PROJECT PROPOSAL ON THE

ESTABLISHMENT OF DRY COFFEE

processing INDUSTRY

03

Project name: - GETNET TILAHUN DRY COFFEE PROCESSING INDUSTRY

Promoter: MR. GETNET TILAHUN

Nationality: - Ethiopia

Address: - ILLUBABOR ZONE ALGE SACHI WEOREDA

Submitted to:-COOPORATIVE BANK OF OROMIYA FEBUARARY 09, 2020

 ILLUBABOR ZONE
METU

BRIEF HISTORY OF THE APPLICANT

GETNET TILAHUN COFFEE PROCESSING
INDUSTRY PROMOTES by:-

1. MR. GETNET TILAHUN

ADDRESS:- COUNTRY ETHIOPIA
REGION- OROMIYA

ZONE -ILLUBABOR
ALGE SACHI WEOREDA, SUPHE

Mob. No. 0911226481/0911522669

Email: getu2003@gmail.com

Fax_______________________

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 TABLE OF CONTENTS
CONTENTS PAGE
EXECUTIVE SUMMARY …………………………..……………………………………….5
1.INTRODUCTION…………………………..……………………………………………….6

1. GENERAL BACKGROUND OF THE PROJECT………………………..…….……6

1.1. Background………..……………………………………….……………………………6
1.2. Objective of the Project……..………………………………………….……………21

1.3. Project Rationale……………………………….………………...………………… 21

1 .4.The Significance Of The Project………………………………….………………..22

A. Source Of Revenue…………………………………………………..…………22
B. Employment Opportunity………………………………………………..……22
C. Sources Of Social Service………………………………..……………………22
1.5. Project Location…………………………………………………..……………………23

1.6. Indicators for Success………………………………………….……………………25

2. PRODUCT DESCRIPTION AND APPLICATION.........................................27

3. MARKET STUDY, PLANT CAPACITY AND

PRODUCTION PROGRAM.............................................................................27

3.1 Market Study..........................................................................................27

3.1.1 Present Demand And Supply ................................................................47

3.1.2 Projected Demand.................................................................................49

3.1.3 Pricing And Distribution.......................................................................50
3.1.1. Plant Capacity And Production Program .............................................50
4. RAW MATERIALS AND UTILITIES ..........................................................51

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4.1 Availability And Source Of Raw Materials.................................................51
4.2 Annual Requirement And Cost Of Raw Materials And Utilities..................53
5. TECHNOLOGY AND ENGINEERING.........................................................54
A. Technology
………………………………………………………………………………..54

5.1 Production Process..................................................................................54

B. Engineering……………………………………………………………………………… 55
5.1 Machinery And Equipment.......................................................................55

5.2. Land, Buildings and Civil Works…………..………………………………………56

5.2 Civil Engineering Cost..............................................................................56

6. HUMAN RESOURCE AND TRAINING REQUIREMENT..............................60
6.1 Human Resource.....................................................................................60
6.2 Training Requirement .............................................................................61
7. FINANCIAL ANALYSIS..............................................................................62
7.1 Underlying Assumption............................................................................62
A. Investment................................................................................................62
B. Production Costs ......................................................................................64
C. Financial
Evaluation .................................................................................65
D. Economic And Social Benefit And Justification..........................................67

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 I. EXECUTIVE SUMMARY

Project name: - GETNET TILAHUN DRY COFFEE PROCESSING

INDUSTRY
Project Owner: -MR. GETNET TILAHUN
Project location: South West Oromia Region ILLUBABOR ZONE ALGE
SACHI WEREDA ,SUPHE
Project composition: DRY PROCESSING COFFEE MILL PLANT
Premises Required Area: 3000M2
The total investment cost of the project is estimated at Birr 19 million
Totally the project can create employment for 116 persons. i.e.
permanent 56 employee and causal above 60 employee
Project owner will be asked ILLUBABOR ZONE ALGE SACHI
WEREDA ,SUPHE
administration a plot of land 2660M2 with Title deed registration ,
investment permission letter
The proposed project is for setting up DRY PROCESSING COFFEE
PLANT.
This project profile deals with the establishment of DRY COFFEE
PROCESSING PLANT in Oromiya Regional State at Illubabor Zone Alge sachi
Wereda ,suphe town
The project can create Permanent employment for 56 and temporary
employment for 60 employee .Totally the project can create employment for
116 persons. The establishment of such plant will have a foreign exchange

5
saving and earning effect to the country by substituting the current imports
and exporting its products to the international market. In addition to this, the
proposed project possesses wide range of economic and social benefits such as
increasing the level of investment, tax revenue and employment creation.
Generally, the project is technically feasible, financially and commercially
viable as well as socially and economically acceptable. Hence the project is
worth implementing.

1.INTRODUCTION
GENERAL BACKGROUND OF THE PROJECT
1.1.Background

Coffee production in Ethiopia is a longstanding tradition which dates back to

dozens of centuries. Ethiopia is where Coffea arabica, the coffee plant,
originates. The plant is now grown in various parts of the world; Ethiopia itself
accounts for around 3% of the global coffee market. Coffee is important to
the economy of Ethiopia; around 60% of foreign income comes from coffee, with
an estimated 15 million of the population relying on some aspect of coffee
production for their livelihood. [1] In 2006, coffee exports brought in $350
million,[2] equivalent to 34% of that year's total exports.

The coffee plant, Coffea arabica, originates in Ethiopia. [1] According to legend, the

9th-century goatherder Kaldi discovered the coffee plant after noticing the energizing
effect the plant had on his flock, but the story did not appear in writing until 1671
and is probably apocryphal.

Ethiopia is the world's seventh largest producer of coffee, and Africa's top producer,
with 260,000 metric tonnes in 2006. [5] Half of the coffee is consumed by Ethiopians,

6
[6]
 and the country leads the continent in domestic consumption.[7] The major
markets for Ethiopian coffee are the EU (about half of exports), East Asia (about a
quarter) and North America.[8] The total area used for coffee cultivation is estimated
to be about 4,000 km2 (1,500 sq mi), the size is unknown due to the fragmented
nature of the coffee farms.[9] The way of production has not changed much, with
nearly all work, cultivating and drying, still done by hand.

The revenues from coffee exports account for 10% of the annual government
revenue, because of the large share the industry is given very high priority, but there
are conscious efforts by the government to reduce the coffee industry's share of the
GDP by increasing the manufacturing sector.[10]

The Tea and Coffee Authority, part of the federal government, handles anything
related to coffee and tea,[9] such as fixing the price at which the washing stations buy
coffee from the farmers. This is a legacy from a nationalization scheme set in action
by the previous regime that turned over all the washing stations to farmers
cooperatives.[11] The domestic market is heavily regulated through licenses, with the
goal of avoiding market concentration.

Ethiopian Sidamo beans

Ethiopian coffee beans that are grown in either

the Harar, Sidamo, Yirgacheffe or Limu regions are kept apart and marketed under
their regional name. These regional varieties are trademarked names with the rights
owned by Ethiopia.

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GENIKA

"Ethiopia Genika" is a type of Arabica coffee of single origin grown exclusively in

the Bench Maji Zone of Ethiopia. Like most African coffees, Ethiopia Guraferda
features a small and greyish bean, yet is valued for its deep, spice and wine or
chocolate-like taste and floral aroma. The most distinctive flavour notes found in all
Sidamo coffees are lemon and citrus with bright crisp acidity. Sidamo coffee includes
Yirgachefe Coffee and Guji Coffee. Both coffee types are very high quality.

HARAR

Harar is in the Eastern highlands of Ethiopia. It is one of the oldest coffee beans still
produced and is known for its distinctive fruity, wine flavour. The shells of the coffee
bean are used in a tea called hasher-qahwa. The bean is medium in size with a
greenish-yellowish colour. It has medium acidity and full body and a distinctive
mocha flavour. Harar is a dry processed coffee bean with sorting and processing
done almost entirely by hand. Though processing is done by hand, the laborers are
extremely knowledgeable of how each bean is categorized.

BEANS

A Coffea arabica tree on Lake Tanain Bahir Dar

Ethiopian coffee beans of the species Coffea arabica can be divided into three

categories: Longberry, Shortberry, and Mocha. Longberry varieties consist of the
largest beans and are often considered of the highest quality in both value and
flavour. Shortberry varieties are smaller than the Longberry beans but, are
considered a high grade bean in Eastern Ethiopia where it originates. Also the

8
Mocha variety is a highly prized commodity. Mocha Harars are known for
their peaberry beans that often have complex chocolate, spice and citrus notes.

STARBUCKS AND ETHIOPIA

On 26 October 2006, Oxfam accused Starbucks of asking the National Coffee

Association (NCA) to block a US trademark application from Ethiopia for three of the
country's coffee beans, Sidamo, Harar and Yirgacheffe.[14] They claimed this could
result in denying Ethiopian coffee farmers potential annual earnings of up to £47m.

Ethiopia and Oxfam America urged Starbucks to sign a licensing agreement with
Ethiopia to help boost prices paid to farmers. At issue was Starbucks' use of
Ethiopia's famed coffee brands—Guji, Sidamo, Yirgacheffe and Harar—that generate
high margins for Starbucks and cost consumers a premium, yet generated very low
prices to Ethiopian farmers.

Robert Nelson, the head of the NCA, added that his organization initiated the
opposition for economic reasons, "For the U.S. industry to exist, we must have an
economically stable coffee industry in the producing world ... This particular scheme
is going to hurt the Ethiopian coffee farmers economically." The NCA claimed the
Ethiopian government was being badly advised and this move could price them out
of the market.[14]

Facing more than 92,000 letters of concern, Starbucks had placed pamphlets in its
stores accusing Oxfam of "misleading behavior" and insisting that its "campaign
need[s] to stop". On 7 November, The Economist derided Oxfam's "simplistic" stance
and Ethiopia's "economically illiterate" government, arguing that Starbucks'
(and Illy's) standards-based approach would ultimately benefit farmers more. [15] In
conclusion of this issue, on 20 June 2007, representatives of the Government of
Ethiopia and senior leaders from Starbucks Coffee Company announced that they
had executed an agreement regarding distribution, marketing and licensing that
recognizes the importance and integrity of Ethiopia's specialty coffee designations.
[16]
 Financial terms regarding this agreement were not disclosed.

9
Starbucks, as part of the deal, also was set to market Ethiopian coffee during two
promotional periods in 2008. A Starbucks spokesman said the announcement is
"another development" in the relationship with Ethiopia and a way to raise the
profile of Ethiopian coffee around the world.

An Oxfam spokesman said the deal sounds like a "useful step" as long as farmers
are benefiting, and it's a big step from a year ago when Starbucks "wasn't engaging
directly (with) Ethiopians on adding value to their coffee".[16]

Coffee is Ethiopia’s number one source of export revenue generating about 25-30
percent of the country’s total export earnings. Ethiopian coffee production is
predominantly characterized by traditional farm management system, limited use of
fertilizers and pesticides coupled with a manual coffee cultivation system and drying
method. In spite of these limitations, Ethiopia’s coffee production in Marketing Year
(MY) 2013/14 has marginally increased at a rate of 0.3 percent. Post also predicts
coffee production in MY 2014/15 with increase slightly due to favorable rainfall
during the Bulg rainy season (a short rainy season between mid-March and the end
of May). During the current MY, Ethiopia exported large volumes of coffee. However,
the larger export volume failed to generate a proportionate increase in foreign
exchange earnings as a result of a decline in international coffee prices. The
Government of Ethiopia (GOE) recently announced a plan to restructure the coffee
development sector by designating a specialized institution that can provide
technical support to the coffee value chain. In Ethiopia Coffee production continues
to increase at the expense of coffee production. Coffee production increased by 0.3
percent over the past year. Ethiopia remains the largest producer of coffee in Africa
and is the fifth largest coffee producer in the world next to Brazil, Vietnam,
Colombia, and Indonesia, contributing about 4.2 percent of total world coffee
production. Ethiopia is the birthplace of Coffee Arabica and mostly produces this
variety. Coffee has economic, environmental as well as social significance to the
country.
Ethiopia has suitable environmental conditions for coffee production. Coffee Arabica
grows naturally in tropical forest areas of the country. Coffee grown at various

10
altitudes ranging from 1200-2750 meters above sea level, where there is sufficient
rainfall with an amount between 1500-2500 mm and where there are optimum
temperatures between 15-25ºC.
Coffee production is vital to the Ethiopian economy with about 15 million people
directly or indirectly deriving their livelihoods from it. It is mainly produced in the
southwestern and southeastern parts of the country. It is predominantly produced
by small holder farmers on average farms of less than 2 hectares. Around 95% of the
country’s total production comes from these small holder farmers.
Ethiopia has a good potential to increase coffee production and productivity as
it is endowed with suitable elevation, temperature, soil fertility and sufficient
rainfall in coffee growing belts of the country. However, the average yield per
hectare remains very low stagnating at 0.7-0.8 MT per hectare.
The Ethiopian Government’s coffee policy revolves around its trade and
controlling the hard currency earned from exports aiming to maximize foreign
exchange. There are no polices affecting coffee production. However, there are
some regulations that affect the marketing process such as: It is illegal to sell
export quality coffee on the local market even if there is a better local market
price. Any coffee related business requires a special license for domestic
wholesaling, coffee exporting, or coffee roasting , the coffee exporting business
is strictly reserved for Ethiopians and In May 2011, the GOE introduced a
coffee storing and exporting regulation limiting the amount of stock that an
exporter can store. Any exporter found storing more than 500 tons of coffee
without having a shipment contract with an importer will be penalized by
revoking the trader’s right to buy or sell coffee at the ECX for three months.
Coffee is the most popular soft drink in the world. Over 2.25 billion cups are
consumed every day (Ponte 2002). Its popularity and volume of consumption
are growing every year, and coffee shops are the fastest growing part of the
restaurant business. Today, coffee is both a part of our social experiences as
well as an accepted norm for doing business. Many business managers,
scientists, politicians, and people of all walks of life relax having a cup of coffee

11
during breaks in between meetings, busy research works and routine daily
activities. Economically, coffee is the second most exported commodity after oil,
and employs over 100 million people worldwide (Petit 2007; Pedegrast 2010;
Gray et al. 2013). According FAO statistics (www.faostat3.fao.org), global coffee
production area covered around 10,142,285 ha in 2013.
There are over 120 species of coffee (genus Coffea). However, the only two
species of economic importance: Arabica coffee (Coffea arabica) and Robusta
coffee (Coffea canephora). Ethiopia is the center of origin and diversity of
Arabica coffee. Arabica coffee is the most widely consumed, dominating over
70% in volume of production and over 90% of traded value globally. More than
80 developing countries mainly earn their foreign currency from coffee. For
Ethiopia, coffee is the most important export commodity, with a share of 20-
25% of the total foreign exchange earnings. At least 15 million people also
directly or indirectly rely on coffee for their livelihood (Ministry of Trade 2012,
Gray et al. 2013).
As the county of origin for crop, Ethiopia produces premium quality coffee. It is
the leading producer in Africa, and the 5th in the world, following Brazil,
Vietnam, Colombia and Indonesia. If we consider Arabica alone, Ethiopia is the
3rd largest producer after Brazil and Colombia (ICO 2015). Ethiopia also has
the largest highland area suitable for Arabica production and, hence has the
potential to be a leading producer in both quality and quantity.
Nearly all coffees produced in Ethiopia are shade grown, with 40-60% canopy
cover, except few home garden systems in Eastern Ethiopia. The coffee plants
are also mainly either local varieties/ land races or of wild origin. The chemical
inputs for production are very low, and even non-existence in most cases, while
processing involves both the wet and dry methods. The dominant method
however is the dry (natural) method, with low environmental impact.
Ethiopian coffees are traded as conventional or specialty products. Specialty
coffee are those certified, using the standards of Organic (EU), Rainforest
Alliance, Fair-trade or combinations of these. The Swedish Society for Nature

12
Conservation (SSNC) has commissioned this study as part of their work with
the Global Green Action Week in collaboration with partner organizations
around the globe. The aim is to educate consumers about coffee origin,
production system and its social and environmental sustainability. The study
emphasis on coffee origin, diversity, description of production systems,
different certification standards, environmental and social benefits of
traditional coffee production systems, and certification standards. The report
intend to help coffee consumers and reader to better understand the
production of conventional and certified coffee in Ethiopia, and how the
production processes are planned and organized.
"This report is funded by Sida, the Swedish International Development
Cooperation, through the Swedish Society for Nature Conservation. The
Swedish Society for Nature Conservation does not necessarily share the
opinions expressed herein. Responsibility for the content is exclusively the
author's.

Arabica coffee naturally grows as an understory shrub in the Afromontane

rainforests of Ethiopia. Parts of Afromontane forest where wild Arabica coffee
populations naturally occur are usually named “Coffee Forests.” From
biodiversity point of view, the Afromontane forests of Ethiopia including coffee
forests have already been globally recognized as hotspot areas for biodiversity
conservation, as the Eastern Afromontane Biodiversity Hotspot (Mittermeier et
al. 2005) due to their exceptionally high level of diversity and regional
endemism, and high level of threat. For instance, studies on some five remnant
fragments of coffee forests (e.g. Gole 2003; Schmitt 2006; Senbeta 2006) have
recorded over 700 species of plants, which represents about 12% of the
country’s flora. The remnant forests also differ from each other in terms of
species composition, since coffee forest occur over wider geographical regions
along topographic and climatic gradients (Senbeta 2006).
Coffee forests are also rich in diversity of birds, mammals and other groups of
mammals. For instance, Gole et al (2009) reported 200 bird, 50 mammal, and

13
20 amphibian species in the Yayu Coffee Forest Biosphere Reserve. Engelen
(2012) recorded over 107 bird species from garden coffee, semi-managed coffee,
forest coffee and farmland in ALGE SACHI WEOREDA,SUPHE TOWN area of
ILLUBABOR. Although complete inventory is lacking some of the common
mammal species in the coffee production systems include Bush Pig, Giant
Forest Hog, Warthog, Colobus Monkey, Olive Baboon, Grey Duiker, lion,
bushbuck and others.
Coffee is the major source of foreign currency for Ethiopia and contributes
more than 35% of the total export earnings (FAO/WFP, 2008). Thus, it is a
cornerstone in the export economy of the country and it supports directly or
indirectly the livelihood of some 15 million people (EEA, 2001). Coffee the
defining feature of the national culture and identity, with 44% of the
production consumed domestically (Mayne et al., 2002). In Ethiopia, coffee is
produced in four production systems, namely: forest, semi-forest,garden and
plantation coffee in the Western, Southern, and Southwestern parts of the
country (CFC, 2004). Coffee grows under diverse environmental conditions
ranging from 550 m to 2600 m above sea level, with annual rainfall from 1000-
2000 mm, temperature(minimum and maximum from 8-150C, and 24-310C,
respectively), requires deep, well drained, loamy and slightly acidic soils
(Paulos and Tesfaye, 2000). The estimated area of land covered by coffee is
about 600,000 hectares, whereas the estimated annual national production of
clean coffee is about 350,000 tons (Alemayehu et al., 2008).
The coffee roasting industry involves the processing of green coffee beans into
roasted coffee products, including whole and ground beans and soluble coffee
products. The Standard Industrial Classification (SIC) code for coffee roasting
is 2095, and the six-digit Source Classification Code (SCC) for the industry is
3-02-002. The six-digit SCC for instant coffee production is 3-02-003.
In 1987, 141 coffee roasting facilities were operating in the United States. The
total value of shipments in the industry in 1987 was $6.4 billion; States that

14
produced the most roasted coffee were California, New Jersey, Florida, and
Texas.
The Growth and Transformation Plan (GTP) seeks to transform the economy
toward an industrialized economy and to increase per capita income of its
citizens by 2025. To this effect, the Government has adopted policy focused
onthe development of the manufacturing sector through the use of industrial
parks to attract FDI and to support SMEs. Targeting SMEs is important as they
are an engine for jobs creation and a manifest of a thriving and dynamic
economy. But, with services and agricultural sectors contributing almost 90
percent of GDP the GTP has not been able to accelerate structural
transformation.
At the same time, the share of the manufacturing sector in GDP remained just
above 4 percent of GDP for most of the past decade. Furthermore, Ethiopia has
not made significant progress in pulling labor out of agriculture into more
productive and industrial jobs. The share of employment in the manufacturing
sector has changed only slightly and is virtually unchanged since 1999 at
below 5 percent of total employment.
Productivity gains are a key factor in determining long-term economic growth
and improvements in living standards. In Ethiopia, productivity performance is
heterogeneous among firms; foreign owned, publicly owned, and older firms
appear more productive than domestic, private, young firms. Although labor
productivity in Addis Ababa compares well with firms in peer countries with
same level of development, this appears to reflect higher capital intensity rather
than more efficient production. Still, low wages in Ethiopia of about $1,000 per
worker per year enable firms to remain competitive even if firms in other
countries are more productive. A key determining factor of productivity is the
ability of an economy to supply the skills needed for companies to grow and to
thrive, but firms in Ethiopia struggle to recruit candidates with appropriate
hard (technical) and soft skills. A more literate and trainable labor force would

15
not only increase productivity in Ethiopia, but also make the country more
attractive to international firms seeking to invest in Africa.
Private investment, both domestic and foreign, is crucial for developing the
manufacturing sector. A better investment climate that fosters the growth of
existing firms, while encouraging the creation of new firms is key to attracting
and increasing private sector investments. The business environment affects
the performance of all firms, irrespective of their size;
However certain aspects such as regulatory burden and information
asymmetry may be of particular consequence to SMEs.
Access to finance is a top obstacle to SMEs as firms in Ethiopia are more likely
to be credit constrained than global comparators.
There is strong evidence that lending to micro-enterprises and larger firms in
Ethiopia is relatively adequate, while SMEs are left behind (“missing middle
phenomenon”). The intensity of business operational constraints and entry
barriers vary depending on whether firms are large, FDI-financed, or domestic
SMEs. Business entry regulations and processes are consistently highlighted
by the private sector as burdensome and obstructive of firm entry and
dynamism.
The Government is implementing an industrial parks (IP) development program
to address investment-climate related issues to land access, infrastructure,
and logistic and customs processes, and to further the attraction of FDI.
Combined with comparatively low labor costs in Ethiopia, the IP program is
beginning to attract FDI especially in the manufacturing sector. But given that
about half of FDI firms in Ethiopia cite investment climate or regulation related
issues as important impediments to investment, more FDI could be attracted
by addressing those constraints and furthering its IP program. Still,
cumulatively more FDI firms succeed in moving from the investment stage to
operational phase than domestic firms. But while FDI has a better “conversion”
rate over domestic investors, there is still room for substantial improvement.
Currently two out of three potential FDI firms do not reach operational state.

16
Important lessons could be drawn from the IP experience around the world. For
instance, the performance for IPs is greatly dependent on how well they are
designed, implemented and integrated into the local economy. Despite the
concept of enclaves, in practice, the success of IPs comes once they are
entwined with the overall economy, and the institutional capacity of the
Government. The importance of promoting linkages and spillovers with
domestic firms and the role of services in developing value chains is key. Thus,
addressing the investment constraints faced by firms outside the Industrial
Parks needs to remain a simultaneously advanced critical issue.
Policy recommendations:-This Economic Update offers seven policy
recommendations, which could contribute to the development of the
manufacturing sector in Ethiopia. The recommended actions focus on the key
operational constraints and entry barriers both for FDI companies and SMEs.
1. Focus on skills development which is vital for increasing firm productivity.
2. Implement measures to improve access to finance for firms especially “the
missing middle,” small and medium sized enterprises, the majority of which are
fully credit constrained.
3. Address binding constraints relating to access to land and access to
electricity.
4. Improve tax administration and advance the simplification of the MSME tax
system.
5. Improve trade logistics, customs procedures and trade regulations, which
primarily impacts large (exporting firms) and FDI.
6. Simplify business entry regulations and processes to facilitate entry and exit
of firms, which is a key requirement for a dynamic and thriving business
sector.
7. Utilize a strategic and phased approach for the development of Industrial
Parks in line with international experience and to ensure efficient utilization of
and demand for IP infrastructure.

17
The Growth and Transformation Plan seeks to transform Ethiopia towards an
industrialized economy and to increase per capita income of its citizens by
2025. To this effect, the Government has adopted a deliberate policy focused on
the development of the manufacturing sector through the use of industrial
parks to attract FDI and to support SMEs. But with services and agricultural
sectors contributing almost 90percent of GDP, the GTP has not been able to
accelerate structural transformation. At the same time, the share of the
manufacturing sector in GDP remained just above 4 percent of GDP for most of
the past decade. Furthermore, Ethiopia has not made significant progress in
pulling labor out of agriculture into more productive and industrial jobs.
The share of employment in the manufacturing sector has changed only
slightly and is virtually unchanged since 1999 at below 5 percent of total
employment. Ethiopia’s Growth and Transformation Plan seeks to transform
the economy from a predominantly agrarian to a modern and industrialized
economy. The current plan (GTP2010/11–2014/15) provides the medium-term
strategic framework that guides the country’s efforts towards accelerating GDP
growth and employment creation. The GTP seeks to transform Ethiopia to an
industrialized economy and increase the per capital income of its citizens to
middle-income levels by 2025. Integral to the achievement of a vibrant and
competitive industrial sector is a deliberate policy focused on the development
of the manufacturing sector, for instance through the use of Industrial
Parks(IP) to attract Foreign Direct Investment (FDI). To bundle efforts and
facilitate this transformation the Government puts special focus on five sectors
thought to maximize the country’s endowment and comparative advantage in
the manufacturing sector: textiles and garments; leather and leather products;
sugar and coffee processing industry.
The Growth and Transformation Plan seeks to transform Ethiopia towards an
industrialized economy and to increase per capita income of its citizens by
2025. To this effect, the Government has adopted a deliberate policy focused on
the development of the manufacturing sector through the use of industrial

18
parks to attract FDI and to support SMEs. But with services and agricultural
sectors contributing almost 90 percent of GDP, the GTP has not been able to
accelerate structural transformation. At the same time, the share of the
manufacturing sector in GDP remained just above 4 percent of GDP for most of
the past decade. Furthermore, Ethiopia has not made significant progress in
pulling labor out of agriculture into more productive and industrial jobs.
The share of employment in the manufacturing sector has changed only
slightly and is virtually unchanged since 1999 at below 5 percent of total
employment related products; cement; and the metal and engineering
industries. But the GTP has not been able to foster and accelerate structural
transformation of the economy and the share of the manufacturing sector I n
GDP remained stable at a rather low level. In fact, Ethiopia’s past high growth
decade has been fueled by large services and agricultural sectors. Economic
growth averaged 10.9 percent per year from 2003/04 to 2013/2014 compared
to the regional SSA average of 5.4 percent (Figure 2.1.1). The two sectors of
services and agriculture are the backbone of the economy, together accounting
for almost 90 percent of GDP between 2003/04 and 2013/14 (Figure 2.1.2).At
the same time the manufacturing share in GDP is rather stable at or just above
4.1 percent of GDP. The manufacturing sector has grown at an average of 10.9
percent in last decade—about the same rate of expansion as real GDP—thereby
falling short of the targeted 22 percent in the GTP. In 2013/14 the three sector
shares in GDP were: 40.2 percent (agriculture), 45.5 percent (services), and
14.3 percent (industry).
The agriculture sector still employs more than three-quarters of all workers
and the pace of structural transformation has been slow. So far, Ethiopia has
not made significant progress in pulling labor out of agriculture into more
productive and industrial jobs. The share of employment in agriculture is
relatively unchanged between 1999 and 2005, but then declined from 80.2
percent in 2005 to 77.3 percent in 2013 (Table 2.1. and Figure 2.1.4). At the
same,the largest relative gains were recorded by other services (1.3 percentage

19
points) and construction (1.2percentage points). and is virtually unchanged
between 4.4 and 4.7 percent of total employment between 1999 and 2013.
Agriculture, commerce, and manufacturing registered the lowest annual
growth rates from 1999 to 2013, although agriculture absorbed 73 percent of
the total increase in employment (Martins 2015).
Recently the industry sector was the highest growing sector, driven by a
construction boom and expansion in mining sub-sectors. The industrial sector
growth rate was 18.5 percent in 2013/14.
The Ethiopian Government is preparing a second GTP five-year program
and a ten-year perspective plan, both of which place high emphasis on
manufacturing development. With GTP II (2015/16–2020/21) and Vision
2025, the Government is making a concerted effort towards structural
transformation where manufacturing is expected to play a prominent role in
the economy.
Ethiopia’s goal is to become a manufacturing powerhouse—with a focus on
light manufacturing for employment generation. It is for this reason that this
project based on government direction of the Economic Update focuses on the
manufacturing sector to contribute to the discourse about how to develop the
manufacturing sector in the next GTP period.
To this effect, the owner GETNET TILAHUN will be planned to invest on DRY
COFFEE PROCESSING PLANT, They have been living for long time in
ILLUBABOR ZONE, Committed to Developing in ILLUBABOR ZONE ALGE
WEREDA,SUPHE TOWN Specifically at the surrounding rural keble Town and
undertaken this project study to check the market, technical and financial
feasibility of this project.

The promoter is very ambitious and committed to realize the project. Hence, He
expects to get the necessary support from the ILLUBABOR ZONE ALGE SACHI
WEREDA administration to make the project to be operational.

20
Besides, the government polices and incentives for the private sector
investment are very promising that motivates the promoter to engaged in
establishing Manufacture Of DRY COFFEE PROCESSING PLANT.

1.2 .OBJECTIVE OF THE PROJECT

General objective
The objective of this project was to increase production capacity of Organic
coffee by developing plantations and processing facilities, in order to increase
the income and standard of living of farmers and agricultural laborers in the
ILLUBABOR ZONE ALEGE SACHI WEREDA and increase the foreign currency
revenue due to coffee exports.
Specific Objectives
 To undertake trading and other refuted business activities that enable to
generate a reasonable to the invested capital.

 To develop modern business centre that would provide services of

international standard in order to attract foreign visitors and thereby
contribute towards the generation of hard currency for the country.
 To create employment opportunities for the population in the town and
surrounded districts

1.3 .PROJECT RATIONALE

21
Internationally the economic growth this country is experiencing, the good
governance created and even if the District is in its nascent stage of
development this project is the best model in kind in the in ILLUBABOR ZONE
ALEGE SACHI WEREDA,SUPHE TOWN and the surroundings area at local
level as well as national level.

Therefore, the project is feasible and would be a model development in

promoting and attracting different Agricultural investments and tourists in
ILLUBABOR ZONE.

In order to respond to the created environment the ILLUBABOR ZONE is in

need of major, basic and feasible DRY COFFEE PROCESSING PLANT projects
to be developed.

The existing promising investment opportunities, the demands of Coffee

plantation process and production needs along with relatively sound
investment support made by the government in such kinds of feasible projects,
compelled the project promoter to initiate the multipurpose oriented business
project to be established. Despite the promising business opportunities of the
ILLUBABOR ZONE , the trend on such kinds of investment found to minimal.
Since there is no such kind of modern coffee processing facilities and business
station in the different town of ILLUBABOR ZONE to accommodate the existing
demand of Coffee production quality in the town and the surrounding areas.
The mismatch between the demand for and supply of such kind of production
in easily observed in the ILLUBABOR ZONE in order to supply for local and
international market.

Therefore, the existing shortage or absence in the supply of these productions ,

along with its commercial and administrative access, better location and
infrastructure access, escalating trend of urbanization and business activities,
thus it is with such reason that this project is identified and proposed and
assumed to be more profitable.

22
In general, the country’s decentralized state based economy, privatized and free
market economy; good governance creates a favorable environment for the
development of investment for private investors.

1.4.THE SIGNIFICANCE OF THE PROJECT

The envisaged project deemed to add to the economic development of the
nation in general and zone and town in specific with following ways:

A. Source of Revenue
As public policy of any nation, the government collects different forms of taxes
from different business organizations and individuals. Among the different
forms of taxes, business income taxes, payroll income tax and VAT are
collected from undertaking business activities. Therefore, the modern coffee
plantation farming will serve as sources of revenue for the Wereda, the region
as well as for the national level.

B. Employment opportunity
One of the problems that our country faced is unemployment. Therefore, the
current objective of the government is working on tackling the problem of
unemployment and fostering the development process either through creating
self employment or employment in other organization. Hence, this project will
hire 56 individuals permanently and more than 60 =Total 116 individual
temporally during manufacturing and collection of processed product.

C. 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
providing the following services;

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

 Since, the production encompasses different processing areas; it will divert
the attention of the users from different evil deeds.

23
Furthermore, it serves as the pilot experience and ground for other investor to
enter in to such kinds of investment development. It also contributes on the
efforts made on as a character given integrated modern Agro-processing for
physical development pattern of the quality coffee processed production in the
region.

1.5. PROJECT LOCATION

Oromia (spelled Oromiyaa in the Oromo language; Amharic: ኦሮሚያ) is one of

the nine ethnically based regional states of Ethiopia, covering 284,538 square
kilometers.[2] It is bordered by the Somali Region to the east; the Amhara
Region, the Afar Region and the Benishangul-Gumuz Region to the
north; South Sudan, Gambela Region, and Southern Nations, Nationalities,
and Peoples' Regionto the west; and Kenya to the south. The 2007 census
reported Oromia Region population is 26,993,933; making it the largest state
in population and area.

Illubabor (or Illu Ababora, Illu Aba Bora) is one of the zones of the Oromia
Region of Ethiopia. Illubabora is named for the former province Illubabor. It is
bordered on the south by the Southern Nations, Nationalities and Peoples
Region, on the southwest by the Gambela Region, on the west by Kelem Welega
Zone, on the north by Mirab Welega Zone, and Benishangul-Gumuz Region, on
the northwest by Misraq Welega Zone, and on the east by Jimma. Towns and
cities in Illubabora include Bedele, Gore and Metu.

The Central Statistical Agency (CSA) reported that 14,855 tons of coffee were

produced in this zone in the year ending in 2005, based on inspection records
from the Ethiopian Coffee and Tea authority. This represents 12.9% of the
Region's output and 6.5% of Ethiopia's total output. [1]

Based on the 2007 Census conducted by the CSA, this Zone has a total
population of 1,271,609, an increase of 50.12% over the 1994 census, of whom

24
636,986 are men and 634,623 women; with an area of 15,135.33 square
kilometers, Illubabor has a population density of 84.02. While 124,428 or
12.16% are urban inhabitants, a further 68 persons are pastoralists. A total of
272,555 households were counted in this Zone, which results in an average of
4.67 persons to a household, and 263,731 housing units.

ALGE SACHI(SUPHE) is one of the woredas in the Oromia Region of Ethiopia.

Part of the Illubabor Zone, , located at 645KM from Addis Abeba nd 45km from
Metu,. Coffee is an important cash crop in ALGE SACHI; over 50 square
kilometers are planted with this crop.[1] .

1.6. INDICATORS FOR SUCCESS

There are numerous indicators for the success and effectiveness of DRY
COFFEE PROCESSING INDUSTRY project which include the following:

25
1. The administration of ALGE SACHI WEREDA(SUPHE) has provided a
peaceful and secure environment for the project.

2. The Central Government Representative and Regional Government

Representative of ALGE SACHI WEREDA is behind the facilitation of any
recommendation for assistance from the Government, and Ministry of Urban
development and Municipality in particular.

3. The local community in the Wereda and surrounding has provided moral
and is ready to provide the necessary help it can afford. (Community
Contribution).

4. The industry is situated between a the same industries for the assurance of
Security.

5. The project owners are well experience in the business activity and
participate on different Tertiary economic activity play great role in the
implementation of a project. Some of the investment they achieved effectively
and efficiently are as the following;-

i. he Has high commitment to implement this project since he was ahead coffee
farming and well experience in business.

ii. He has different experience by visiting business activity in the country at national
level .

iii. He was educated Business person those have Business Plan by utilizing a fertile
ground of Rule and Regulation of investment proclamation of the country.

iv. He has deposited 30% of cash birr immediately and almost civil work
infrastructures are executed 100% and this is estimated to above 4.5million birr
(25% of the project cost) to starting DRY COFFEE PROCESSING PLANT
PROJECT.

26
v. He is also involving on various tertiary economic activities.

vi. Most Raw materials `are locally available and are relatively affordable..
Vii. Expertise’s are available and reliable for such a Job with maximum commitment
and efficiency.

Viii. Man power is undoubtedly available from the whole Keble and beyond, and the
work can be done at a reasonable speed.

2.MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY
Table 4.3 DEMAND PROJECTION FOR DRY COFFEE (TONS)
Year Domestic Export Total Domestic Total Unsatisfied
Demand Demand Demand Production Demand
2013 2,280 8 2,288 2,153 135
2014 2,371 12 2,383 2,153 230
2015 2,466 19 2,485 2,153 332
2016 2,564 29 2,593 2,153 441
2017 2,667 45 2,712 2,153 559
2018 2,774 70 2,844 2,153 691
2019 2,885 108 2,993 2,153 840
2020 3,000 167 3,167 2,153 1,014
2021 3,120 159 3,279 2,153 1,126
2022 3,245 246 3,491 2,153 1,338

3. Pricing and Distribution

27
The market price for export quality Dry coffee on average is Birr 160 /kg.
Hence, allowing a 20% margin for distributors and retailers, selling price for
the project is proposed to be Birr 120 /kg.
As to its distribution, it can be realized through whole sale networks and retail
outlets such as supermarkets and shops.
3.1. PLANT CAPACITY AND PRODUCTION PROGRAM
3.1.1. Plant Capacity
Based on the outcome of the market study and considering the minimum
economic scale of production, the envisaged plant will have a capacity of
7095.60 quintal of dry coffee per annum. This capacity will be attained by
working a single shift of 8 hours per day and 300 working days per year.

3.1.2. Production Program

With an assumption that enough time during the initial stage will be required
for market penetration and technical skill development, the envisaged plant
will start production at 80% of its rated capacity which will grow to 90% in the
second year. Full capacity will be reached in the third year and onwards.
Details of the annual production program are shown in Table 4.4.
Table 4.4 ANNUAL PRODUCTION PROGRAM
Sr. No. Description Unit
of Measure(quintal)
Production Year 1st 2nd 3rd & Onwards
1 Dry coffee 5676.48 6386.04 7095.60

2 Capacity utilization 80 90 100

rate

28
B. MATERIALS AND INPUTS
1. RAW MATERIALS
The principal raw material required for the envisaged plant is dried coffee.

2. UTILITIES
Electric power and water are the only power and utilities required for the
envisaged plant. The annual requirement for power and utilities at full capacity
production of the plant and the total estimated costs are shown in Table 4.2.

Table 4.2
ANNUAL UTILITIES REQUIREMENT AND ESTIMATED COST
Sr. Description Unit of Required Qty Unit Cost( Birr)
No. Measure Price,
Birr/Uni L.C. Total
t
1 Electric kWh 20000 1.5 30000 30000
power
2 Water m3 150 10.00 1500 1500
Total 31,500 45,000

C. TECHNOLOGY AND ENGINEERING

1. TECHNOLOGY
1.1. Production Process
Ethiopia is home to large quantities of coffee in both of the world’s two major
production styles: Sun-dried natural, and fully washed. Certain production

29
styles are more prevalent in certain regions (see Part Two), but in general it is
possible to find both styles across the board in Ethiopia. Many countries have
one national processing style, either dried (example: Colombia) or natural
(example: Haiti). Ethiopia has both, and both on a large scale.

2. ENGINEERING

2.1. Machinery and Equipment

List of machinery and equipment to be acquired for the project and the
estimated costs are given in Table 5.1.

LIST OF MACHINERY AND EQUIPMENT AND ESTIMATED COST (SETS)

coffee Processing
plant(PINHALSE brazilian
machineries engine        

Bucket no 1 520000 520,000.00

coffee Hullers no 1 580000 580,000.00

coffee Grader no 1 530000 530,000.00

peeler polisher no 1 480000 480,000.00

gravity separators no 1 556000 556,000.00

Catador no 1 532000 532,000.00

2 lombardi diesel engine no 1 500000 500,000.00

3,698,
  SUB-TOTAL 000.00

3. Land, Buildings and Civil Works

30
The total area of land required for the envisaged project is 5000m2, out of
which 3800 m2 is bed for coffee bean drying built-up area. The construction
cost of buildings and civil works at a rate of Birr 4,500 per square meter is
estimated at Birr 4.5million (25% of project cost). Additionaly there is
300m2 warehouse on 1500m2 land located at 300m from project.

D. HUMAN RESOURCE AND TRAINING REQUIREMENT

1. HUMAN RESOURCE REQUIREMENT
The coffee roasting, grinding and packing plant will create job opportunities for
140 persons. The human resource requirement and the estimated annual labor
cost, including fringe benefits, are given in Table 7.1.
Table 7.1 HUMAN RESOURCE REQUIREMENT AND LABOR COST
salary(birr) Remark
no description qualification qty monthly annual  
1 manager diploma 1 2250 27,000.00  

2 production manager levele 3 1 1050 12,600.00  

3 casher levele 2 1 750 9,000.00  
4 secretary levele 2 1 750 9,000.00  
5 machine oprator levele 3 2 1000 24,000.00  
6 driver grade 8 2 600 14,400.00  
7 assistance gravel level 1 1 450 5,400.00  
8 grstore keeper level 2 1 750 9,000.00  
9 guards   2 400 9,600.00  
10 cleaner   10 250 30,000.00  
11 loading/unloading   10 400 48,000.00  

31
 based on daily
12 daily labors   24 450 129,600.00 wage
casual/seasonal
13 workers   60      
  TOTAL 327,600.00  

The envisaged plant creates 116 job opportunity and about birr 327,600
thousand of income. The professionals and support staffs for the envisaged
plant shall be recruited from OROMIYA region. In order to avoid large-scale
labor redundancies, seasonal works shall be done by temporary workers. For
this, additional birr 450,000.00 shall be allocated every year.

2. TRAINING REQUIREMENT
The quality controller, production supervisor, and 1 operators should be given
on-the-job training for duration of two weeks by the advanced expert of the
machinery supplier. The total training cost is estimated at Birr 30,000.

E. FINANCIAL ANALYSIS

The financial analysis of the Washed coffee 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 12%
Discount cash flow 10%
Accounts receivable 30 days
Raw material local 150 days
Raw material imported 120 days

32
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

1. TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated
at Birr 18.3 million.
1. FINANCIAL ANALYSIS
The financial analysis is intended to asses the efficiency of the
project investement. It will show the rate of return of the project
which will indicate the financial viability. It also indicate the
amount of return which the investor will get from the project that
means the extent of profitability
2.1. FIXED AND PRODUCTION COST OF THE PROJECT
Capital cost indicate cost of
building ,machineries,equipment,furniture,etc. the following
machineries and production materials are required for sustained
development of the dry coffee processing plant.
Table FIXED INVESTMENT COSTS
UNIT TOTAL
NO DESCIPTION UNIT QTY RATE(BIRR) PRICE(BIRR
1 CIVIL CONSTRUCTION        
Land grubbing uprooting and
1.1 clearance site m2 5000 50 250,000.00

33
 construction of machine and were
1.2 house m2 1500 1000 1,500,000.00

1.3 construction of machine house m2 450 1000 450,000.00

1.4 coffee drying space m2 300 1000 300,000.00

1.5 construction of generator house m2 120 1000 120,000.00

1.6 construction of office m2 120 1000 120,000.00

1.8 Latrine and guard house m2 50 500 25,000.00

2,765,000.
00

  SUB-TOTAL

coffee Processing plant(PINHALSE

brazilian machineries engine        

Bucket no 1 520000 520,000.00

coffee Hullers no 1 580000 580,000.00

coffee Grader no 1 530000 530,000.00

peeler polisher no 1 480000 480,000.00

gravity separators no 1 556000 556,000.00

Catador no 1 532000 532,000.00

2 lombardi diesel engine no 1 500000 500,000.00

3,698,000.
  SUB-TOTAL 00
3.01 Vehicle        

double cabin pickup no 1 2,500,000.00 2,500,000.00

single cabin pickup no 1 1,500,000.00 1,500,000.00

3.02 Truck        

3 FSR 60 quntal loading no 1 3,700,000.00 3,700,000.00

4 Office furniture and Equipment no 1 150,000.00 150,000.00

5 generator three phase no 1

34
 500,000.00 500,000.00
8,350,000.
  SUB-TOTAL 00
14,813,000.0
  TOTAL ENVESTIMENT COST 0

EXPENDITURE /OPERATION COST

9.2 OPERATING COST

1 Annual employment salary lnd   327,600.00 327,600.00

2 employee benefits       32,760.00

Fuel, electric ,water, telephone ,
3 lubricant t, oil, etc expense lnd     703,557.20

4 maintenance per year       525,000.00

5 Tax and land rent       200,000.00

Environmental reclamation(yearly
6 average)       100,000.00

7 safety materials       20,000.00

8 insurance premium       12,820.00

9 Travel expense       32,760.00

1,954,497.
  SUM 20

9.3 Pre-oprating cost

no description cost(birr)

1 Consulting fee 40,000.00

35
 2 site development 50,000.00

3 license fee 10,000.00

4 land rent 20,000.00

construction of fence ,road and infra
5 structures 749,328.00

6 other(Loading unloading) 150,000.00

7 For compensation 445,672.00

  SUM 1,465,000.00

9.4.1 Project cost Financing for coffee processing plant dev't

no description own(birr) loan(birr) Total cost(birr)

1 fixed cost 4,443,900.00 10,369,100.00 14,813,000.00

2 oprating cost 586,349.16 1,368,148.04 1,954,497.20

3 pre-oprating cost 439,500.00 1,025,500.00 1,465,000.00

  SUM 5,469,749.16 12,762,748.04 18,232,497.20

  (%) distribution 30% 70% 100%

9.4.2 bank repayment schedule in 7 years

out standing Total amount
no principal payment interest(12%) balance payment
0 0.00   12,762,748.04  

36
 1 1,823,249.72 1,531,529.76 10,939,498.32 3,354,779.48
2 1,823,249.72 1,312,739.80 9,116,248.60 3,135,989.52
3 1,823,249.72 1,093,949.83 7,292,998.88 2,917,199.55
4 1,823,249.72 875,159.87 5,469,749.16 2,698,409.59
5 1,823,249.72 656,369.90 3,646,499.44 2,479,619.62
6 1,823,249.72 437,579.93 1,823,249.72 2,260,829.65
7 1,823,249.72 218,789.97 - 2,042,039.69
  10,939,498.32 5,907,329.09   16,846,827.41

9.5 REVENUE
Basic assumptions used in Revenue projection
annual average working day per
year=150days
capacity of machine=27 quintal/hour
average working hour=10 hr
Hulling price=Birr 120/Quintal
During the 1st year of operation ,the factory works its 85% capacity and increase 10% yearly until it reaches maximum
(100%) capacity

9.5.1 Revenue projection

NO DESCIPTION project year
    2014 2015 2016 2017 2018 2019 2020
service charge from
coffee processing
1 plant per day 22,500.00 25500 28500 30000 30000 30000 30000
Average working
2 day per year 150 150 150 150 150 150 150
TOTAL
  INCOME(PROFIT) 3,375,000 3,825,000 4,275,000 4,500,000 4,500,000 4,500,000 4,500,000

Table 9.5.2 Preliminary profit and statements

NO DESCIPTION project year
    2014 2015 2016 2017 2018 2019 2020

1 Gross Revenue 3,375,000.00 3,825,000.00 4,275,000.00 4,500,000.00 4,500,000.00 4,500,000.00 4,500,000.00

less operating
2 cost 215,800.00 222,274.00 228,942.00 235,810.00 242,848.00 250,170.00 260,170.00
Income before
3 depreciation 3,159,200.00 3,602,726.00 4,046,058.00 4,264,190.00 4,257,152.00 4,249,830.00 4,239,830.00
4 less 121,381.74 127,494.90

37
 depreciation 94,776.00 108,081.78 127,925.70 127,714.56 127,194.90
profite before
5 tax 3,064,424.00 3,494,644.22 3,924,676.26 4,136,264.30 4,129,437.44 4,122,335.10 4,112,635.10

6 less income tax 337,500.00 382,500.00 427,500.00 450,000.00 450,000.00 450,000.00 450,000.00

7 net profite 2,726,924.00 3,112,144.22 3,497,176.26 3,686,264.30 3,679,437.44 3,672,335.10 3,662,635.10

9.5.3 cash flow fore

cast

NO DESCIPTION project year  

    2013 2014 2015 2016 2017 2018 2019 2020

1 Inflow                
Gross
  Revenue   3,375,000 3,825,000 4,275,000 4,500,000 4,500,000 4,500,000 4,500,000
Residual
  value                
TOTAL
  INFLOW   3,375,000 3,825,000 4,275,000 4,500,000 4,500,000 4,500,000 4,500,000

2 OUT FLOW                
INVESTMENT
  COST 14,813,000              
OPRATING
  COST   215,800 222,274 228,942 235,810 242,848 250,170 250,170
TOTAL OUT
  FLOW 14,813,000 215,800 222,274 228,942 235,810 242,848 250,170 250,170
Net profit
before
3 financing 14,813,000 3,159,200 3,602,726 4,046,058 4,264,190 4,257,152 4,249,830 4,249,830

38
 loss income
4 tax(15%) 14,813,000 506,250 573,750 641,250 675,000 675,000 675,000 675,000
Net benefit
5 after tax 14,813,000 2,652,950 3,028,976 3,404,808 3,589,190 3,582,152 3,574,830 3,574,830

FINANCIAL STATEMENT
The project income and expenses for each year of the project life is presented in
table 9.5.3
The technique is used to evaluate the cost and benefits of the project
investment and that help to decide whether or not the project should be started
in the case of back period of the project should be

DBP= TOTAL INVESTMENT COST = 18,832,497.20 = 5.631791148

AVERAGE NET PROFIT 3,343,962.29

The total project cost payback period is 5 years

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 ranges from Birr

2.65 million to Birr 3.58 million during the life of the project. Moreover, at the

39
end of the project life the accumulated net cash flow amounts to Birr 3.50
million. For profit and loss statement and cash flow projection.
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 885,476
Variable Margin ratio (%)
Break Even Capacity utilization = Break even Sales Value X 100 = 32%
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 5 years.
5. Internal Rate of Return
The internal rate of return (IRR) is the annualized effective compounded return
rate that can be earned on the invested capital, i.e., the yield on the

40
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
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.

D. ECONOMIC AND SOCIAL BENEFITS

The project can create employment for 116 persons. The establishment of such
factory will have a foreign exchange saving and earning effect to the country by
substituting the current imports and exporting its products to the international
market. The project will also create backward linkage with the agricultural
sector and forward linkage with the hotel and tourism sector and also
generates income for the Government in terms of payroll tax.

41