt road. The project site covers a total area of 20,000 m2.

The projectis located at East Shoa Zone,Adama District.Adama is a city in central Ethiopia of the
Oromia Region. Adama forms a Special Zone of Oromia and is surrounded by East Shewa
Zone. It is located at 8.54°N 39.27°E at an elevation of 1712 meters, 99 km southeast of Addis
Ababa. The city sits between the base of an escarpment to the west, and the Grea Rift Valley to
the east. Adama is a busy transportation center. The city is situated along the road that connects
Addis Ababa with Dire Dawa. A large number of trucks use this same route to travel to and from
the seaports of Djibouti .Additionally, the Addis Ababa-Djibouti railroad runs through Adama.

Adama University is located in Adama. Adama Stadium is the home of East Shoa Zone FC, a
member of the Ethiopian Football Federationleague.The city name Adama is derived from the
Oromo word adaamii, which means a cactus or a cactus-like tree.

25
4.2. Population

Based on the 2007 Census conducted by the Central Statistical Agency of Ethiopia (CSA), this
city has a total population of 220,212, an increase of 72.25% over the population recorded in the
1994 census, of whom 108,872 are men and 111,340 women. With an area of 29.86 square
kilometers, Adama has a population density of 7,374.82; all are urban inhabitants. A total of
60,174 households were counted in this city, which results in an average of 3.66 persons to a
household, and 59,431 housing units. The four largest ethnic groups reported in Adama were the
Oromo (39.02%), the Amhara (34.53%), the Gurage (11.98%) and the Silte (5.02%); all other
ethnic groups made up 9.45% of the population.

4.3. Infrastructure Development

East Shoa Zone has well developed infrastructures compared to other Zones in the region.
Regarding to basic infrastructures it has Asphalt gravel road network, which connect the Zone to
the Capital of the country, Addis Ababa, Amara and Afar Regional Sates, Eastern parts of the
country, Ethiopia, and few zones in Oromia Region. The Zone receives electricity,
Telecommunication. For this project a total of 2,000 m2 land is requested from East Shoa
Zone,Adama District

4.4 .Major Resources potential of the area

The majority of the population are self employed engaged on different businesses and others are
government, non government and other employees .The farming population who grow teff,
cereals and oil seeds and other ,while the urban population is participating in business activities.
Especially the fast growing investment in flowers makes the area very attractive. So, in general
the major resource in flowers makes the area very attractive. So, in general the major resource
potential and prospect of the surrounding areas include;

 Agricultural products
 Business activities and other services
Hence, this and other related ones have contributed a lot to increase the service demand
prospects and production prospects of the resources by different private investor of both
domestic and foreign ones.

26
4.5. Premises Required
The project is designed on t 20,000 m2 of land and it shall be very near to the good
infrastructures like water line, electric power and road. To implement this project an amble land
is needed. The land requirement might include for the following activities.

Land is very important for construction of different project items.

No Description Land Requirement m2

1. Offices 500
2. Bed Room 1,000
3. Cafeteria 500
4. Store 1000
5. Toilet 300
6. Kitchen 200
7. Weeding area 1,000
8. Recreational area 600
9. Swimming poll for Children 500
8. Table Tennis 100
9. Basket Ball 300
10. Children Games 500
11. Straits 500
12. Green area and different entertaignments 3000
13. Parking 1000
14. Pond for fish and integrated vegetables 1,500
and fruits
15. Artificial by excavated soils 2,500
16. Different games area like horse riding, 5,000
hand ball and others
Total 20,000

27
 5. The market demand potential
5.1. Market Study
The oromia Region encompasses the major tourist attraction centers of the country. The major
ones are Hora near Bishoftu, Sodare in Adama and Lake Ziway(Lake Danbal) in ziway. A
number of domestic and foreign tourists visit these sites every day.

5.1.2 Projected Demand

Tourism industry is one of the potential sectors of the country to generate foreign currency. Its
contribution towards export and GDP growth is increasing. For example in 1996 tourism has
Contributed 19% and 1.2% to the country's export and GDP growth, respectively. Years in this
document are in Ethiopian calendar. As indicated in table 1 bellow, the number of tourists
arriving in Ethiopia and receipts from international inbound tourism is increasing from year to
year.
Table 1:Tourists arrived in Ethiopia and corresponding Receipts (1991-1997)
S/N Year Arrivals Receipts (in "000" Birr)

1 1991 114,000 252,000

2 1992 135,954 577,800

3 1993 148,438 542,000

4 1994 156,327 676,000

5 1995 179,910 778,000

6 1996 184,878 991,200

7 1997 227,298 1,177,816

Source: Ministry of Culture and Tourism, tourism Statistics, 1995-1997, No 8

28
Figur 1:Tourists arrived in Ethiopia and corresponding Receipts

5.1.2 Project Capacity

Working days are assumed to be 365/year for food and beverage and 360/ year bed rent. The
average food cost will be 95 birr and drinks like beer costs 25 birr. The attainable capacity and
revenue of the proposed Five starLodge service for each category of Service is estimated as
follows.

Type of Service Quantity/day Annual

Capacity Revenue In Birr

Food 300 persons 108,000 17,100,000

Beverage 800 bottles 288,000 5,760,000

Bed night 45 beds 16,200 11,340,000

Total - - 34,200,000

29
5.1.3. Pricing and Distribution

The pricing of hotel services depends considerably on the quality of service rendered and its
location. The relatively high standard hotels of Five star Lodge will charge a price, which ranges
from 500 to 2,500 birr for a single night per single room. The resort and hotel service will also
earn revenues from the sale of food and drinks and other hotel services.

Pricing of a hotel and restaurant services could be classified into three main categories i.e. food,
beverage and bed rent. In this regard the daily average price by category of service is given in
table below. Type of food to be prepared at this site is more of foreign culture.

Table . Average price of service by category in birr

Service Unit Price in Birr

Bed Rent 700/night/ person

Beverage 65/bottle(beer)

Food 95/item 5.2. Target customers

As clearly indicated in the
introductory part of this proposal, Adama District is the dynamically growing in South West
Showa Zone of Oromia Regional State Government and crossed to Harar. Thus, it opens an
opportunity for reaping the maximum from very high traffic flow passing through the area.
Moreover the current Amusements in the area cannot fulfill the gap between demand and supply.

The Adama District administration has been working hard to make the area attractive to business
and will create additional foot traffic. The owner believes that the new location will be a big
player in the area because of the new industry station with Hotel service will encourage potential
customers to stop in and visit the area.

Therefore, the target customers of this envisaged project include:

 The residents of the Adama District and surrounding

 Long drivers

30
  The different occasional guests
 The government offices
 Foreign visitors, and other tourists
 Individuals all over the country who are passing through the area as the project has
integrated services.
 Privates and individuals from Addis Ababa

Hence to reach customers different marketing vehicles will be used. Among the different
marketing strategies and tools for promoting and controlling the market the Amusement will use:

 Both printed and non- printed forms of advertising,

 Sponsorship of key government activities and public support mechanism.
 Using different marketing segmentation strategies and tactics
 Utilizing effective and customer centric marketing strategies, which are the marketing
strategies that focused on different groups of customers based on different segmentation
tools.

5.3. Competition
There are different forms of competition that may face the envisaged project these are price and
non price based competition. Moreover, there are different competitors that will compete with
the project either directly or indirectly. But the project under discussion has diversified
marketing strategies that could enable it come up with the different competitors in the market.
Moreover it will frequently conduct competitors research which focuses on, the strength and the
weaknesses, the different competitor’s strategies, the techniques they use in rendering quality
service, their customer handling methods use time appropriately; and others. Generally the
project has few Hotels in which compete with it.

31
5.4. The production and the sales plan
The envisaged project will provide the following Service and services to its customers. These
are:

 Amusement services
 Cafeteria services,
 Bed rental
 Bar
 Restaurant
 Play Station
 Spa
 Sauna
 Steam
 GYM
 Message
 Beauty Salon
 Swimming
 Recreation
 Parking services,
 Zoos and forest park

32
5.4.1 .Production Plan
No Description Measurement Daily sales Monthly Annual
production production
1 Restaurant and cafeteria services

1.1  Coffee Cup 120 3600 40,000

1.2  Tea Cup 100 3000 36,000
1.3  Macchiato Cup 100 3000 36,000
1.4  Milk Cup 100 3000 36,000
1.5  Soft Drinks Cup 120 3600 21,600
1.6  Bottled water No 120 3,600 43,200
1.7  Alcohol - 110 3300 39,600
1.8  Juices Cup 40 1200 14,400
1.9 Different kind of Food No 100 3000 36,000
2 Gymnasium No 15 450 5,400
3 Bed rental No 85 - 30,600
4 Children playing No 30 900 10,800
5 Parking services No of cars 50 1500 18,000
6 Pool No of game 30 900 10,800
7 Karambula No of game 25 750 9,000
8 Massage No 100 3,000 36,000
9 Bath No 150 4,500 54,000
10 Car wash No of cars 25 750 9000
11 Park and Lakes No 200 6,000 72,000
12 Swimming pool No 200 6,000 72,000

33
5.4.2. Sales Plan
No Description Unit Unit cost Monthly Annual Annual cost
Production Production
1 Restaurant and cafeteria
services
 Coffee Cup 20 3600 40,000 800,000

 Tea Cup 10 3000 36,000 360,000

 Macchiato Cup 20 3000 36,000 720,000

 Milk Cup 20 3000 36,000 720,000

 Soft Drinks Cup 25 1800 21,600 540,000

 Bottled water No 15 3,600 43,200 648,000

 Alcohol - 20 3300 39,600 792,000

 Juices Cup 25 1200 14,400 360,000

Different kind of Food No 120 3000 36,000 4,320,000
2 Gymnasium No 150 450 5,400 810,000
3 Bed rental No 2000 - 30,600 61,200,000
4 Children playing No 25 900 10,800 270,000
5 Parking services No of cars 50 1500 18,000 900,000
6 Pool No of game 50 900 10,800 540,000
7 Karambula No of game 50 750 9,000 450,000
8 Massage 200 3,000 36,000 7,200,000
9 Bath No 100 4,500 54,000 5,400,000
10 Car wash No of cars 100 750 9000 900,000
11 Park and Lakes No 50 6,000 72,000 3,600,000
12 Swimming pool No 100 6,000 72,000 7,200,000
Total 97,730,000

34
 6. Financial Requirement
The implementation of this Project requires a total of 115,700,000 birr. From this, 30% will be
covered by the promoter of the project while the rest 70% will be covered by the financial
institution through borrowing.

6.1. Fixed Investment

6.1.1 Building and construction

The cost of building and construction is one of the major cost components of fixed costs. The
construction cost of building is not based on actual specifications and engineering cost estimate
(bill of quantities). Considering the prevailing contractors average unit cost of the project area
building and construction cost is estimated as follows.

6.1.1 Building and Construction

No Description Area(m2) Estimated cost

1 Resort
1.1. Complex building of the Resort and materials 2,000 50,000,000
1.4. Swimming pool 1,000 3,000,000
1.5. Parking 1,000 2,100,000
16. Road as and other infrastructure 2,000 2,104,265
1.7. Internet server and line 200 1,500,000
4 Others 800 6,000,000
Total 64,704,265

35
6.1.2 Vehicles and Motors
The project requires vehicles to be used for transportation of raw material and for the day-to-day
administrative activities of the project. Therefore, one double cabin picks -up (4wd) and two
mini truck with a capacity of 3-5 tons and different material will be procured.

No Description Meas Qty Unit Cost Total Cost

1 Mini Bus No 4 500,000 2,000,000
2 Pickup No 2 600,000 1,200,000
Guest Minii Bus No 4 725,000 2,900,000
Insurance (5%) 55,000
Total 6,155,000

No Description Meas Qty Unit Cost Total Cost

1. Chairs No 2000 500 1,000,000
2. Dining tables No 400 500 200,000
3. Coffee tables No 500 1000 500000
4. Bed No 200 5000 1,000,000
5. Assembly Hall Table Set 2 1000 2000
6. Chairs for assembly hall Set 500 600 300,000
7. Refrigerators small 10 15,000 150,000
8. Refrigerators Big 2 16,300 32,600
Total 3,184,600.00

No Description Measure Qty Unit Price Total Price

1 Chairs No 16 700 11200
2 Tables No 10 1000 10,000
3 Computers No 4 10,000 40,000
4 Printers No 2 6000 12,000
5 Computer table No 4 1200 4,800
6 Managerial chair No 4 3500 14,000
7 Filling cabinet No 4 8000 32,000
8 Managerial Table No 1 2000 2,000
9 Decorations - - - 150,000

36
 Total 276,000

6.1.5 Amusement, Gymnasium Equipments

No Description Measure Qty Unit Price Total Price

1 Tennis No 2 3200 6400
2 Pool No 2 20,000 40,000
3 GYM Equipments No 10 - 3,500,000
4 Karambula No 2 16,000 32,000
Total 3,578,400

6.2. Operating Expense

Operating cost of the Project includes direct production Costs and overhead or administrative
costs. The major cost items under this include cost of raw materials and utilities, salary of
employee, fuel and oil and lubricants, repair and maintenance, office supplies, medical and other
miscellaneous expenses.

6.2.1. Raw Material Purchase for cafeteria Service

As it was stated in the previous section the single most important raw material for the envisaged
project is wheat. The annual raw wheat and auxiliary material requirement and cost estimate are
depicted as follows.

Raw material purchase for cafeteria service

No Description Costs per month Annual

1 Raw materials including, bread, meat, egg, 3,560,000 22,200,000
vegetables ,fruits,; soft drinks, sugar,; milk tea,
coffee and others
Total 22,200,000

37
6.3. Salary Expense
The Organization structure presented below is envisaged to enable the planned business enterprise
achieve its objectives, and the manpower requirement of the venture is determined based on this
structure.

No Description No Qualification Monthly salary in Birr

1 G. Manager 1 BA in management 7,500.00

2 Manager 1 BA in management 7,000.00
3 Accounting Head 1 BA in Accounting 7,500.00
4 Assistant Account 1 BA in Accounting 6,500.00
5 Marketing Head 1 BA in Marketing 6,500.00
6 Assistant Market 1 BA in marketing 6,500.00
7 General Service 1 BA in management 6,500.00
8 Accountant 2 BA in Accounting 6,500.00
9 Casher 4 BA in Accounting 6,500.00
10 Front head 2 BA in Marketing 5,000.00
11 Waiters 10 10+2 1,500.00
12 Purchaser 2 Basic 3,000.00
13 Store keeper 3 Basic 2,500.00

38
14 Cooker 16 Basic 2,500.00
15 Store keeper 3 Basic 2,500.00
16 Receptionist 6 Basic 1,500.00
17 Drivers 3 Basic 3000.00
18 Parking workers 5 Basic 1,500.00
19 Sheaf 5 Basic 4,500.00
20 Cleaner 5 skilled 1,500.00
21 Secretary 2 10 completed 3,000.00
22 Guards 5 Basic 1,500.00
23 Massage 10 10 completed 1,500.00
24 Guide 5 Basic 2,000.00
2. 95  98,000(1,176,000)

6.4.Other operating expense

No List of Items Qty Unit of Unit cost Total cost

Measure
Per annum

1 Computer paper 60 Pack 105 6,300

2 Staples 15 “ 7 105

3 Pens, pencils, and others 20 Pack 75 1,500

4 Detergents 3000 Pcs 30 90,000

5 Uniforms 50 Pcs 200 10,000

6 Water - - - 15,000

7 Electricity - - - 20,000

8 Transportation cost - - - 109,000

9 Telephone -   - 25,000

10 Insurance     - 52,400

39
10 Repair expense - - - 3,000

11 Miscellaneous Costs - - - 16,500

Total       327,600

6.5.Pre-service expense

No Description Cost

1 Project proposal and EIA 60,000.00

2 Licensing fee and others 20,000.00

Total cost 80,000.00

6.6 Summary of Financial Requirement

Pre-production capital expenditure includes - all expenses for pre-investment studies,
consultancy fee during construction and expenses for company‘s establishment, project
administration expenses, commission expenses, preproduction marketing and interest expenses
during construction.

No Description Cost
1 Fixed investment
1.1 Building and Construction 80,204,265 00
1.2 Hotel, cafeteria Equipments 3,184,600 00
1.3 Office equipments 276,000.00 00
1.4 Amusement & Gymnasium, 3,578,400 00
1.5 Vehicles and Motors 6,155,000 00
Total Fixed Investment cost 118,398,265 00
2 Operating expense
2.1 Raw materials purchase 10,000,000 00
2.2 Salary Expense 1,722,000 00
2.3 Other Operating Expense 327,600 00
2.4 Pre-service Expense 60,000 00
Total Operating Expense 12,109,600 00
Total cost 170,507,865 00

40
 Total cost of investment 115,700,000 00

6.7 Sources of fund and loan repayment schedules

Therefore to implementation of this Project requires a total of 115,700,000 birr. From this, 30%
will be covered by the promoter of the project while the rest will be covered by the financial
institution through borrowing. Therefore, the said amount of finance is needed for undertaking
the following activities.

No Source of Fund Share in % Amount in Birr

1 Own capital 30 34,710,000
2 Bank loan 70 80,990,000
Total 100% 115,700,000
Hence those expenditures required by the project like pre-service costs, operating costs and
others will be covered by the promoter of the project.

6.9. Financial Statements

6.9.1 Profit /Loss statement
Profit /loss statement, Projected

Revenue Year 1 Year 2 Year 3

Sales 97,730,000.00 107,503,000 118,253,300
Purchase of Raw Material 10,000,000.00 10,500,000 11,025,000
Net Sales 87,730,000.00 97,003,000 107,228,300
Expenses
Salary Expense 1,722,000 1,995,000 2,110,000
Operating Expenses 327,600 360360 396396
Deprecation Building 7,710,213 7,710,213 7,710,213
General Equipment of Depn 312,450 348,915.00 366,360.75
Deprecation Vehicles 307,750 307,750 307,750
Pre Service Expense 60,000 - -
Principal pay. & Interest Expense 32,330,152 32,330,152 32,330,152
Total Expense 42,770,165 43,052,390 43,220,872
Profit Before Tax 44,959,835 53,950,610 64,007,428
Tax (30%) 13,487,950 16,185,183 19,202,228
Net Profit 31,471,884 37,765,427 44,805,199

41
For three (3) year started Meskrem 30,20017, 2018 and 2019 E.C

Assumed:-

1. Sales and sales charge increased by 10% the coming two years
2. Purchasing raw material increasing by 10% the coming years 1,2 and 3
3. Salary expense and operation expense increase 5% yearly

Depreciation expense is assumed on straight line method

 For office equipment the life time is assumed to be 7 years dep. 15%
 For Hotel and cafeteria equipments the life time is 7 years dep 15%
 For Amusement center equipments the life time 8 years dep 12%
 For Building the life time of 20 years, dep 5%
 For Vehicles and life 5 years; dep 20%

6.9.2 Cash Flow Statement

Moreover, company has the following cash flow projection for three (3) years

2017 2018 2019

Cash on hand 10,400,000.00 50,262,298 146,656,901
Total Sales 97,730,000.00 107,503,000 118,253,300
Cash available for use 108,130,000.00 157,765,298 264,910,201
Cash Payment
Material Purchases 10,000,000.00 10,500,000 11,025,000
Salary 1,722,000 1,995,000 2,110,000
Operating cost 327,600 360360 396396
Principal payment and interest 32,330,152 32,330,152 32,330,152
Tax payments 13,487,950 16,185,183 19,202,228
Total Payment 57,867,702 65,063,776
61,370,695
Cash surplus/ Deficit 50,262,298 96,394,603 199,846,425

42
Cash on hand 50,262,298 146,656,901 199,846,425

6.9.3 Payback period of the project

As clearly the cash flow statement shows the promoter of the project has sufficient amount of
money that enable him pay the bank loan and invests in other business of his interest. When we
come to the payback of this project, it will cover its initial investment cost within four years of
operation periods.

6.9.4. Financial Evaluation

6.9.5. Profitability
The financial projections made reveal that the project is economically viable and social desirable.
According to the income statement of the plant the project will generate profit beginning from
first year operation. Important ratios such as the percentage of net profit to equity (return on
equity) and net profit and interest on total investment (return on total investment) are 347% and
30% in the first year and are gradually increasing.

6.9.7. Breakeven Analysis

The breakeven point of the project is estimated by using income statement projection. The plant
breaks evens at 25.7% of capacity utilization.

6.9.3.8. Payback Period

The Initial investment of the project will be recovered before the end of the third year operation

6.9.9. Simple Rate of Return

It is a ratio of net profit and interest to total capital invested for a single year at full capacity
utilization. Thus the simple rate of return of the project is about 28.1%

6.9.10. Internal Rate of Return and Net Present Value

Base on the cash fallow statement, the project is anticipated to have a net present value of Birr
907 thousands when discounted at 18% discounting factor where as its IRR is
6.9.11. Sensitivity Analysis
An increase in costs of raw materials by 10% will not affect the profitability of the pant

43
6.10. Economic and Social Benefit and Justification
Based on the foregoing presentation and analysis, this proposed project possesses wide range of
benefits that complement the financial feasibility obtained earlier. In general the envisaged
project promotes the socio-economic goals and objectives stated in the strategic plan of the
Oromia National Regional State as well as promote tourisms of the country.
These benefits are listed as follows

6.10.1. Profit Generation

The project is found to be financially viable and earns on average a profit within the project life
of two year. Such result induces the project promoters to reinvest the profit which, therefore,
increases the investment magnitude in the region.

6.10.2. Tax Revenue

In the project life under consideration, the region will collect from corporate tax payment alone
(i.e. excluding income tax, sales tax and VAT). Such result create additional fund for the
regional government that will be used in expanding social and other basic services in the region

6.10.3. Employment and Income Generation

The proposed project is expected to create employment opportunity to 95 citizens of the country.
This would be one of the commendable accomplishments of the project.

6.10.4. Pro-Environment Project

The proposed production process is environment friendly

7. Future Development and Exist strategies

Whenever you create a business that is profitable, you most likely create something worth
selling. If it’s worth selling, many would argue it’s worth protecting. High quality protection
begins with asking a question, which evolves into a confident, well-developed plan protecting
both you and your family. In business terminology, an ending for a business owner is called an
“exit,” while the planning of a defined ending is called an “exit strategy.” Having an ‘exit
strategy’ tells others you associate with that you are in control of your business and your destiny,
that you’re aware of the goal and focused on achieving it, and that you have a plan for an
organized and profitable ending.

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Therefore, every business undertakings be it large or small should have to have future
development plan. It is a plain fact that business activities are undertook in a dynamic and
turbulent environment. Hence, to overcome or minimize the risks of uncertain future business
should devise effective strategies that enable them to be successful in their operation. Likewise
promoter has devised strategies to overcome the future risk of operation. The first strategy is
diversification of its activities to different other business forms. The second future development
plan of this is expanding the branches of the project in many parts of the country. Finally, it will
sale its share so that builds its financial position and capacitating its position

8. Environmental Impact of the Project

Currently the issue of environment and envelopment get due emphasis and thus every citizen
called to exert their maximum effort for fighting against any negative impacts on the
environment so as to result in a win-win solution on common agenda that is creating
environmentally friendly business environment. Therefore, the company causes very less or
minimum negative impact on the environment. However, the promoter is ready to undertake any
adverse negative impact on the environment. Moreover he will use environmental management
plan based on EIA study document. Before the operation of the project it is must to prepare full
document of Environmental Impact Assessment Report document by firm consultants like
Rabuma Investment and Environment Consultant.

9. Tentative Implementation schedule plan (G.C)

Activities Time plan

Land requisition April,2022

Land Acquisition July,2022

Land clearance September,2022

Building and Construction December,2022

Office structuring March, 2024

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Total service Delivery June, 2025

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