Department of Business Administration

ASSIGNMENT OF PAM

COURSE: - Project Analysis and

Management
Assignment 01

NAME: - TADESSE BIRHANE

ID NO: - MAO/1496/13

INSTRUCTER BY. Zegeye Habtemariam (Ph.D.)

DATE:-AUGUST 20/202

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 Table of content

1. Executive summary --------------------------------------------------------------------------------4

2. Introduction------------------------------------------------------------------------------------------5

3. Objective ---------------------------------------------------------------------------------------------5

3.1. Smart ------------------------------------------------------------------------------------------------5

3.1.1. Specific --------------------------------------------------------------------------------------------5

3.1.2. Measurable --------------------------------------------------------------------------------------5

3.1.3. Attainable -----------------------------------------------------------------------------------------6

3.1.4. Realizable-------------------------------------------------------------------------------------------6

3.1.5. Time bound --------------------------------------------------------------------------------------7

4. Feasibility study --------------------------------------------------------------------------------------7

4.1. Product Description and Application -------------------------------------------------------------7

4.2. Market Study, Plant Capacity and Production Program ------------------------------------------------------7-

4.2.1. Market Study-------------------------------------------------------------7

4.2.2.Present and future Demand and Supply-------------------------------------------------------------7

4.3. Plant Capacity -------------------------------------------------------------8

4.4.Production Program-------------------------------------------------------------8

4.5.Raw Materials and Utilities -------------------------------------------------------------9

4.5.1.Availability and Source of Raw Materials..-------------------------------------------------------------9

4.6. Market------------------------------------------------------------------------------------------------9

4.6.1. Opportunities of market-----------------------------------------------------------------------9

4.6.2. Strength of market -----------------------------------------------------------------------------9

4.6.3. Treat of market-----------------------------------------------------------------------------------9

4.6.4. Man power -----------------------------------------------------------------------------------------10

Opportunities-------------------------------------------------------------------------------------10

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Weakness -----------------------------------------------------------------------------------------10

4.6.5. Financial-----------------------------------------------------------------------------------------------10

Weakness ------------------------------------------------------------------------------------------10

5. Conclusion------------------------------------------------------------------------------------------------11

6. Recommendation --------------------------------------------------------------------------------------11

1. Executive summary
This project profile deals ' leather goods producing in Addis Ababa city.

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 The objective of this is to provide information regarding manufacturing of leather goods Items, The
following presents the main findings of the study Demand projection pointed out that there is ample
demand for various leather goods Accordingly, the planned plant capacity for the envisaged plant by
considering the different factors is to process 50,000
hides, 50,000 sheep skins and 50,000 goats’ skins from the crust leather stage to finished
leather.
Considering these positive trends, an annual average growth rate of 5% is applied for the future
demand, taking the present demand/supply as a base. The demand projection based on the supply of
the raw material.
The total investment requirement is estimated at Birr 19.75 million, out of which Birr
9.45 million is required for plant and machinery. The plant will create employment
opportunities for 57 persons.
The result indicates that the project will generate a profit through out its operation life. Annual net
profit after tax will grow from Birr 1.26 million to Birr 3.15 million during the life of the project. And
at the end of the project life the accumulated cash flow amounts to Birr 19.30 million.
Moreover, the project Will break even at Of capacity utilization and it Will payback fully the initial
investment less working capital in 5 years.
The result funher shows that 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 porject is computed to be 17.28 % indicating the vaiability of the
project.
And also the net present value of the project at 8.5% discount rate is found to be Birr 9.05 million
which is acceptable.

However The proposed plant annual production cost at full operation capacity is estimated at Birr
17.71 million.
. In addition to this, the proposed project possesses wide range of economic and social benefits such
as increase the level of investment, tax revenue, and employment creation.
Generally. the project is technically feasible. filtanciålly commercially viable as well as
socially and economically acceptable. Hence the project is worth implementing.

2. Introduction
This Evaluation is based on the Strength and Weakness of each feasibility analysis aspects of the
proposal by looking at its market and demand analysis, technical analysis, financial analysis,

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organizational and managerial analysis environmental analysis, economic analysis, social and cultural
analysis, etc.
And also evaluate it’s SWOT AND PEST Analysis . By this cause the market has some opportunities in the
capacity of the finishing department of these factories is very low which could not fully satisfy local
demand for the product this is evidenced by the fact that the shoe industry suffers from shortage of
finished leather.
In addition to this Leather industry is a very old manufacturing sector producing a broad range of goods
such as leather footwear, leather bags, leather garments, and so on. The raw material used in leather
industry is derived from the waste product of food industry, specifically from meat processing. This waste
product is converted into desirable and useful leather products. Leather and its prot traded products
globally. They are produced from renewable and readily available resource.

3. Objective

3.1. Smart

The SMART in SMART goals stands for Specific, Measurable, Achievable, Relevant, and Time-Bound.
Defining
these parameters as they pertain to your goal helps ensure that your objectives are attainable within a
certain time frame

3.1.1. S – specific
What is the goal?
The establishment of such factory will have a foreign earning effect to the country by exporting its
product to the world market.

The total investment requirement is estimated at Birr 19.75 million, out of which Birr 9.45 million is
required for plant and machinery. The plant will create employment opportunities.
Finished leather has a wide market both in the domestic as well as in the international market while the
major market for semi-processed leather is export only. Generally the project goal is to creat varieties of
opportunities in the forign currency and import substitution plus creat job opportunities step by step.

3.1.2. M-measurable
How will the business measure the progress?

First demand in the market there is a very wide market for semi-processed hides & and skins.
Thelimiting factor, thus, would be the amount of crust leather to be supplied. On the other hand, it is
believed that the collection system of hides and skins will be improved. Moreover, contra

band/illegal trade will be minimized due to the various measures which are being implemented by the
government. Considering these positive trends, an annual

average growth rate of 5% is applied for the future demand.financially the business viable with an
internal rate of return (IRR) of 17.28 % and a net present value (NPV) of Birr 9.05 million, discounted at
8.5%.

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3.1.3. A- Achievable

Do the business have the skill and the resource for it?

The main raw materials for production of finished leather are crust leather which is available locally.
Procurement of crust leather shall be carried out by establishing strong business ties with tanneries that
produce this product. Local tanneries such as Ethiopian Tannery, ELICO (Ethiopian leather industry
corporation), and Walia Tannery are potential local sources of crust leather and hides. In addition to the
major raw material finished leather production requires auxiliary materials such as various water- based
combinations of resins, binders, dyes, pigments and lacquer emulsion, which are to be procured from
foreign markets.A total of 57 employees are required for the smooth operation of the plant.So they all
train in the following way to get the best skill; Production personnel, chemists and technical personnel
need training on the production process, product quality and operation and maintenance of machinery
and equipment (onjob-training) during the commissioning period for about one month by the expert of
machinery supplier.

3.1.4. R- Relevant
Why is the goal important to the investor and the country ?

The project can create employment for 57 persons. In addition to supply of the domestic needs, the
project will generate Birr 5.74 million in terms of tax revenue. The establishment of such factory will
creates backward linkage with tanneries that produce crust leather and a forward linkage with leather
products manufacturers. The establishment of such factory will have a foreign earning effect to the
country by exporting its product to the world market.Finished leather would be supplied to the domestic
and export market. In the case of the domestic
market, two channels can be employed. For bulk buyers such as shoe factories, it can be supplied
directly without any intermediaries. For those who require in small amount, enterprises that are
engaged in the sale of leather and leather products can be employed. In the case of export, it can be
supplied directly to interested buyers.

3.1.5. T-Time

How will the business work to achieve the goal set?

The plant will start its operation at 70% of its full capacity in the first year with a 15% build-up of
capacity every year reaching full capacity in the third year and then after; taking the skill development,
availability of the required raw material and market penetration problems into consideration. The plant
will operate for 300 days in a year, working under three-shift system of 8 hours each day.

4.Feasibility study

A feasibility study is an assessment of the practicality of a project or system.

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A feasibility study aims to objectively and rationally uncover the strengths and weaknesses of an
existing business or proposed venture, opportunities and threats present in the natural
environment, the resources required to carry through, and ultimately the prospects for success. In
its simplest terms, the two criteria to judge feasibility are cost required and value to be attained.By
this opportunities interms of market and demand, Technical, financial, organizational and
managerial, environmental, economic, social and cultural.

4.1. Product Description and Application

Ethiopia has a large competitive advantage in the leather industry because it ranks number 1 in
Africa and 10 th in the world with respect to the size of its livestock population. The Ethiopian
leather and leather product sub-sector produces a range of products from semi-processed leather in
various forms to processed leathers such as shoe uppers, leather garments, stitched upholstery,
school bags, handbags, industrial gloves, and finished leather. Such leather products have been
consumed by a portion of the domestic population and also exported to markets in different parts of
the world. The goods to be produced by the envisaged plant mainly target the population of Addis
Ababa city. The products to be used for footwear (upper and sole), luggage, handbags, leather goods
and apparel, gloves, industrial belting, leather upholstery, etc... that are used in the day to day
activity of Addis Ababa people.

4.2. Market Study, Plant Capacity and Production Program

4.2.1. .Market Study

4.2.2. . Present and future Demand and Supply

According to Resource Assessment of the City by IPS, during the period 2010 – 2012 E.C the average
number of skin and hides collected in Addis Ababa were 162,532 hides and 175,603 skins.

But there is an increase in DEMAND FOR FINISHED LEATHER for example from base year to 2025 in
the items of hides are great difference.
Year hides s&g skin totall

2014 145,060 156,725 301,785

2015 152,312 164,562 316,874

2016 159,928 172,790 332,718

2017 167,925 181,429 349,354

2018 176,321 190,501 366,821

2019 185,137 200,026 385,162

2020 194,394 210,027 404,421

2021 204,113 220,528 424,642

2022 214,319 231,555 445,874

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 2023 225,035 243,133 468,167
2024 236,287 255,289 491,576

2025 248,101 268,054 516,155

based on the conservative measure, the effective demand for both in the domestic as well as in the
international market while the major market for semi-processed leather is export only. The production
and export of semi-processed and finished leather.

export although there is some fluctuation from year to year. During the period of analyses, production
of hides and skins has registered an average annual growth rate of 34% and 15%, respectively.

More over during the same period, export of hides and skins has registered an average annual growth
rate of 7.1%.

4.3. Plant Capacity

Given the expected demand for leather goods discussed earlier, and the planned technology, the
envisaged plant by considering the different factors is to process 50,000 hides, 50,000 sheep skins and
50,000 goats’ skins from the crust leather stage to finished leather.

4.4. Production Program

The program is scheduled based on the consideration that the envisaged plant will operate for 300 days
in a year, working under three-shift system of 8 hours each day. where the remaining days will be
holidays and for maintenance. will plant will start its operation at 70% of its full capacity in the first year
with a 15% build-up of capacity every year reaching full capacity in the third year and then after; taking
the skill development, availability of the required raw material and market penetration problems into
consideration.

4.5. Raw Materials and Utilities

4.5.1 Availability and Source of Raw Materials

There are 5 types of basic raw material for the production

The first raw material or crust leather and his type found in (L)

But

2. Resins and binders

3. Pigment paste

4. Lacquer emulsions

5. Formaldehyde are found in (F)

The main raw materials are processed leather from tannery industries. In addition the plant requires
inner lining, metal corners, zip, adhesive material, buttons, wooden frame (for briefcases), lock set and

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other allied accessories (for briefcases,. Most of the materials are available from local tanneries and
suppliers that sell domestic as well as imported materials.

4.6. Market Analysis

4.6.1.Opportunity of market

according to the information gathered with regards to the sector, the capacity of the finishing
department of these factories is very low which could not fully satisfy local demand for the product this
is evidenced by the fact that the shoe industry suffers from shortage of finished leather. So this creat an
opportunity to penetrate the market.

4.6.2 . Streangth of market

there is a very wide market for semi-processed hides & and skins. The limiting factor, thus, would be the
amount of crust leather to be supplied. On the other hand, it is believed that the collection system of
hides and skins will be improved. Moreover, contra band/illegal trade will be minimized due to the
various measures which are being implemented by the government. Considering these positive trends,
an annual average growth rate of 5% is applied for the future demand, taking the present
demand/supply as a base.

4.6.3. Threat
contra band/illegal trade
Generally
there is a very wide market for finished leather. The only limiting factor is availability of the raw material
(leather processed up to crust level). Therefore, for the selection of plant capacity it is recommended to
consider the estimated amount of hides and skins that can be collected in the City and processed up to
crust level.

4.6.4. Manpower
Here is an Opportunities
A total of 57 employees are required for the smooth operation of the plant.
Here is a Weakness
The annual cost of manpower including fringe benefits is estimated at Birr 654,000.So the cost is
annually very high this will affect the profitability of the busines.

4.6.5. Financially
There is a Weakness
Is the totall required investment is covered by 70% from loan and 30% from equity so this will affect the
business in terms of high interest rate.And the business has very high foreign cost that will leads to the
business failure by the cause of shortage of foreign cash.

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5. Conclusion
Generally the business has some economic benefits.
The economic profit (benefit) is; based on the projected profit and loss statement, the project will generate
a profit throughout its operation life. Annual net profit after tax will grow from Birr 1.26 million to Birr
3.15 million during the life of the project. Moreover, at the end of the project life the accumulated cash
flow amounts to Birr 19.30 million.
The project can create employment for 57 persons. In addition to supply of the domestic needs, the
project will generate Birr 5.74 million in terms of tax revenue. The establishment of such factory will
creates backward linkage with tanneries that produce crust leather and a forward linkage with leather
products manufacturers. The establishment of such factory will have a foreign earning effect to the
country by exporting its product to the world market.

6. Recommendation
A leather manufacturing venture is faced with a challenge of penetrating the highly competitive leather
industry. This study attempts to investigate what it will take to succeed, how can it become more effective
than its competitors in creating, delivering and communicating customer value? The study investigates
the needs of its prospective customers, analyzes the leather industry dynamics, key success factors and
company resources. A customerfocused company first investigates what its potential customer's desires
are, and then builds the product or service. It was therefore pertinent for it to pursue this exercise in order
to be able to make informed strategic marketing decisions. The study lays a foundation and a framework
for its marketing management by reviewing a set of core concepts that are perceives as being fundamental

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to creation solid foundation for successful marketing. Concepts discussed include the development of
marketing strategies and plans, capturing marketing insights, connecting with customers, building with
strong brands, shaping market offering, delivering value, communicating value and creating long - term
growth. The findings are that the industry is highly competitive with a lot global players. It is
recommended that should focus on footwear and furniture segments, initially supplying the local
government whilst developing its skills and its brand. The conclusion reached is that can achieve success
by investing towards its attitudinal resources and superior skills, developing them into distinctive
competencies for delivery of superior value

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