Auto Spare Part Ibsa

Table of Contents
EXECUTIVE SUMMARY........................................................................................................................3
1. INTRODUCTION............................................................................................................................4
1.1. General background......................................................................................................4

1.2. Profile of the Promoter..................................................................................................5
1.3. Project Rational...............................................................................................................5
1.4. Objective of the project...................................................................................................6
1.5. The significance of the project........................................................................................7
1.5. The Project area..............................................................................................................8
2. PRODUCT DESCRIPTION AND APPLICATION....................................................................10
3. MARKET STUDY AND PRODUCTION CAPACITY....................................................................13
3.1. Market study....................................................................................................................13

3.2. Market Prospects..............................................................................................................16
3.3. Market share.....................................................................................................................17
3.4. Plant capacity and production program......................................................................17
3.5. Market Plan.................................................................................................................................18
3.6. Pricing strategy................................................................................................................18

3.7. Promotion....................................................................................................................................19
4. TECHNICAL STUDY.........................................................................................................................20
4.1. Production Process and Technology.............................................................................20

4.2. Quality Control and Standards......................................................................................21
4.3. Raw materials and inputs...............................................................................................21
4.4. Machinery..........................................................................................................................22
4.5. Utilities..............................................................................................................................24
4.6. Building and Civil Works...............................................................................................24
4.7. Premises required and land use plan............................................................................24
5. ORGANIZATION AND MANAGEMENT.....................................................................................26
5.1. Organizational structure and management.................................................................26

5.2. Man power requirement.................................................................................................27
6. FINANCIAL REQUIREMENT AND ANALYSIS..........................................................................30
6.1. Fixed Investment..............................................................................................................30

6.2. Expenses............................................................................................................................32
6.3. Summary of total capital requirements........................................................................35
7. FINANCIAL ANALYSIS AND STATEMENTS.............................................................................36
7.1. Underlying Assumption.................................................................................................36
Auto Spare Part Manufacturing Plant Promoted By: Mr. Mohammed Berissu Biru Page 1
7.2. Source of Fund.................................................................................................................36
7.3. Bank loan repayment schedule......................................................................................37
7.4. Depreciation Schedule....................................................................................................37
7.5. Revenue Projection..........................................................................................................38
7.6. Income loss statement.....................................................................................................39
7.7. Cash flow Statement........................................................................................................40
7.8. Profitability.......................................................................................................................41
7.9. Pay – Back period.............................................................................................................41
7.10. Future development......................................................................................................41
8. ENVIRONMENTAL IMPACT OF THE PROJECT.........................................................................42
EXECUTIVE SUMMARY
1. Project Name Auto Spare Parts Manufacturing Plant
2. Project owner Mr. Mohammed Berisso Biru

3. Nationality Canadian
4. Project location Galan City Administration, Oromia National Regional State
5. Project composition Manufacturing of mainly:
- Brakes
- Cylinder Liner and,
- Crank shaft
6. Premises required 15,000M2

7. Total initial capital Total capital requirement is Birr 127,982,179.5
of which 38,394,653.85 (30%) is owners equity and
89,587,525.65( 70%) is financed by bank loan
8. Employment opportunity The total manpower required for the plant will be 439
employees at full capacity
-Permanent workers 313: Skilled 258 and Unskilled 55
-Temporary workers 126: Skilled 6 and Unskilled 120
9. Market share 70% of its products for domestic and 30% for export
10. Raw material The major raw material include; cast iron, finely powdered iron
or copper , graphite etc.,
11. Technology Labour intensive modern technology particularly; Centrifugal
processing, Facing & centering, rough turning, chambering and
dynamic balancing, etc
12. Benefits of the project for the Supply of equality and affordable spare parts, source of
region/country revenue, employment opportunity, save foreign currency and
stimulate the local economy and technology transfer.
1. INTRODUCTION
1.1. General background

Ethiopia is a country endowed with significant growth potential. Despite the potential the
country’s economy had been characterized by stagnant, at best, steady economic growth, until
the demise of the socialist oriented military regime. Under the current government, it took
Ethiopia only two decades of economic metamorphism to exhibited sustained double digit
economic growth.
The impressive economic growth and sound macroeconomic stability are made possible by
fundamental changes in political and economic system, mature economic management and
ongoing partnership with external donors and investors as well. Ethiopia has been made peace
and stable through establishment of federal system of government and parliamentary
democracy. Simultaneously there was the general shift from command economy to market
economy. Macroeconomic stability has been secured by a careful sequencing and
implementation of economic reforms coupled with tight fiscal and monetary policy. This may
includes deregulation of domestic price control, liberalization of foreign trade, privatization of
public enterprises, promulgation of liberalized investment laws, and the like. On top this,
investment incentives and investment property protection have also granted to both domestic and
foreign investors.
The current conducive economic and political condition created by the government boosted the
confidence of private investors and inspire them to invest in different sector of the economy. As
such, the coordinated effort of public and private sectors has putted the country on the truck of
fast and sustainable economic growth.
Inspired by prevailing fertile ground for investment, the owner of the envisage project planned to
invest Auto Spare Part Manufacturing Plant in Oromia National Regional state, Galan City
Administration. This project study is undertaken to check the marketing and financial feasibility
of the project and the result of the study is promising for the owners to start the project at the
proposed area.
1.2. Profile of the Promoter

The promoter of the project, Mr. Mohammed Berisso Biru, is a Canadian born Ethiopian
Diaspora living in North America. He come to Ethiopia responding to government call for
Ethiopian Diaspora that, through their skill and finance help their mother country build ongoing
peace and democratization process, benefited from their engagement and have good international
image among other things. The promoter has very well understanding of government’s policies
and strategies and highly convinced that the planed project will enable him share the country’s
burden of fighting poverty and reducing unemployment.
The feasibility of the project has been carefully assessed and the promoter is confident that it will
be a total success. The promoter is also extremely optimistic and determinant to model the new
ways of practicing modern production and marketing while meeting the growing demand for
auto spare part. Hence, the promoter expected to get the necessary support from the regional and
local government to make the project operational.
1.3. Project Rational

After the long period of steady economic metamorphism, Ethiopia emerged as the country
capable of scoring sustained double digit economic growth, amidst the global economic turmoil
and rampant financial crises. The government is highly determined to sustain the first GTP
period double digit economic growth in the second GTP period.
Attributable mainly to economic growth the demand for vehicle and machinery has been
increasing. The automotive industry is expanding to the unprecedented scale. Currently there are
several vehicle assembling plants. These include Holand Cars, Maru Metal Industry, Mesfin
Industrial Engineering, Yangfan Motors, Metal and Engenering Corporation, Belayab Enterprise
PLC and Beteret International PLC.
Only some of these plants manufacture spare parts for the vehicle they are assembling. Demand
for spare parts is currently met through import, although there is big possibility to produce them
locally. The establishment of Auto Spare Part Manufacturing Plant, thus, has significant social
and economic contribution to the country through saving foreign currency, increasing saving and
creating linkage to other industries.
1.4. Objective of the project

The general objective of the project is to establish high quality and cost effective Auto Spare Part
Manufacturing Factory in Gelan City.
The project will try to:
 Meet the growing demand of auto spare parts
 Create job opportunity( causal and permanent employment),
 Increase income to the promoter,
 Save foreign currency and,
 Generate income to the government in the forms of income and business taxes
1.5. The significance of the project

The envisaged project deemed to add to the economic development of the nation in general and
town in specific with following ways:
A) Source of employment
Developmental and democratic government of Ethiopia has been implementing pro - poor
polices and strategies which ultimately aimed at ensuring the benefits of the citizen. The
government is working hard on tackling the problem of unemployment and fostering the
development process either through creating self-employment or employment in other
organization. Most of mega projects financed by the government are labor intensive creating
employment opportunity for millions of citizens. Despite the effort, unemployment still remains
the pressing issues particularly in urban area. Hence, this project will hire 439 citizens.
B) Source of government revenue
To redistribute income, the government collects different forms of tax from different business
undertakings and individuals. Among the different forms of taxes, business income taxes, payroll
income tax and VAT are the major one. Therefore the project will generate revenue for both
federal and regional government.
C) Stimulate local economy

The envisaged project has positive externality in the zone that will encourage economic
movement of local economy. As a result of the project, there will be economic tradeoff between
different actors.
D) Benefit for the local community
The project tries to secure local community’s sense of ownership. To this end, it will engage in
different development activities on the surrounding areas that benefit the community in many
ways than one.
E) Technology transfer
By producing auto spare parts locally, the project will train and develops the capacity of the
technical staffs. By doing so, the company will add value in technology transfer scheme of the
country.
F) Supply of quality Spare Parts
By supplying customer oriented, high quality and cost effective Spare Parts particularly cylinder
line, Crank shaft and Breaks it will satisfy the demand of the citizens in particular and the nation
in general.
1.5. The Project area
The envisage project is planned to be located in Gelan City Administration, Oromia National
Regional State. Gelan is situated along the Addis Ababa – Djibouti highway. Its astronomical
location is 08°48′N latitude and 38°54′E longitude. Gelan Town is known as one of the major
industrial town of the country. The majority of the population in the town engaged in different
commercial activities like wholesale and retail trade of agricultural products and manufactured
industrial goods. Significant number of the population is industrial workers.
One of the major reasons for selection of the location is its proximity and existence of basic
infrastructure and physical facilities. The most advanced road in the country, Addis Ababa -
Adama speed road, has a junction to the town. In addition Addis Ababa Awassa high way also
crosses the town. On the other hand, the town has also favorable socio economic and
environmental conditions like good pool of labor, adequate supply input and utilities and good
transport network which made the location conducive to the proposed project
2. PRODUCT DESCRIPTION AND APPLICATION
The project is envisaged to establish modern automotive auto spare parts manufacturing plant.
Accordingly, at the initial sage of operation the project will mainly produce varieties of the
following products based on the model and types of vehicle and preference of the market.
 Cylinder liner
 Crank shaft
 Breaks
2.1. Cylinder liner
Basically the cylinder liner is a hollow cylindrical shell which acts as the enclosure in which the
combustion takes place. A cylinder liner is a removable component, cylindrical in shape, inserted
into the engine block. It provides the surface for the piston to slide and carry out its compression
task. It can be replaced when worn out.
Its hollowness does not imply that it is weak in strength for it is under the fluid pressure due to
combustion and hence must withstand the high level of hoop stress induced in it. Cylinder liners
are made from close grained cast iron.
In four stroke cycle engines they are simple cylindrical shapes flanged at the top end to provide
location and secure them in the cylinder blocks or to the water jacket. Immediately below this
flange there is often a joint ring which may be of copper or in some designs of a heat resistant
rubber. The lower end is fitted with rubber rings so as to form a seal for the bottom of the water
space. These rubber rings may be arranged also to prevent oil from the crankcase entering the
water jackets.
2.2. Crank Shaft

Crank Shaft is a very important part of an automobile engine. As the name implies it gives
Cranking action to the whole engine including the flywheel. As being a very vital part of an
automobile engine, its action i. e. movement operates the inlet and outlet valves as per the
configuration or an engine through camshaft. Crankshaft is a forged item mainly from C-45
Carbon Steel and has journals and Crank pin as per the requirements of an engine. In an
automobile engine whether it is 3 cylinders or 4-cylinder only single crankshaft is used. The
journals and other pins are of extremely super fine lapped finish.
2.3. Brakes
Automobiles use either drum brakes, disc brakes or a combination of the two. In drum brakes,
two semicircular brake pads (also called brake shoes) are located inside a drum. When the brakes
are applied, the brake shoes are forced outward and press against the drum. The drum, shaped
like a covered cylinder, much of the brake pad dust that is worn during braking.
Disc brakes consist of two brake pads located on either side of a rotor. When the brakes are
applied, the two pads squeeze against the rotor. Disc brakes are more exposed to the environment
than drum brakes. Dust generated by disc brakes that does not temporarily affix to the car falls to
the road or becomes suspended in the air.
Disc brakes tend to have better braking performance than drum brakes. Most cars today use disc
front - drum rear braking systems. Some vehicles use disc brakes on all four wheels while few, if
any, use only drums brakes.
Brake pads are designed for friction stability, durability, and minimization of noise and vibration.
Friction stability means that the brake pads friction coefficient remains high under hot, cold, wet
and dry conditions at various braking speeds.
Automotive engineers use a variety of materials to maximize performance in all areas, often
combining five to twenty different material ingredients to form complex composite friction
materials. Metals, such as copper, tend to be good friction materials because they are good at
dissipating heat generated during braking. Metallic formulations generally have high. A hot
friction coefficient making them performs well under extreme braking conditions. Larger cars
and cars that need to stop quickly generally require semi-metallic pads while organic pads are
fine for light and medium weight vehicles
3. MARKET STUDY AND PRODUCTION CAPACITY
3.1. Market study
3.1.1. Demand Consideration

The demand for auto spare parts is determined by several factors. In Ethiopian case, however, the
major determining factors are economic growth of the nation, the patterns and growth trend of
automotive industry, and population growth among other things.
A. Fast economy Growth
The Ethiopian economy has been experiencing dynamic and double digit growth that
experienced annual average growth of 11.4% in past 8 years. According to ministry of finance
and economic Development (MOFED), the forecasted economic growth the economic growth
(GDP at constant basic price) for 2011/2012 is estimated to be 10.4%. As per the estimates,
annual growth rates of the major sectors, i.e. Agriculture, Industry and Service were 7.6%,
10.6% and 13.0%; respectively and their shares out of the total GDP were 42%, `3% and 45%,
respectively.
The fast economic growth requires corresponding growth in transportation sector. That is why
the automotive industries have been growing fast in Ethiopia. Auto spare parts as the major
component of the automotive industry thus will entertain the growing market demand.
Table - Major economic indicators
Trends in performance of the economy: - Growth rates (%)

Item 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10
GDP in 1999/00 -2.1 11.7 12.6 11.5 11.5 11.6 10 10.4
prices
Agriculture -10.5 16.9 13.5 10.9 9.4 7.5 6.4 7.6
Industry 6.5 11.6 9.4 10.2 10.2 10.4
O/W: 0.8 6.6 12.8 10.6 8.3 7.1
manufacturing
Construction 13.6 19.5 7.5 10.5 10.9 11.3 11.7 10.9
Services 6 6.3 12.8 13.3 14.3 17
O/w: Banking 10.8 19.7 24.2 28.7 15.1 24.9 16.5 13.7
and insurance
Distributive 5.5 6.4 14.7 14.2 16 15.2
services
Other services 6.5 6.1 10.9 12.5 13.1 14.2
Real GDP per -4.6 10.7 9 8 7.5 7.6
capital GDP
Inflation 15.1 8.6 6.1 10.6 15.8 25.3
Source: - MOFED & NBE
B. The patterns and growth of the Automotive industry
Ethiopian fast and sustained economic growth is serving as epicenter in that it turns accelerating
gears to the major industries operating in the country. As one of the integral part of the economy,
automotive industry has been growing fast in the last two decades. The 20011 import data of
Ethiopian Custom Authority indicated that automotive industry is growing 37% in the last 10
years. In addition to increase in imported cars, there is large expansion of car assembling plants
in recent years. The increase implies an increasing demand for auto spare parts
C. Population growth
The rate of growth of the urban population is increasing from year to year. According to the
central statistics authority (CSA), current population growth is estimated to be 2.8% per annum,
and the growth rate is expected to remain above 2% for the next 20 years. Rural population is
growing at about 3.0% while the urban population is growing at about 4.3%. Total population is
projected to reach 129 million by 2030. In Ethiopia, of the total population, about 16.0% is
estimated to reside in the urban areas. The trend suggests that the size of urban population is
likely to continue to grow at a high speed in the future. The share of urban population will rise
from 16.0% in 2005 to about 23% by 2030. Nearly 20 million of the total 129 million will live in
cities and towns by 2030. As a result of large population growth and fast urbanization together
with the afore mentioned factor there will be creasing and promising demand for auto spare
parts.
D. Government Policy and regulation
The government of Ethiopia has devised and implemented policies that encourage intensive
private sector engagement in the economy in general and the development of manufacturing
sector in particular.
Dissatisfied with the level at which the manufacturing industry had been growing, the
government has exerted much more emphasis on the sector to bring about structural
transformation to the economy. Moreover, the second Growth and Transformation Plan is
expected, not only to sustain the fast economic growth exhibited so far, but also to bring industry
play a major role in the economy. In a sense, the trend implies the increasing prospects of
demand for auto spare parts.
3.1.2. Supply Consideration

After the long period of steady economic metamorphism, Ethiopia emerged as the country
capable of scoring sustained double digit economic growth, amidst the global economic turmoil
and rampant financial crises. The government is highly determined to sustain the first GTP
period double digit economic growth in the second GTP period.
Reputedly explained in the previous section of this document, the fast and sustained economic
growth has been playing a generator role in the economy as it is steering the pace at which every
sector is moving. Attributable, to economic growth the demand for vehicle and machinery has
been increasing. The automotive industry is expanding to the unprecedented scale. Currently,
there are several vehicle assembling plants. These include:
 Holland cars
 Maru Metal and Automotive Industry,
 Mesfin Industrial Engineering,
 Beshoftu automotive Industry
 Yangfan Motors,
 EFDRE Metal and Engenering Corporation,
 Adama Agricultural Machinery Engineering
 Belayab Enterprise PLC and
 Beteret International PLC.
Only some of these plants manufacture spare parts for the vehicle they are assembling. Demand
for spare parts is currently met through import, although there is big possibility to produce them
locally. The establishment of Auto Spare Part Manufacturing Plant, thus, has significant social
and economic contribution to the country through saving foreign currency, increasing saving and
creating linkage to other industries.
3.2. Market Prospects

The market demand and supply analysis conducted above showed that there exist very huge
market gap in Ethiopia for the envisioned products. Hence, the factory will be successful by
entering in to this market.
3.3. Market share

The envisioned project will supply 70% of its products for domestic market and 30% of its
product for export to international market especially for neighboring countries.
3.4. Plant capacity and production program

Considering the economies of scale the annual rated capacity of the project is indicated in table
plant capacity & production program below. The plant is assumed to work on double shift of 8
hours of each shift and 300 working days per year.
At the initial stage of production period the envisage project may require some year to capture a
significant market share of products. The plant may start production at 60% and 80% of its rated
capacity in the first and second year of production, respectively. Full production shall be attained
in the third year and then after. The proposed production program indicated in the following
table.
Table - Plant capacity and production program
SN Products Unit Capacity utilization
Year 1 year 2 year 3 & above
1 Cylinder liner Pcs 480000 640000 800,000

2 Crank shaft pcs 6000 8000 10,000
3 Brakes Pcs 180000 240000 300,000
3.5. Market Plan
Products are produced internally by receiving factors of production from external suppliers to
fulfill the needs and wants with required amount, at reasonable price within high quality and high
satisfaction to the customers.
3.6. Pricing strategy

The pricing strategy will be done by conducting market research and by assessing the
competitors’ price and customers’ income level. The plant will use penetration strategy to
introduce the products and to attract the customers. The price of the products is determined
primarily by what customers are willing to pay that the company is offering. The penetration
strategy is used to capture the market share at initial stage of production.
Accordingly the existing imported retail price of cylinder liner, crank shaft and brakes in the
market has been assessed. The assessment showed that the price of the spares is varied in
accordance with the model the cars, the country of fabrication, the size of automobile and the
types of the spares etc. Based on the comparative price analysis the firm settled the lower price
indicated in the following table.
Table – price of the product
S.N Products Unit Price/ unit

1 Cylinder liner ( Auto) Pcs 200
2 Crank shaft ( Auto) pcs 10,000
3 Brakes( Auto) pcs 450
3.7. Promotion
The plant will use a variety of advertizing method to attract attention of customers in the target
market. Accordingly, it will advertize through word of mouth, local publications (broachers,
flayers and news paper), sponsorship of key government activities and public supported
occasions, Electronic Medias (website development, radio and TV) billboard and branding.
4. TECHNICAL STUDY
4.1. Production Process and Technology
4.1.1. Cylinder Liner Production Process
In this project profile it is considered that casted cylinder liner (by centrifugal process) as per
require specification & sizes will be purchased. The liners are cleaned & fettled. Then rough
machining operation like facing, rough outer diameter, rough boring is done. Then final
machining operation is carried out like finish boring, O.D. Honing etc. After last operation every
liner is checked & grouped in “A” & “B” category and packed for dispatch
4.1.2. Crankshaft Manufacturing Process

The manufacturing process of crankshaft is to be followed as per the sequence of operations to
minimize the material flow. First of all, facing and centering is to be done on both faces on win
spindle twin station facing and centering machine. Then rough turning of journals and pins, webs
is to be done on spm. Then finish turning is to be done on special turning machine. Then bolt
holes, flat, oil hole drilling [deep hole drilling] is to be done on SPM. Transfer line type,
chamfering on deep hole drills is to be done on N C chambering machine, journals grinding is to
done on crankshaft grinding machine. Crankpin is to be grounded on SPM. Dynamic balancing is
to be done on special purpose dynamic balancing machine. Then lapping of pins and journals is
to be done on special purpose lapping machine. Finally, testing and inspection is to be done. At
last antirust oil is to be applied on whole Crankshaft.
4.2. Quality Control and Standards

The quality of the raw materials purchased for production of cylinder liner should be ascertained
and after production, the performance of each part is checked manually.
It is also necessary that casting should be free from burrs, below hole, pin holes. Casting of liner
should be inspected and assure that the casting is of required specification and grade. The size of
the product should be inspected at every stage to maintain the required standards.
In connection to crank shaft it is suggested to carry out the stage inspection during
manufacturing processes:
 Diameter of journals is to be checked,
 Diameter of crankpins is to be checked,
 Tapping hole and pitch of thread is to be checked,
 Thickness of flat is to be checked,
 Roughness of lapping faces is to be checked and
 Bend / War page test is to be done.
The major issue regarding braking performance is the maximum stopping distance for passenger
vehicles traveling at a certain speed. By setting braking standards based on performance, brake
pads are regulated only indirectly. The brake pads installed in a new car must stop the car in
accordance with the braking standards.
4.3. Raw materials and inputs

4.3.1. Raw materials and inputs required for producing cylinder liner
Given the stringent requirements of strength and anti-corrosion property and provide a good
surface for the piston rings to slide along its length, Cast Iron is the most widely used material
mainly because of its lubricating properties which is a result of graphite present in its micro-
structure.
Cast Iron is also porous in nature and this helps to prevent or minimize the risk of seizure of the
piston during its operation and also is a remedial measure against extensive galling (rubbing
painfully; chafing) which takes place during piston motion.
4.3.2. Raw Material & input for crank shaft production

 Forged crank shaft of assorted sizes
 For 3 cylinder Engine
 For 4 cylinder Engine
 Packaging materials
4.3.3. Raw Material & input for brake production
 Finely powdered iron or copper,
 Graphite,
 Inorganic fillers and
 Friction modifiers
4.4. Machinery
4.4.1. Machinery and Equipments for cylinder line production
Sl. No. Description
1. SPM Boring Machines.

2 Lathe M/s. 6” With Electrical Motor& complete
3. Honing Machine
4. Copy Turning Machines
5. Precision Lathe 6’With Mandril,etc.
4.4.2. Machinery and Equipment for crankshaft Production
S.N. Description
1. Special purpose twin spindle twin head, twin working station facing and centering
machine suitable for 3 & 4 cylinder crankshaft with 10 HP Electric motors and starter
2. Special purpose CNC crankshaft turning machine suitable for 3 & 4 cylinder crankshaft
complete with auto door opening and closing at the start and finish of working cycle with
tool magazine and 7.5 HP electric motor and starter e
3. Special purpose multi-station machine suitable for 3 & 4 cylinder engine crankshaft for
bolt hole, drilling and tapping dowel/pin hole drilling, flat milling etc. with 10 HP electric
motor and starter
4. Special purpose multi-orientation deep hole drilling machine [Gun drilling machine]
suitable for 3 & 4 cylinder engine crankshaft for drilling of oil hole at required
configuration with 10 HP electric motor and starters
5. N C Chambering Machine suitable for chambering of oil hole on 3 & 4 cylinder engine
with 2 HP electric motor and starter
6. Special purpose journal grinding machine suitable for 3 & 4 cylinder crankshaft complete
with 5 HP electric motor and starter
7. Special purpose crankpin grinding machine suitable for 3 & 4 cylinder engine crankshaft
complete with 5 HP electric motor and starter
8. Special purpose dynamic balancing m/c. suitable for 3 & 4 cylinder engine crankshaft
with rotating and shifting device drilling device etc. with 3 HP and 2 HP electric motor
and starter
9. Special purpose belt polishing machine, suitable for 3 & 4 cylinder engine crank shaft
complete with lapping belt & electric motor of 3 HP & starter
10. Double ended bench grinding machine with 10” X 1” X ¾” wheel size and CI pedestal
with 1 HP Electrical Motor & Starter
11. Flexible shaft grinder wheel size 6” complete with 1 HP, 3- phase electric motor and
starter & 6-½ feet shaft length
12. Air compressor with 7.5 HP electric motor with automatic pressure switch, belt guard
13. Universal tool & cutter grinding machine with 1 HP electric motor & starter
14. Drill point grinding machine with 1 HP electric motor & starter and fixture
15. Testing & Inspection Equipments : 15 Measuring instruments such as Vernier Caliper of
various sizes, roughness tester, hardness tester [both pocket type] micrometers, hand
tools
16. Energy conservation equipments
17. Pollution Control Equipments
4.5. Utilities
Power is the basic utility in the industry. As per JICA’s Study, excluding the recently operational
Gibe II, Ethiopia current power generating capacity is 1,600 MW, out of which frequent power
interruption was the major obstacle for industries to maintain smooth production, However with
coming in to operation of Tekeze and Gibe projects power problem has been reduced. The plant
will make the use of other utilities such as water supply, paved road transportation, drainage
facility and supplementary electric utilities
4.6. Building and Civil Works

The project promoter has a plan to construct a multipurpose building that includes; main
manufacturing houses, stores, administrative offices, workshops, social rooms, gourd houses and
other utilities.
4.7. Premises required and land use plan

The total land requirement for the project is estimated to be 15,000M 2. This land planned to be
use as indicated in table below;
Table -6- Premises required and use plan
SN Description Land Requirement (M2)
1 Production hail
1.1 Workshop 5000
1.2 Inspection room 1500
1.3 Packing 1500
Total production area 8,000
2. Warehouse
2.2 Raw materials and inputs 2,000
2.3 Finished products 2,000
Total warehouse area 4,000
3 Office 300
4 Waste accumulation area 300
5 Green area, parking, spacing and road 2,300
Gourd house 50
Generator house 50
Total 15,000
5. ORGANIZATION AND MANAGEMENT
5.1. Organizational structure and management

Any business activity needs well established system in order to be competitive and become
profitable. The envisage project will have its own autonomy and legal entity to execute its
objectives. Organizational structure of the project is designed by including all the necessary
personnel under the right division. Structurally it will have three main Departments; production
& technical Department, marketing & sales Department and administration & finance
Department under the office of general manager.
At the top of the organizational structure, there will be manager with the responsibility of
supervising the overall activity of the plant. The production & technical Department is
responsible for operational and technical aspects of production, maintenance and safety of the
plant. The marketing Department is responsible for procurement of row material and sales
activities. The administration and finance Department is responsible for controlling and guiding
personnel and for controlling all financial accounts. Employees under each Department will be
supervised by the department head that is accountable for the general manger. General manger is
appointed by the owner
General Manager
Executive Secretary
Production & Technical Marketing Department Admin & Finance

Department Department
Production HRM & General

Sales & Distribution
Teams Service
Market promotion
Quality Control Finance team
Fig -1- Organizational Structure of the envisage project
5.2. Man power requirement

The smooth and efficient operation of the factory presupposes adequate number of qualified and
experienced manpower. The manpower component of the factory will include the general
manager, unit managers and skillful technicians to control the production lines, operators and
other supporting stuffs.
The owner will appoint project manager who is responsible the responsibility of supervising the
overall activity of the plant. The manager will be accountable to the owner. More over the
project will hire skilled, semi skilled and unskilled employees including guards, feeders and
others. The total manpower requirement of the plant will be 439 employees at full capacity.
 Permanent workers 313: Skilled 258 and Unskilled 55

 Temporary workers 126: Skilled 6 and Unskilled 120
Employees will be given on job training, clear duties and responsibilities under the direct
supervision of their respective units. A training program is proposed for operators and
supervisors for about a month by the machinery suppliers. The production and maintenance
personnel need a two week on job training on how to use the machines and on the manufacturing
process.
Table – 8 – Manpower requirement and qualification
SN Position Qualification Req No.
1. General manager MSC/MSC Industrial engineering 1
2. Production manager BSC in Mechanical l Engineering 1
3. Quality controller BSC in Production Technology 4
4. Public affairs BA in mgt/leadership/ PSIR, Sociology 1
5. Marketing head BA in marketing management 1
6. Administration & finance head BA in accounting, economics 1
7. Finance head BA in Accounting 1
8. Personnel head BA in mgt / leadership 1
9. Production Technicians 10 + 3 in production technology 31
10. Designer and color operator BSC in designing, 5
11. Accountant BA in accounting 3
12. Hydraulic technician 10 +3 or Diploma in general mechanics 6
13. Sales 10+3 sales man ship 10
14. Operators Diploma( 10 +2,10+3) in general mechanics 110
15. Assisting Operators 10 +1 general mechanics 50
16. Mechanic Diploma/10+2 in general mechanics 4
17. Electrician 10+3 in general electricity 4
18. Secretary Diploma in sectarian science 3
19. Cashier 10+2 in bookkeeping 5
20. Clerk 10 completed 2
21. Store keeper 10+2 in store and logistics management 5
22. Driver 10 completed 8
23. Assistant driver Basic 4
24. Office boy/girl 10 completed 3
25. Cookers Unskilled 10
26. Cleaner & laundry Unskilled 32
27. Security Basic 8
28. Gardner Unskilled 5
29. Wage workers Unskilled 120
Total 439
6. FINANCIAL REQUIREMENT AND ANALYSIS
6.1. Fixed Investment

6.1.1. Building and Construction
SN Description Land Unit cost Total cost in
requirement in Br. Br.
(M2)
1. Workshop 5000 2700 13,500,000.00
2. Inspection room 1500 2700 4,050,000.00
3. Packing 1500 2700 4,050,000.00
4. Raw materials and inputs 2,000 2,300 4,600,000.00
5. Finished products 2000 2,500 5,000,000.00
6. Office 300 2700 810,000.00
7. Gourd house 50 2,100 105,000.00
8. Generator house 50 2,100 105,000.00
9. Green area, parking, spacing and 2300 500 1,150,000.00
road
10. Waste accumulation area 300 1500 450,000.00
11. Fences 500,00
12. Design and supervision 750,000.00
13. Site development 300,000.00
14. Waterline& electric installation 300,000.00
15. Land lease initial fee 2,200,000.00

Total 23,000 37,370,000
6.1.2. Vehicle
SN Description Qty Unit cost Total cost Remark
1 Truck 18 m3 1 1,700,000 1,700,000 Duty free

2 Truck with carne fixed 1 1,000,000 1,000,000.00 Duty free
3 Pick up 2 750,000 1,500,000.00 Duty free
4 Worker service bus 4 1,200,000 4,800,000.00 Duty free
Total 8 9,000,000
6.1.3. Factory Machine

Most of the auto spare parts manufacturing machine are imported from abroad. The cost of
required machineries and equipments and accessories including, the fright, insurance and
transport cost is estimated to be birr 42,704,090.00
6.1.4. Office equipments
S Description Qty Unit cost in Br. Total cost in Br.

N
1 Managerial tables with chair 6 15,000.00 90,000
2 Secretarial chairs 3 6,000.00 18,000
3 Office tables 18 3,000 54,000
4 Office chairs 35 2000.00 70,000
5 Computer with its printer 13 15,000.00 195,000
6 Shelf 7 5,500.00 38,500
7 Telephone and fax machine 2 2,000.00 4,000
8 Filling cabinets 2 3,100.00 6,200
9 Decoration (curtain, Sofa & Carpet) 300,000
10 Assembly set 1 90,000
11 Other miscellaneous products 140,000
Total 1,005,700
6.2. Expenses
6.2.1. Raw Material Purchase Projected
The envisage project will use different raw materials indicated in section 4.4 of this document.
The total finance requirement for the purchase of row materials at full capacity utilization is
estimated to be Eth Birr 334,654,000.00
6.2.2. Salary and benefit expense
As indicated in the table below the total expense for salary and befits of man power for planned
the project is estimated to be Eth Birr 9,424,218.24 at full capacity utilization;
Table – Salary and Benefit Expense
SN Position Qualification Req No. Sal /month Annual salary
1. General manager MSC/MSC Industrial engineering 1 10,000.00 120,000.00

2. Production manager BSC in Mechanical l Engineering 1 8,000.00 96,000.00
3. Quality controller BSC in Production Technology 4 8,000.00 384,000.00
4. Public affairs BA in mgt/leadership/ PSIR, Sociology 1 5,000 60,000.00
5. Marketing head BA in marketing management 1 5,000 60,000.00
6. Administration & finance BA in accounting, economics 1 5,000 60,000.00
7. Finance head BA in Accounting 1 5,000 60,000.00
8. Personnel head BA in mgt / leadership 1 5,000 60,000.00
9. Production Technicians 10 + 3 in production technology 31 1,800 669,600.00
10. Designer BSC in designing, 5 3,000 180,000.00
11. Accountant BA in accounting 3 3,000 108,000.00
12. Hydraulic technician 10 +3 in general mechanics 6 1800 129,600.00
13. Sales 10+3 sales man ship 10 1800 216,000.00
14. Operators 10+3 in general mechanics 110 1,800 2,376,000
15. Assisting Operators 10 +1 general mechanics 50 1,500 900,000.00
16. Mechanic Diploma/10+2 in general mechanics 4 1,800 86,400.00
17. Electrician 10+3 in general electricity 4 1,800 86,400.00
18. Secretary Diploma in sectarian science 3 2,350.00 84,600.00
19. Cashier 10+2 in bookkeeping 5 1,800 108,000.00
20. Clerk 10 completed 2 1,500.00 36,000.00
21. Store keeper 10+2 in logistics management 5 1,800 108,000.00
22. Driver 10 completed 8 1,500.00 144,000.00
23. Assistant driver Basic 4 1,100 52,800.00
24. Office boy/girl 10 completed 3 1,100.00 39,600.00
25. Cookers Unskilled 10 900 108,000.00
26. Cleaner & laundry Unskilled 32 900 345,600.00
27. Security Basic 8 900 86,400.00
28. Gardner Unskilled 5 800 48,000.00
29. Wage workers Unskilled 120 722.58 1,040,515.2
Total 439 7,853,515.2
Benefit (20%) 1570703.04
Grand total 9,424,218.24
6.2.3. Other Operating expenses
SN Description Remark Annual cost in br
1. Stationeries 10,000 per month 120,000

2. Detergents Br 3500 per month 45,000
3. Telephone, fax and postal Br 2000 per month 24,000
4. Uniforms 400 * 180 br 72,000
5. Electricity 0.45 * 350000KW per year 157, 500
6. Water 1.5 * 5000m3 per year 7,500
7. Fuel 20,500 lit * 17 per year 348,500
8. Property insurance 1% of fixed investment cost 900797.9
9. Audit & legal fee Br 4000 per month 4,8000
10. Spare parts Lump sum 200,000
11. Repair and maintenance 2% of the fixed cost 1801595.8
12. Oil and lubricant 10% of fuel cost 34,850
13. Miscellaneous expense Br. 9000 per months 208,000
Total 3,549,243.7
6.2. 4. Pre-Service Expense
SN Description Total cost in Br.

1 Project proposal study 15,000
2 Promotion and advertisement 600,000
3 Environmental impact assessment 30,000
4 Staff capacity building 250,000
5 Licensing fee and other processing 15,000
Total 910,000
6.2.5. Initial working capital

The initial working capital of the project is estimated to be Birr. 30,898,000.00
6.3. Summary of total capital requirements

SN Description Cost in birr
1 Building & construction 37,370,000
2 Machines & equipments 42,704,090
3 Vehicles 9,000,000
4 Office equipment 1,005,700
Total fixed investment cost 90,079,790
5 Pre service expense 910,000
6 Initial working capital 30,898,000.00
Total 121,887,790
Contingency (5%) 6,094,389.5
Total initial investment capital 127,982,179.5
7. FINANCIAL ANALYSIS AND STATEMENTS
7.1. Underlying Assumption

The financial analysis of the envisage project is based on the data provided in the preceding
sections and the assumption indicated in the following table;
TL Description Rate
1. Depreciation
Building 5%
Vehicle 20%
Machinery and equipment 10%
Office Equipments 10%
2. Financing and Operation cost
Source of finance 30% equity and 70% loan
Tax holidays 2 years
Revenue increased by 4% after 3 years
Salary and wages increased by 3% after 3 years
Operating costs increased by 2% after 3 years
Raw material increase by 3% after 3 years
3 Leasing and interest rate
Bank interest rate 10%
Lease period 60%
Lease payment period 40%
7.2. Source of Fund

SN Description share in % Amount
1 Owners share 30 38,394,653.85
2 Bank loan 70 89,587,525.65
TOTAL 100 127,982,179.5
7.3. Bank loan repayment schedule
Year Principal Interest* Total annual Remaining

payment payment balance
89,587,525.65
1 8,958,752.56 8,958,752.57 17,917,505.13 80,628,773.09
2 8,958,752.56 8,062,877.31 17,021,629.87 71,670,020.53
3 8,958,752.56 7,167,002.05 16,125,754.61 62,711,267.97
4 8,958,752.56 6,271,126.80 15,229,879.36 53,752,515.41
5 8,958,752.56 5,375,251.54 14,334,004.10 44,793,762.85
6 8,958,752.56 4,479,376.29 13,438,128.85 35,835,010.29
7 8,958,752.56 3,583,501.03 12,542,253.59 26,876,257.73
8 8,958,752.56 2,687,625.77 11,646,378.33 17,917,505.17
9 8,958,752.56 1,791,750.52 10,750,503.08 8,958,752.61
10 8,958,752.56 895,875.26 9,854,627.82 0.05
7.4. Depreciation Schedule

SN Description Original value in Birr Depreciatio Depreciation
n rate in % per year
1 Construction and building 37,370,000 5 1,868,500
2 Machines & equipments 42,704,090 10 4,270,409
,3 Vehicles 9,000,000 20 1,800,000
4 Office equipment 1,005,700 10 100,570
Total 90,079,790 8,039,479
7.5. Revenue Projection

Based on the price and the capacity program of the factory indicated in previous chapter, the
revenue of the factory projected as indicated in the table below;
Table – Revenue Projection
Capacity utilization

SN Products Unit Year 1 year 2 year 3 & above
1 Cylinder liner Pcs 96,000,000.00 128,000,000.00 160,000,000
2 Crank shaft pcs 60,000,000.00 80,000,000.00 100,000,000
3 Brakes Pcs 81,000,000.00 108,000,000.00 135,000,000
Total 237,000,000.00 316,000,000.00 395,000,000
7.6. Income loss statement
Revenue Year 1 Year 2 Year 3 &

above
Sales revenue 237,000,000.00 316,000,000.00 395,000,000
Purchase of raw 200,792,400.00 267,723,200.00 334,654,000.00
material & inputs
Gross profit 36,207,600.00 48,276,800.00 60,346,000.00
Expenses
Salary expense 5,654,530. 7,539,374. 9,424,218.24
94 59
Other operating 2,129,546. 2,839,394. 3,549,243.70
expenses 22 96
Deprecation building 1,121,100. 1,494,800. 1,868,500
00 00
Deprecation 3,250,097.00 3,250,097.00 3,250,097.00
machineries & equp.
Deprecation vehicles 4,270,409 4,270,409 4,270,409
Depreciation office 100,570.00 100,570.00 100,570.00
equip
Interest expense 8,958,752.57 8,062,877.31 4,031,438.65
Lease payment 990,000.00 990,000.00 990,000.00
Total expense 17,516,253. 20,484,645. 23,453,037.94
16 55
Profit before tax 18,691,346. 27,792,154. 36,892,962.
84 45 06
Tax (30%) 11,067,888.
62
Net profit 18,691,346. 27,792,154. 25,825,073.
84 45 44
7.7. Cash flow Statement
Year Year 0 Year 1 Year 2 Year 3

Equity capital 38,394,653.85
Loan principal 89,587,525.65
Net sale 237,000,000.00 316,000,000.00 395,000,000
Total cash in flow 127,982,179.50 237,000,000.00 316,000,000.00 395,000,000
Cash payment
Salary expense 5,654,530.9 7,539,374.5 9,424,218.2
4 9 4
Purchase of raw materials 200,792,400.0 267,723,200.0 334,654,000.0
0 0 0
Pre operating expense 910,000.00 - -
-
Investment 90,079,790.00 - -
-
Other operating cost 2,129,546.2 2,839,394.9 3,549,243.7
2 6 0
Loan repayment 17,917,505.13 17,021,629.87
12,990,191.22
Lease payment 2,200,000.00 990,000.00 990,000.00 990,000.00
Tax payment 11,067,888.6
2
Total payment
93,189,790.00 227,483,982.29 296,113,599.42 372,675,541.78
Cash surplus/ Deficit
34,792,389.50 9,516,017.71 19,886,400.58 22,324,458.22
Cumulative cash flow
9,516,017.71 29,402,418.29 51,726,876.51
7.8. Profitability
As clearly shown in the income statement part, the project will return its initial cost in short
period of time. According to the projected income statement, the project will start generating
profit in the 1st year of operation. Important ratios such as profit to total sales, net profit to equity
(Return on equity) and net profit plus interest on total investment (Return on total investment)
show an increasing trend during the lifetime of the project. Thus income statement and the other
indicators of profitability show that the project is viable.
7.9. Pay – Back period

The investment cost and income statement projection are used to project the pay-back period.
The project’s initial investment will be fully recovered within 7 years of operation.
7.10. Future development

In today’s dynamic and hypercompetitive business environment firms must change in order to
survive and prosper. In such innovative and changing environment, supper strategies become
lame, efficient ways of production become wasteful, if they could not go with the order of the
day. Operating in such environment therefore, the factory will have an expansion phase
depending on the condition of the industry character particularly in producing the profile itself by
installing the plant. In this regard, the envisioned project will expand its capacity to include the
production of variety auto spare parts and car assembly in the future.
8. ENVIRONMENTAL IMPACT OF THE PROJECT

In recent years environmental issues has swollen enough to assume pressing national and
international agendas. Government of Ethiopia has device policies, rules and regulations
regarding environmental impacts of projects. According to this policy projects to be
implemented in the country should not cause environmental and social harms. The
environmental and social impacts associated to the project should be avoided if possible or
mitigated through various mitigation methods.
In connection to this, the proposed auto spare part manufacturing factory has both positive and
negative impact on the environment and society. The envisage project will undertake a separate
details of environmental and social impact assessment together with its mitigation method so as
to ensure social and environmental safety of the society.

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Table of Contents

1.1. General background......................................................................................................4

3. MARKET STUDY AND PRODUCTION CAPACITY....................................................................13

3.1. Market study....................................................................................................................13

3.6. Pricing strategy................................................................................................................18

4.1. Production Process and Technology.............................................................................20

5.1. Organizational structure and management.................................................................26

6.1. Fixed Investment..............................................................................................................30

7.1. Underlying Assumption.................................................................................................36

1. Project Name Auto Spare Parts Manufacturing Plant

2. Project owner Mr. Mohammed Berisso Biru

6. Premises required 15,000M2

1.1. General background

1.2. Profile of the Promoter

1.3. Project Rational

1.4. Objective of the project

1.5. The significance of the project

B) Source of government revenue

C) Stimulate local economy

D) Benefit for the local community

F) Supply of quality Spare Parts

1.5. The Project area

2.2. Crank Shaft

3.1. Market study

3.1.1. Demand Consideration

A. Fast economy Growth

Table - Major economic indicators

Trends in performance of the economy: - Growth rates (%)

B. The patterns and growth of the Automotive industry

3.1.2. Supply Consideration

3.2. Market Prospects

3.3. Market share

3.4. Plant capacity and production program

Table - Plant capacity and production program

SN Products Unit Capacity utilization

1 Cylinder liner Pcs 480000 640000 800,000

3.5. Market Plan

3.6. Pricing strategy

Table – price of the product

S.N Products Unit Price/ unit

4.1. Production Process and Technology

4.1.1. Cylinder Liner Production Process

4.1.2. Crankshaft Manufacturing Process

4.2. Quality Control and Standards

4.3. Raw materials and inputs

4.3.2. Raw Material & input for crank shaft production

4.4.1. Machinery and Equipments for cylinder line production

Sl. No. Description

1. SPM Boring Machines.

4.4.2. Machinery and Equipment for crankshaft Production

4.6. Building and Civil Works

4.7. Premises required and land use plan

SN Description Land Requirement (M2)

5.1. Organizational structure and management

Production & Technical Marketing Department Admin & Finance

Production HRM & General

Quality Control Finance team

Fig -1- Organizational Structure of the envisage project

5.2. Man power requirement

 Permanent workers 313: Skilled 258 and Unskilled 55

Table – 8 – Manpower requirement and qualification

6. FINANCIAL REQUIREMENT AND ANALYSIS

6.1. Fixed Investment