1.

EXECUTIVE SUMMARY

The prevailing project is the establishment cotton spinning mill with annual spinning capacity of
7,200 tonnes to produce yarn. The plant is designed to sell 80 % of its product to the
international market and the remaining 20 % is for the domestic market.

The present demand for the local market estimated at 25,414 tons per annum. The Demand is
expected to reach at 79,760 tons by the year 2030.The unsatisfied domestic market within the same
year will be 53,902 tones. It is quite clear that the international yarn market is entirely open for all
developing nations; however, we have determined the unsatisfied demand based on 5 year GTP
(Growth and transformation plan) for textile sector.
1.1 Location of the Project
The proposed project will be setup in Southern Nation, Nationalities and people Regional State,
Gurage Zone in Buee Town Administration, a specific place will be determined on the basis of
consideration and study by the initiator of the project location and negotiations.
1.2 Project Objective
 To manufacture Cotton Yarn
 • To sell its products locally & abroad
 To incentivize farmers to grow cotton, by creating consistent demand for cotton
production.
 By increasing textile and garements production, the factory will play an important role in
reducing the volume import from abroad.
 Increase foreign exchange earnings
 To provide employment opportunity to the growing labor force of the project area by
employing permanent and temporary employees.

1.3 Main types of products/services / activities

The Spinning mill takes raw cotton and converts it into finished yarn to be used in weaving
The spinning mill should be capable of producing coarse to medium yarn (Ne16/1-Ne 40/1)
It should be possible to use the yarn in knitting and weaving applications. The yarn should meet
international quality standards.

1
1.4 Financial Overview
In terms of financing, the Yarn Factory is seeking a total of Br 20,000,000.00 to finance its
capital expenditure requirements (Br 11,118,500) and working capital (Br. 8,881,500.00) 
The proposed source of funding for the business is a bank loan of Br. 15,450,400.00 and owner
contribution of Br. 4,549,600.00 The proposed security for the bank loan is the all assets of the
farm. The business will approach Development banks of Ethiopia for assistance with the required
funds. The funds will be used to build a plant and purchase of machinery and equipment and
amount also covers the working capital requirements of the business.

The project is financially feasible that it will reach breakeven point at 18% of the capacity and
has a payback period of 3 years

1.5 Estimated Production

Cotton Yarn production

Year in Tonn
1st 6,400.00
2nd 7,200.00
3rd 7,200.00
4th 7,200.00
5th 7,200.00

1.6 Expected Beneficiaries:

 Permanent employee for day to day operation : 97.00
 Temporary employee during Construction : 80.00
177.00

1.7 Socio-Economic benefit

 The project will create Opportunity to get employed in an organized plan for the local
society
 Cotton producers prefer to deal directly with the textile factories and sell their cotton at
better price
 Increase in income opportunity will provide access to community to provide better
education and health facilities and quality of life

2
2. Background
The startup project is based on the idea that a prosperous market for cotton yarn that present in
global and local market. The anticipated Textile Factory Project” is initiated and owned by
Mr. Habtamu Tachal

2.1Company Profile
2.1.1 Project Name Habtamu Tachal Techal Textile Factory
2.1.2 Owner(s): Mr. Habtamu Tachal
2.1.3 Nationality: Ethiopian
2,1.4 Industry Textile and Garment industry
2.1.5 Full Address : Address: SNNPRS, Gurage Zone in Buee Town. Administration
Mobile: 0911481317
2.1.6 Status of the Project New
2.1.7 Proposed Site: Buee Town Administration
2.1.8 Specific location: Within the Industry area of Buee town
2.1.9 Size of proposed land: 10,000 square meter
2.1.10 Total estimated 20,000,000.00
Investment
2.1.11Expected Source of Equity 20% Br. 4,549,600.00
financing
Bank Loan 80% Br. 15,450,400.00
2.1.12 Legal Form of Sole proprietorship
organiz.ation
2.2 The Promoters
2.2.1 The Promoter’s
The owner was born in Ethiopian and currently has Ethiopia citizenship. In view of his
education he has completed high school education. Mr. Habtamu Techal has more than 12
years of experience in trade in his business.
Habtamu also has several influential and informative contacts that will support him in this
business venture. In addition, he has experience in receiving loans and has been successful
in repayment. Mr. Habtamu Techal is the man of decision as well as entrepreneur that
knows what he wants to accomplish and plan. Along with the increasing of demand, Mr.
Habtamu has been willing to invest in the latest technology or the latest machinery, to
produce cotton yarn to meeting the increasing market demand.

3
2.3 Economic Background and Potential in Relation to the Proposed Investment

2.3.1 Potential
The favorable climatic conditions, the abundance of rainfall, and the abundant availability of
rivers make Ethiopia favorable place to plant cotton (the main raw material for textile) both
through irrigation and rainfall. In addition to this, the textile sector is relatively labor intensive
with which Ethiopia has comparative advantage. In this regard, UNCTD (2004) research
indicates that many developing countries have a comparative advantage in the production of
textiles and clothing, which often relies on relatively simple technology and a comparatively
large input of low-skilled labor. Besides, the global textile market has become increasingly
accessible to developing countries such as Ethiopia (ETIDI, 2012) which in turn increases the
importance of the sector to the country.
The Ethiopian textile and garments industry has huge potential and has grown an average of
51%over the last 5-6 years. With a key focus on Foreign Direct Investments (FDI) the
government is driven to open up their textile- and garment market to mid- en large scaled foreign
investors. Retailers like H&M, Primark and Tesco have established offices in 2012 and are
buying clothing- finished products- from Ethiopian manufacturers. For smaller scaled textile
industry companies the sector however offers large potential as well.

Potential for successful industrial backward linkages are illustrated by the fact that Ethiopia has
2. 6 million hectare of land that is suited for cotton cultivation. At the moment of this total
capacity only 5-6% of the cotton is cultivated and used in the forward textile industry.
Together with foreign investors this potential is to be tapped the coming years.
Ethiopian government has decided to encourage cultivation of genetically modified cotton,
which will improve the production and also quality can be controlled.
The Ethiopian government has launched the New Cotton Development Strategy (NCDS). Under
NCDS, government has planned to make Ethiopia one of the world’s top cotton producers with
annual cotton lint production of 1.1 million metric tonnes for the coming 15 years (2017-2032).
.One of the reasons why investors seem to be clamoring to move operations into Ethiopia is the
availability of cheap labor. Moreover, as part of the GTP, the government provides a number of
investment initiatives to investors.

4
These include a number of customs duty exemptions for imports of capital goods; and income
tax exemptions from manufacturing investments. Easy transportation also works in favor of the
country. It is near the sea, which makes it easy to get to Europe via the Suez Canal; this in turn
shortens the delivery time.

The country is more preferable due to various opportunities to make the textile sector grow at
expected level. Among such factors, the political and social stability, and macro-economic
stability - rapidly growing economy, strategic location and low inputs cost.

2.3.2 Role of Textile and Garments for the National Economy

The Textile and garment sector is a large contributor to the Ethiopian economy as well as a
mainstay in the livelihoods of many Ethiopians. It contributes 12% and 33% of the total and
agricultural Gross Domestic Product (GDP), respectively, and provides livelihood for 65% of
the population. The sector also accounts for 12–15% of total export earnings. Textile and
garment sector also have a foreign exchange saving effect to the country by substituting the
current imports. Cotton is also a crucial source of income for millions of small farmers and their
families, as well as being a source of foreign exchange earnings.

Yarns export, grey fabric, garments and traditional handloom together totaled an export
amount of just over 160 million USD in 2014/2015 compared to 60 million only 5 year before
in 2015. The Ethiopian Government is looking to develop the garment industry into a global
sourcing hub and has set ambitious targets to grow garment exports. These targets include
expanding export earnings to $1 billion by 2020 and boosting the share of garment and textile
exports to 22% of total exports (de Haan and Theuws, 2018).

Ethiopia’s garment exports have grown rapidly – from a very low base – since the turn of the
century. Between 2000 and 2018, the value of Ethiopia’s exports of apparel and clothing
accessories (HS 61 and 62 combined) grew from $222,475 to more than $63 million (UN
Comtrade data). Ethiopia has also registered impressive growth in exports of yarn, grey fabric

5
and traditional handloom products, and there is some early evidence of export product and
market diversification (Van der Pols, 2015).

The promising textile and garment industry is of great importance for the overall economy. Its
contribution to industrial production, employment and export earnings is very significant. This
industry provides one of the basic necessities of life. The employment provided by it is a source
of livelihood for millions of people ring employment and foreign currency with the ultimate
goals in 2025-2030.

The sector is an important generator of employment. In keeping with Ethiopia’s long history of
textile production, large numbers of farmers and rural workers are currently involved in
informal activities related to the production of traditional wear. Data for 2018 suggest that
when those involved in these informal activities are included, up to 450,000 people are
engaged in activities across the sector, the majority of them (416,913 people) in the textile
segment (ITC, 2016). Of this total, around 37,000 workers are employed in the formal textile
and garment sector (Ambastha, 2017).

2.4 The Features of the Textile Industry

Manufacturing establishments within the textile industry are primarily involved in 1) fiber
preparation and manufacture of yarn, thread, braids, twine, and cords; 2) manufacture of knit
fabrics, broad and narrow woven fabrics, as well as carpets and rugs from yarn (Broad woven
fabrics are generally greater than 12 inches in width, whereas narrow woven fabrics are less than
12 inches in width.); 3) dyeing and finishing fibers, yarns, fabrics, and knitted goods; 4) coating,
waterproofing and treating fabrics; 5) integrated manufacture of knit apparel and other products
from yarn; and 6) manufacture of felt, lace, nonwoven, and other miscellaneous textile products.

Ownership is diversified in the Ethiopian textile and apparel sector, made up of state owned
enterprises (SOE), endowment-owned firms linked to the dominant party, private locally owned
firms, and Ethiopian Diasporas owned firms and a variety of foreign-owned firms.

6
 According to Ethiopian Textile Industry Development Institute, there were a total of 250
medium- and large-scale factories establishments in the textile manufacturing industry. These are
24 integrated mills , 19 Ginneries 4 Spinning , 20 Weaving and/or Knitting , 5 Handloom , 176
Garment and six Blanket factories

In the past five years, foreign owned firms have increased in the textile and apparel sector.
There are 43 foreign-owned firms in the textile and apparel sector accounting for 34 per cent of
firms and 49 per cent of employment.

One of the significant benefits of this sector to the country is employment of the population
which is factorial in increasing the per capita income of the Ethiopian. Along with employment
generation, female incomes poverty reduction is also a major contribution of this sector to
develop sustainable livelihoods in the country.
ETIDI (2018) reports that the export share of textile and garment business in total was 3.5 per
cent in 2017, and for manufacturing sector, the export share were 23 per cent. Leading the
Ethiopian Government’s long-term vision for economic growth that taps into the country’s huge
potential workforce and low labor costs, work is underway a network of specialized and vertical
clothing and textile hubs across the country.

The Ethiopian Industrial Parks Development Corporation (IPDC) established in 2014, became an
engine of rapid industrialization that nurture manufacturing industries, to accelerate economic
transformation, promote and attract both domestic and foreign investors.
The Government of Ethiopia hopes to bring in textile exports worth $30bilion by 2025 and
increase the GDP of the country, household income, foreign currency and employment in the
country.

2.5 Benefits
One of the significant benefits of this sector to the country is employment of the population
which is factorial in increasing the per capita income of the Ethiopian. Along with employment
generation, female incomes poverty reductions are also a major contribution of this sector to
develop sustainable livelihoods in the country.

7
Direct and temporary opportunities will be created for local workers at the construction Phase.
Long term, large scale and stable employment will be generated at the post Construction phase.
Local villagers will be given preference and trained to work in the unit. The proposed project
will provide direct employment to 97 people.

Transportation will be required to transfer the raw material and finished goods and eventually be
needed therefore truckers and jobs in logistical activities will come up.
There will be development of externalities for the workers petty shops (tea, repair stations for
trucks etc.) as supporting services. Cotton producers prefer to deal directly with the project and
sell their cotton at better prices.

The establishment of the Proposed Yarn Mill will have a foreign exchange saving effect to the
country by substituting the current imports. The project will also generate income for the
Government in terms of payroll tax and profit tax in future.

2.6 Past and present intervention

Ethiopia has long years experience of textile industry. It produces traditional apparel (cottage
industry) produced by hand loom to satisfy the needs of the people. These traditional apparels are
made of woven cotton threads made by hand from twisted lint or yarn. The activities were
traditionally held by handloom weavers. This traditional cottage industry is inherited and
continues up to now and making an important contribution to textile requirements.

The first integrated mill was established in 1939 in Dire Dawa Town by the name Dire Dawa
Textile Factory, which marked the beginning of textile industrialization. Following this the
imperial government established Akaki textile factory with Indian government in the year 1960.

Ethiopian textile industry is producing a large variety of products. Spinning firms produce yarn
and sewing thread. Whereas integrated ginning mills produce a wide variety of products
including yarn, fabrics (knitted and woven), canvas, school and traveling bags, blankets,

8
sweaters, shawls, uniforms, towels, baby nappies and knitted garments. Garments manufacturers
on the other hand, produce various types of garments for both local and export market

Modern textile manufacturing became a main component of Ethiopian textile manufacturing

industry after Ethio Italian war. The Imperial era formulated strategies that were relevant to the
development of the industrialization in Ethiopia in 1950 to 1974. An encouragement of the
foreign capital investment with import substation strategy was the main direction of the textile
industrial strategy. The policy gave many incentives to foreign investors and showed less
concern for indigenous investment. As the result most textile industries during the imperial era,
most of the manufacturing industries including textile and apparel were owned and operated by
foreigners.

During the Dregs regime (1975-1991), the Ethiopian industries were operated under state led
strategy and the government nationalized almost all private industries. The Derg regime
industrial policy is similarity with the Imperial era in the basic theme, since both industrial
policies focused on import substitution.
During the Derge regime the textile industries were established with the objectives which focus
towards public welfare such as creating employment opportunities, and import substitution
perspectives. These kinds of directions protected the industry from external competition and in
turn introduced inefficient resource utilization.

After the fall of the Derg regime in1991, The EPRDF has taken a wide range of economic
liberalization policy measure. The Agricultural Development Led Industrialization (ADLI) of the
country which includes ,the Promotion of the inter and intra sect oral linkages, Promotion of
economic efficiency and growth of the country, Development of domestic technological
capacities and capabilities for the promotion and development of medium capital manufacturing
industries, Creation of domestic base technologies for the transfer, adaptation, and development
of technology, favoring the advanced use of labor intensive technologies and local resources, to
achieve the industrial competitiveness in an area of clear comparative advantages in exports, and

9
Promoting balanced regional development. In keeping with a wider state-led approach to
development, the Ethiopian Government has played an active role in the development of the
textile and garment sector since the early 2000s.

In the 2000s, a large privatization wave sold most of the state-owned Textile and garments
factories such as Kombolcha Textile Share, Bahir Dar Textile or Yirgalem Textile to domestic
investors. Most of the privatized companies belong to local entrepreneurs and endowment funds
like TIRET and EFFORT. They did not contribute to the export growth as ‘the outdated
technology in the textile firms caused low efficiency and required significant investments’.
(Staritz and Whitfield, 2019)

In 2010, Ethiopia amounted to more than 90 factories, of which 91% were privately owned. In
2018, this number increased sharply and reached 200. More than 65 textile investment projects
have been licensed for foreign investors in the last five to six years. (Robel, 2018)

The Ethiopian Industrial Parks Development Corporation (IPDC) established in 2014, became
an engine of rapid industrialization that nurture manufacturing industries, to accelerate economic
transformation, promote and attract both local and foreign investors. It is envisaged that foreign
firms operating in these parks will be supported by local counterparts, with some emphasis
placed on attracting investors that are committed to fostering linkages with local firms (ibid.).
The government gives priority to the sector with various initiatives for investment. Hence, local
and foreign investors are joining the sector.

It is with the increasing share of foreign direct investment (FDI ) that the Ethiopian textile sector
changed dramatically. Numerous foreign companies chose Ethiopia as a next textile and garment
production hub. The first FDI wave mainly included prominent Turkish investments as a result
of a close diplomatic relation. (Staritz et al., 2016; Staritz and Whitfield, 2019)

The production and export surge can be explained by the implementation of Ayka Addis in the
suburbs of Addis Ababa. The Turkish integrated textile giant invested $140 million to build a
factory in 2010 and created more than 7,000 jobs. The arrival of Ayka Addis put Ethiopia on the

10
global value chain map and attracted additional investors from countries like Israel, China and
India.
As a result of the government‘s export incentives and opportunity of international trading
environment, availability of cheap labor and raw material for textile in the past few years, the
export of textile product has shown significant increase

Overall, FDI in the textile industry has risen: allegedly from $166.5m in 2013/14 to $1.2b in
2016/17 (Ethiopian Investment Commission (EIC) and the share of exporting textile and garment
FDI firms accounted for 80% in 2017. Van der Pols (2018) reports that there were less than 20
firms in 1991, which increased to above 80 in 2012 and nearly 110 in 2013, reaching around 250
medium- and large-scale factories today

2.7 Justification of the project: why it is proposed?

Ethiopia has a huge potential for textile production, and there are readily available labor, huge
domestic markets, and favorable conditions for exports. The government has also given a due
attention to the industry and established an institute to assist textile firms in their marketing
activities and production innovations. Moreover, relatively easy access to the global market due
to trade agreements such as the African Growth and Opportunity Act and the GSP+ and several
bilateral trade agreements make Ethiopia a more attractive sourcing destination.

As a result of the government’s focus in supporting the growth of the manufacturing sector, the
possibility of success by the envisaged plant will be enhanced. Moreover, to encourage and
promote private investment various incentives are granted to investors including reduction in
customs import duty, exemption from payment of export customs duties, income tax holiday and
loss carried forward etc.

The existence of cheap and abundant labor resource and land resource suitable for cotton
cultivation is another opportunity for textile, garment and garment accessories producing
companies. Ethiopia has also trade agreements with a number of countries which give it quota

11
and duty free market access. These enable enterprises run profitably in the country which is
opportunity for the envisaged project directly or indirectly.

The proposed project considered five key factors: government stability, land and port
accessibility, cost of energy, raw material availability and labor availability coupled with the
commitment of the Ethiopian government to the textile and garment sector as a strategic area of
investment.

In view of this background, Mr. Habtamu Tachal has been interested to invest on Yarn mill to
produce cotton yarn in Buee Town Administration, Gurage Zone.

2.8 Support for the Project

Dedicated institutes have been accorded an increasingly influential role in leading the
development of key industries in Ethiopia. Among these, the Ethiopian Textile Industries
Development Institute (ETIDI), established in 2010, helps to promote investment and provides
training and technical assistance to firms: a training centre, the Textile and Apparel Institute, was
established under its guidance. It also provides research and development, testing and quality
evaluation services.

The Ethiopian Textile and Garment Manufacturers Association (ETGAMA) is the private sector
organization that represents the interests of enterprises in the textile and garment sector. Its goal
is to foster the development of the textile and garment sector. Its activities include: updating
members on contemporary global business trends; conducting seminars & dialogues with
Government regarding policy issues; holding trainings & workshops with development partners.

The Development Bank of Ethiopia (DBE) now provides long-term loans to textile sector at
subsidized rates (Oqubay, 2015).
The Ethiopian Industrial Input Development Enterprise is helps to securing the availability of
raw material for the industry.

Fashion and Textile Institutes and TVET centers; It is an important step to skill the labor in low
and middle managerial levels. An example of such an institute is Ethiopian Institute of Textile

12
and Fashion Technology (EiTEX) at Bahir Dar University. The institute holds an important
position in providing bachelor, master and PhD degree programmes in textile engineering,
garment engineering, fashion design and leather technology which occupy top management
positions in the textile and apparel firms. EiTEX contributes not only to educate and get
employment to the youth of the country but is also a leading academic advisor in terms of
technology transferring activities.

2.9 Project Objectives

 To manufacture Cotton Yarn
 • To sell its products locally & abroad
 To incentivize farmers to grow cotton, by creating consistent demand for cotton
production.
 By increasing textile and garements production, the factory will play an important role in
reducing the volume import from abroad.
 Increase foreign exchange earnings
 To provide employment opportunity to the growing labor force of the project area by
employing permanent and temporary employees.

13
3 STUDY OF THE PROJECT SITE

3.1 Descriptions of the Area

The area identified for implementing the anticipated project is located in Buee Town
Administration , Gurage zone, SNNPR State. The project area is 110 km long and is located
north of Addis Ababa, connecting Hosana –Wolita- Arba Minch with very good road connection
to Addis Ababa.

3.2 Physical and Natural condition of Project Site

3.2.1 Topographic Features

The topographic features of the proposed project area are characterized by slightly to gently
sloping terrain. The topography of the project area generally indicates availability of favorable
opportunity for low cost installation of infrastructures and site development requirements.

3.2.2 Climate
The agro- climatic zone of Buee Town Administration is categorized as weyna dega. The annual
rainfall varies from 900-1,200 mm and the annual average minimum and maximum temperature
varies from 15 to 26 degree centigrade.

3.2.3 Availability of utilities, Infrastructures and Other service

Road; The project area can be accessed by all-weather roads up to Buee Town. The area is
connected all sides with all-weather roads, so the project can transport inputs and output easily.

Electric Power; Buee Town of the project area has access to hydroelectric power.
Currently, the government has setup additional power station at Buee Town Administration. This

14
power station will help us to reduce the cost of operation with better efficiencies and will ensure
uninterrupted availability of power.

Water Resources; The water demand for the project includes all forms of water use such
as water required for production units, water required for workers, commercial use and landscape
irrigation. by now, access to safe drinking water is not a problem in the project area.

Telecommunication ; According to the data collected from the Bureau of Finance and
Economy, the town administration and all Peasant associations in the project area have access to
telephone services, such as, mobile telephone service, and wireless.

Educational Services; Buee Town has good access to educational services especially
from kinder Garden to high school

Health Services; the project area can access hospital service nearby Hospitals and Health
center which is 2 km far from project area

15
 4. MARKET STUDY AND PLANT CAPACITY
4.1 MARKET STUDY

Ethiopian wear traditional dresses (Ye Habesha Libse) woven by traditional weavers made
from cotton yarn. Such demand for cotton yarn in Ethiopia is met mainly from local suppliers
who spin cotton manually in a very small scale at a household level. Moreover, currently,
large numbers of newly emerging cottage industries (which are working on diversifying,
upgrading and modernizing Ethiopian traditional costumes) are demanding large amount of
cotton yarn as their major input.
The demand for cotton yarn in Ethiopia is currently met through domestic production though the
country was importing some amount in the past to fill the demand gap. Thelocal producers are
two spinning plants: Adei Ababa Yarn Factory and Edget Yarn and Sewing Thread Factor y and
integrated textile mills: Akaki, Arbaminch, Awassa, Kombolcha, Bahirdar, Almeda ,Ayka,
Adama,and Dire Dawa textile factories.
The integrated mills produce yarn mainly for the consumption of their own weaving departments
to produce fabrics, while the spinning factories produce exclusively for the hand loom sector and
other consumers of marketed yarn.
Though these major spinning companies in Ethiopia have an annual installed capacity of
37,625 tons of yarn, currently they have an attainable capacity of25, 858 tons per annum as
most of the machineries are obsolete and inefficient. Even though the export market is
entirely open for developing nations like Ethiopia, The export demand based on the
government yarn export plan has totally unsatisfied by current production capacity of
existing plants. Table 3.1 and 3.2 depicts that the present demand for cotton yarn both
locally and foreign market is quite big that the existing plants are unable to satisfy the
cotton yarn demand both in the country and oversees.

16
 4.2 Plant capacity and production program

4.2.1 Plant capacity

Relaying on the projected data obtained from the market, the spinning mill is supposed to
produce different kinds of yarn counts at a capacity of 25 ton/day. The machinery technology
allows it to produce product mix of ranging from 10Ne to 60Ne.
The spinning mill will work 320 days per annum and 21 days per day in 3 shifts. The total
working days in the year excludes Sundays and public holydays. The product mix consists of
both ring spun yarn and open end yarns at different factor and counts. In the ring spun yarn
categories combed yarn and carded are inclusive.

4.2.2 Production program

The planned capacity cannot be achieved in the establishment year of the spinning mill.. The
integral reasons for these are gradual build up in labor productivity and fine tuning of
machineries. It is estimated that production starts at 80% plant capacity in the first year and
the plant reaches 90% in the second year and then after.

Table 1. Production Program

4 and
Year 1 2 3 above

Capacity Utilization (%) 80 90 90 90

Operation(Tons) 6,400.00 7,200.00 7,200.00 7,200.00

17
4.3 Marketing Strategy and Sales Strategy
We have detailed information and data that we were able to utilize to structure our business to
attract the numbers of customers we want to attract per time and also for our products to
favorable compete with other leading cotton yarn brands in the country. In order to continue to
be in business and grow, we must continue to sell our well – produced cotton yarn to the
available market which is why we will go all out to empower or sales and marketing team to
deliver our corporate sales goals.

In summary, the proposed Yarn production factory will adopt the following sales and marketing
approach to sell our premium quality wheat flour.

 Introduce our Cotton Yarn brand by sending introductory letters to Customers, in Addis
Ababa - Sub- City- and other town in the country
 Advertise our cotton yarn in newspapers, TV and radio stations
 Engage in direct marketing and sales
 Encourage the use of Word of mouth marketing (referrals)

4.4 Pricing and Distribution

Distribution of yarn to the domestic market is undertaken by long established wholesalers, most
of them located in 'Merkato'. The product will find its foreign market outlets through the most
reputable yarn marketers to USA and Europe.
The envisaged plant is expected to sell its product to the whole seller at an average price of
54,208 Birr to both local and foreign market.

18
 5. TECHNICAL AND ENGINEERING STUDIES

The most important technical considerations for this project is raw materials type and selection,
technology and capacity of plant, infrastructures, production process and production support
facilities like land and factory building. Each of them is discussed in the subsequent parts.
5.1 Raw material and inputs
The viability of a Textile processing plant depends upon the availability and uninterrupted
supply of raw material to the unit. The materials and inputs required by the plant comprise basic
raw materials, auxiliary materials and utilities.
5.1.1 Material and Input
The main raw material required to produce spun yarn is lint cotton. As well known, cotton is
obtained from local cotton suppliers. Besides, most regions in the country have the potential to grow
cotton having different fines, staple length and color. The estimated annual cost of Raw materials at
full capacity is Br.400, 000,000.00. Details are shown in the table below(table 2)

5.1.2 Auxiliary Materials

Auxiliary materials required are packing materials (e.g., materials paper cones, plastic bobbins
and cops, cans and plastic bags bags); these can be easily obtained from local markets. The
estimated annual cost of Raw materials at full capacity is Br.4, 799,952.00. Details are shown in
the table below (table 3 )
Table 2. Raw and Auxiliary materials & costs at full capacity
S
QTY UC TC
N DESCRIPTION UM
A. Raw Materials
1 Cotton Fiber Tone 8,000.00 50,000.00 400,000,000.00

19
2 Pollsters Fiber Tone
Sub- Total 400,000,000.
00
B. Auxiliary Materials
1 Packing materials 112.00 28,571.00 3,199,952.00
2 Jute sack(Bag) 160.00 10,000.00 1,600,000.00
Sub- Total 4,799,952.00
Total Cost 4,799,952.00

5.1.3 utilities
Electricity, fuel and water are the three major utilities required by the plant. Total annual cost of
major utility items at full operation capacity of the plant is Birr 11,477,067.Details are shown in the
table below
Table 3 annual cost of utility at full capacity
S/N Utility Requirements Unit price Cost(Birr)
(Annual)
1 Electricity 10,666,667kwh 0.55 Birr/Kwh 5,866,667 .00
2 Fuel(Diesel Oil) 384,000lt 14.50 Birr/lt 5,568,000 .00
3 Water 16,000 m3 2.65 Birr/m3 42,400 .00
Total 11,477,067.00

5.2 Technology and Engineering

5.2.1 Land, Buildings and Civil Works

5.2.1.1 Location Site and Land

Location of the plant is determined on the proximity of raw materials, availability of

infrastructure, availability of skilled and semi skilled labour, land, and other necessary
infrastructures and distance to potential market outlet.
In view of this, the envisaged plant will be established in South regional state at Buee town
administration industrial zone.

20
5.2.1.1.1 Land Requirement

Urban land permit by lease is on negotiation base. The Recommended size of the intended
project, approximately 10,000m2 of land is required with future expansion and other
requirements the total cost of land, at the rate of Birr 87 per m2 for 40 years of land holding is
estimated at Birr 870,000. Out of this amount 10% down payment birr 87,000 will be paid. The remaining
balance will be paid within 40 years after the end of grace period. The details Land Use Plan is shown
below

Table 4. Land Use Plan

DESCRIPTION DIMENSION AREA

S/N M*M Meter squire
Spinning Building
1 (Contains; blowing, carding, drawing, roving, ring 144*30 4,318.00
,winding area)
2 yarn finishing room 30*20 600.00
3 Plant room for Air Handling Unit and Electric chiller 20*10 200.00
4 Water Treatment Plant & Effluent Treatment Plant 60*20 1,200.00
5 Air Compressor Shed 20*10 200.00
6 Generator Shed 10*5 50.00
7 Office Space and Store: 80*10 800.00
8 yarn Inspection & Mending Room 20*6 120.00
9 Living accommodations for on duty and resident 50*10 500.00
executives
10 Security Guard Room 4*3 12.00
11 Inner Roads, Parking and Unloading Area 200*10 2,000.00
Total 10,000.00

5.2.2 Building and Civil works

21
This complex will consist of separate buildings for different machinery and purposes. They
would be as Spinning Building, Cotton and yarn finishing room, Plant room for Air Handling
Unit, Water Treatment Plant & Effluent Treatment Plant, Air Compressor and generator Shed,
Office Space and Store, Living accommodations for on duty and resident executives and Security
Guard Room. The total estimated cost for building and civil works will be 3.0 million birr.

5,3 Production Process

Yarn manufacturing process starts with cleaning of natural fibers such as cotton and wool. These
fibers must go through a series of preparation steps before they can be spun into yarn, including
opening, blending, carding, combing, and drafting. The main steps used for processing natural
and manmade fibers into yarn are below.

Natural Fibers

Yarn formation can be performed once textile fibers are uniform and have cohesive surfaces. To
achieve this, natural fibers are first cleaned to remove impurities and are then subjected to a
series of brushing and drawing steps designed to soften and align the fibers. The following
describes the main step used for processing wool and cotton. Although equipment used for
cotton is designed somewhat differently from that used for wool, the machinery operates in
essentially the same fashion.

Opening/Blending: Opening of bales sometimes occurs in conjunction with the blending of

fibers. Suppliers deliver natural fibers to the spinning mill in compressed bales. The fibers must
be sorted based on grade, cleaned to remove particles of dirt, twigs, and leaves, and blended with
fibers from different bales to improve the consistency of the fiber mix. Sorting and cleaning is
performed in machines known as openers. The opener consists of a rotating cylinder equipped
with spiked teeth or a set
of toothed bars. These teeth pull the unbaled fibers apart, fluffing them while loosening
impurities. Because the feed for the opener comes from multiple bales, the opener blends the
fibers as it cleans and opens them.

22
Carding: Tufts of fiber are conveyed by air stream to a carding machine, which transports the
fibers over a belt equipped with wire needles. A series of rotating brushes rests on top of the belt.
The different rotation speeds of the belt and the brushes cause the fibers to tease out and align
into thin, parallel sheets. Many shorter fibers, which would weaken the yarn, are separated out
and removed. A further objective of carding is to better align the fibers to prepare them for
spinning. The sheet of carded fibers is removed through a funnel into a loose ropelike strand
called a sliver. Opening, blending, and carding are sometimes performed in integrated carders
that accept raw fiber and output carded sliver.

Combing: Combing is similar to carding except that the brushes and needles are finer and more
closely spaced. Several card slivers are fed to the combing machine and removed as a finer,
cleaner, and more aligned comb sliver. In the wool system, combed sliver is used to make
worsted yarn, whereas carded sliver is used for woolen yarn. In the cotton system, the term
combed cotton applies to the yarn made from combed sliver. Worsted wool and combed cotton
yarns are finer (smaller) than yarn that has not been combed because of the higher degree of fiber
alignment and further removal of short fibers.
Drawing: Several slivers are combined into a continuous, ropelike strand and fed to a machine
known as a drawing frame (Wingate, 1979). The drawing frame contains several sets of rollers
that rotate at successively faster speeds. As the slivers pass through, they are further drawn out
and lengthened, to the point where they may be five to six times as long as they were originally.
During drawing, slivers from different types of fibers (e.g., cotton and polyester) may be
combined to form blends. Once a sliver has been drawn, it is termed a roving.

Drafting: Drafting is a process that uses a frame to stretch the yarn further. This process imparts
a slight twist as it removes the yarn and winds it onto a rotating spindle. The yarn, now termed a
roving in ring spinning operations, is made up of a loose assemblage of fibers drawn into a single
strand and is about eight times the length and one-eighth the diameter of the sliver, or
approximately as wide as a pencil (Wingate, 1979). Following drafting, the rovings may be
blended with other fibers before being processed into woven, knitted, or nonwoven textiles.

23
Spinning. The fibers are now spun together into either spun yarns or filament yarns. Filament
yarns are made from continuous fine strands of manmade fiber (e.g. not staple length fibers).
Spun yarns are composed of overlapping staple length fibers that are bound together by twist.
The roving’s produced in the drafting step are mounted onto the spinning frame, where they are
set for spinning.
The yarn is first fed through another set of drawing or delivery rollers, which lengthen and
stretch it still further. It is then fed onto a high-speed spindle by a yarn guide that travels up and
down the spindle. The difference in speed of travel between the guide and the spindle determines
the amount of twist imparted to the yarn. The yarn is collected on a bobbin.

5.4 Product description and application

Nowadays, out of the total demand of textile fibers about 70 % is covered by cotton. Its
widespread use is largely due to the ease with which its fibers are spun in to yarn. Cotton’s
strength, absorbency and capability to be washed and dyed also make it adaptable to be a
considerable variety of textile products.
Cotton yarn count can range from 6 Ne to 160 Ne depending on the end user demand. Cotton
yarns can be employed for both weaving and knitting processes. Furthermore; cotton yarn can be
sold for hand loom weavers as market yarn.
Cotton fiber, which grows in the seed pod of cotton plants, is the only one that is useful for
manufacturing of textiles. Different species of cotton plants produce fiber of different length.
Long staple fibers are spun in to fine, strong yarns, which are then woven in to better quality
fabrics. Cotton yarn can be dyed and printed easily, so that they are useful for producing woven
fabric with a multitude of colors and design.
5.5 Sources of Technology
Mostly European technologies are better to be considered as source of technology for establishing
spinning mill. Especially, Germany, Switzerland and Italy are the prime suppliers of yarn
manufacturing technology and spinning machines. Among these machineries Marzoli, Rieter,
Trutzchler, Lakshmi and other brands have the reputation to be the best choice for the source of
technology for the spinning plant. For air conditioning equipments Luwa, Switzerland is chosen.

5.5.1 Engineering

24
Machinery and equipment the required cotton spinning machineries and equipments for the project
are listed in the table below. The machinery capacity is selected in a way that it could produce 25
tons/day without bottle necks along the production line. Air conditioning equipments are needed for
production of all preparatory section (such as blowing room, carding room, roving frame room and
ring frame room), pinning section and yarn finishing sections. Proper air blowing and ducting lines
have to be installed for appropriate operation in the spinning mill. The total cost of machinery and
equipment is estimated at Birr 7,390,000.00.
Table 5. The total cost of machinery and equipment
sn Description Brand Um Qty UC TC
1 High speed card Trutzchle set 3 150,000 450,000
2 High speed Draw Frame breaker Reiter pcs 1 300,000 300,000
3 High speed Draw Frame finisher Reiter pcs 3 200,000 600,000
4 Roving Frame Reiter pcs 2 175,000 350,000
5 Ring Frame 1000 spindle Sussean pcs 2 250,000 500,000
6 Auto Conner 100spd Reiter pcs 2 250,000 500,000
7 Doublers 120spd Murata pcs 2 280,000 560,000
8 Twisters 160spd Murata pcs 2 120,000 240,000
9 Lap former Murata pcs 2 125,000 250,000
10 comber Reiter pcs 4 110,000 440,000
11 Open end rotor spinning 500spd Reiter pcs 3 100,000 300,000
12 Reeling Orlicon pcs 2 50,000 100,000
13 Cotton weighing machine Toyoda pcs 1 100,000 100,000
14 Spinning Laboratory equipment   pcs 1 450,000 450,000
15 Steam Generation unit 1 ton/hr Uster Set 1 500,000 500,000
16 Air conditioning Loose pcs 1 500,000 500,000
17 Fire Fighting plant Luwa set 1 350,000 350,000
18 Electric power plant Atlascopco pcs 1 400,000 400,000
19 Stand by Electric power generator Spirox set 1 500,000 500,000
  Total Cost 7,390,000.00
Source: Machinery Manufacturers catalogue

The factory has to be equipped with the necessary office equipment and furniture for the
administrative and finance staffs as well as for market integration of input supply and finished
product quality control. The details related costs are shown in the table below.

Table 6: Estimation of the Cost of Office Equipment & Furniture’s

Description Unit Quantity Unit Cost Total cost
Table pcs 5 1,000.00 5,000.00
Chair pcs 5 1,000.00 5,000.00
Cup board pcs 2 500.00 1,000.00
Shelf pcs 3 2,000.00 6,000.00
Cash box pcs 1 3,500.00 3,500.00
Calculator pcs 5 200.00 1,000.00
Computer with printer pcs 2 10,000.00 20,000.00
Total      
41,500.00

25
 6.Organization and Manpower
The selection of organizational structure of the envisaged project is made based on similar public
industries operating in the country, the capacity of the plant, complexity and technology mix of
the plant. Organizational structure principles such as specialization, coordination, and
departmentalization are also considered for design of structure that best suits the envisaged
project. The highest executive body of the project management organ is Habtamu Techal Yarn
Factory which is privately owned. Habtamu Techal oversees the total spinning business
operation.

5.2 Organization Structure

The project will have its own organizational set up (structure) to run the spinning mill.
There will be three services and seven functional departments subdivided in to divisions and
sections. The services are plan and performance follow up, management information system and
internal audit; and the departments are Administration and HRD, Finance, marketing,
Production, Technical, Quality assurance, research and development, and Purchasing and
Property administration. All the departments will have two divisions. This arrangement is made
based on the nature of each process and number of human resource requirement. Each service,
department and division will be headed by qualified and experienced professional.
The total number of permanent human resource required for the operation of the envisaged
Spinning plant is estimated at 97.
Accordingly, the total annual labour cost for the envisaged spinning mill Plant is estimated at
Birr 1,991,340.00.00. Manpower requirement for the spinning mill & the corresponding labor
costs are shown in below

26
Table 7 Manpower Requirement and Annual Salary

No Description Required Monthly Annual salary (Birr)

number salary
1 Factory Manager 1 9,000 108,000
2 Secretary 1 3,000 36,000
3 Production and Tech Manager 1 7,500 90,000
4 Production Head 1 5,000 60,000
5 Maintenance head 1 5,000 60,000
6 Shift Leader 2 4,000 96,000
7 Production supervisor 2 3,500 84,000
8 Mechanical maintenance
supervisor 1 3,500 42,000
9 Electrical Supervisor 1 3,500 42,000
10 Machine Operators 5 800 48,000
11 Mechanic 10 1,300 156,000
12 Electrician 5 1,300 78,000
13 Doffing gangs 14 600 100,800
14 Quality and Laboratory manager 1 6,000 72,000
15 Process testers 6 2,000 144,000
16 Marketing Manager 1 4,500 54,000
17 Administration and Finance
manager 1 5,000 60,000
18 Accountants 3 3,000 108,000
19 Clerks 3 1,000 36,000
20 Cashier 1 1,200 14,400
21 Purchasers 1 1,500 18,000
22 Store Keepers 4 1,000 48,000
23 Guard 7 700 58,800
24 Messenger and cleaner 1 600 7,200
25 Driver 3 800 28,800
26 Cleaner 20 600 144,000
SUB- total 97   1,794,000.00
Employee 197,340.00
Benefit( 11%
)
  Grand Total 1,991,340.00

27
 5.3 Training Requirement

The factory management should arrange for on- job training with the machinery suppliers before
and during the installation & commissioning of the machineries at the premises of the supplier
for about one month. Similarly maintenance and quality assurance personnel should be given a
practical training on their respective fields of engagement. Training should also be given to
machine operators & visual quality control workers on the various types of container glass
defects and their remedies in the production process.

The duration of such training shall be 6-8 weeks long. As a result all key production personnel
will have the opportunity for being familiar with the operation of machineries and the
technology.
The total cost of training project personnel to smoothly and effectively operate the plant is
estimated at Birr 600,000.

5.4 Project Duration

The life time of the project will be 10 years. The project might be extended above the given
period depending on the profitability of the first 10 year by following the investment rule of the
region.

28
 7 . SOCIO-ECONOMIC STUDY

Textiles and Garments’ industries are important in economic and social terms, in the short-run
by providing incomes, jobs, especially for women, and foreign currency receipts and in the long-
run by providing country the opportunity for sustained economic development in the country
with appropriate policies and institutions to enhance the dynamic effects of textiles industry.

7.1 Social Aspects

 As the project requires labour for undertaking its operational activities, people will have
the opportunity of being employed in the project. In this regard, the project will create
new employment post for about 97 individuals on permanent basis and for up to more
than 21 casual labourers during construction.

 The expected increase in income of the permanent & temporary employees would
eventually contribute to good health & nutrition in the family and allow them to access
better education for their children, improve sanitation and provide for the necessities in
the household. This improves employment, income and nutrition values of the family of
the producers and the other demanders/consumers.

7.2 Economic Benefit for the Community

There will also be good opportunities for out-growers linkages with the surrounding farmers
and the use of the project’s facilities, knowledge and experience, thereby increasing the
economic activities of the inhabitants of the area.
Promotion and transfer of new agricultural technology that could be adaptable to the
surrounding farming community and improve their skills through training and sharing of the
project experiences will also be another benefit for the community.

Along with employment generation, female incomes poverty reduction is also a major
contribution of this sector to develop sustainable livelihoods.

29
7.3 Economic Benefit for the Country
This Proposed project will have economic benefits, both to the national economy of the country
at large, and the region in particular in which the project is to be established.

The specific direct benefits will include;

 The Textile and Garments industries are very important for a handful of countries, in
terms of trade, GDP and employment and have contributed significantly in the country.
The Textile and Garments industries provide opportunities for export diversification and
expansion of manufactured exports for country.

 The establishment of the project has a foreign currency earning effect to the country by
exporting its products to the international market. Moreover, as a profitable venture it
will contribute to the increase of Regional and Federal government revenue through
corporate, payroll and other taxes.
 The establishment of such plan will have a foreign exchange saving effect to the country
by substituting the current imports.

 It is believed that the textile industry would play major role in the industry development
strategy of the nation due to its advantages such as its labour intensiveness, ability to
mobilize the masses up to the micro level, long chain characteristics of the sector which
could pull many players along the value chain, linkage to the cotton agriculture for which
Ethiopia has a big potential.

 Aside from the increase in income of the owner, the project would activate the economy
especially in the continuous production and supply of cotton yarn. Being efficient in
terms of business returns and thus considered as a role model, we hope, this project will
also encourage other entrepreneurs in the country to engage in textile processing industry.
 Provision of physical and social infrastructure, thereby creating conducive and suitable
environment for regional development.

30
8. Environmental Consideration

8.1 Environmental Impact Assessments

All the environmental spheres, such as air, water and soil, are seriously affected by the textile
manufacturing processes from fiber production to final fabric finishing. Consequently, a number
of initiatives are introduced in textile industry by the public and private partnership to enhance
the environment-friendly nature of textile processing.
Chemical used in fiber manufacturing and processing of textiles, effluent discharge from the
textile dyeing, printing, and finishing, dust, short fibers, and lint released from the yarn
manufacturing, volatiles and toxic gases released, etc., are the undesired effects to environment
and human lives.
An estimation of the undesired effects to environment associated with the major processing units
of textile industry can be presented based on the amount of consumption of chemicals, water and
energy used. More the chemicals, water and energy consumed in a textile process, higher is the
possibility of undesired effects to our planet and living species breathing and breeding in the
environment.
Living species are directly or indirectly affected by the inhalation of toxic gases, consumption of
contaminated water and food items, and the skin contact of toxic vapors and gases. The
increasing realization of hazards associated with the textile manufacturing by the industrialized
region in particular has resulted in the following important phenomena in textile sector:

Conventional textile processing industries are clustered in developing countries; technical

textiles or textile processing with reduced environmental hazards grown in developed region; and
environmental standards, produced through the public and private participation, are increasing in
practice in textile industries across the world to enhance the environment-friendly processes and
products.

Water and chemicals are throughout the processing chain of textiles. Fiber manufacturing and
processing, sizing, desizing, scouring, bleaching, mercerization, dyeing, printing, finishing etc.,
are known for water, chemical, and energy intensive nature. An increasing population and the
rising number of people to afford enhanced quantity of garments are elevating the production and

31
processing of kilogram of fibers. Therefore, today, an individual is consuming more quantity of
clothing, and there is an increasing population for higher consumption demand of clothing.
textile unit for chemical management and waste water and sludge control is based on providing
the parameters including management system and organization structure, compliance to the legal
requirements for storage and handling of chemicals, environmental protection, health and safety
of employees, and production process.

Different mitigation measures for these negative impacts have been proposed to reduce to the
minimum their effects on the socio-economical environment as well as on the biophysical
environment. Among the proposed mitigation measures are to fence the construction site in order
to separate the works from the surrounding environment, to implement agro forestry techniques,
a good site management system is proposed in order to minimize the risk of accidents during
construction and operation phase. The fire fighting equipments should be installed with more
attention paid to the safety and security of the machines. The treatment of waste water is
proposed as well as the solid waste management system during construction and operation phase
of this project.

In order to ensure that the proposed mitigation measures will be implemented, an environmental
management plan has been developed to guide all activities of the project during all its phases
concerning the protection of the environment.

32
 9. Operation

9.1 Sales Plan

The financial projection assumes the total Cotton fiber available for value addition will be
processed in to cotton yarn. Prices can vary depending on the market outlet that producer is
selling through. In this study it assumed a wholesale price, that the price of Premium quality
cotton yarn per tone is averagely birr 54,208.00. As the following table shows, the company
plans to deliver sales of approximately birr 346,931,200.00 in the first implementation year.
Sales price are forecasted to increase, with an annual growth rate of approximately 9 %. Annual
sales plan of Cotton yarn has shown below.

Table 8: Sales plan of Cotton yarn

       
Capacity   Total Cost
Year Quantity Cost per Birr
    in Tone tone  
80% 1 6,400.00 54,208.00 346,931,200.00
90% 2 7,200.00 59,086.72 425,424,384.00
90% 3 7,200.00 64,404.52 463,712,544.00
90% 4 7,200.00 70,200.93 505,446,696.00
90% 5 7,200.00 76,519.01 550,936,872.00
90% 6 7,200.00 83,405.72 600,521,184.00
90% 7 7,200.00 90,912.24 654,568,128.00
90% 8 7,200.00 99,094.35 713,479,320.00
90% 9 7,200.00 108,012.83 777,692,376.00
90% 10 7,200.00 117,733.99 847,684,728.00

9.2 Production Costs

33
The table below shows the factory operating cost before depreciation and interest expenses under
different production capacity.

Table 9: Annual Production Cost at different Production Capacity (000)

 
Capacity Utilization 80% 90% 90% 90% 90%
Description/Year Year 1 Year 2 Year 3 Year 4 Year 5
320,000.0 385,200.0 412,164.0 441,015.4
Cost of Cotton yarn 0 0 0 8 471,886.56
9,181. 11,052.4 11,826.0 12,653.9
Utility 65 2 8 1 13,539.68
38.5 41.2 44. 47.2
Packaging& Tread 7 7 16 5 50.56
1,991. 1,991.3 1,991.3 1,991.3
Salary expense 34 4 4 4 1,991.34
850. 850.0 850.0 850. 850.0
Property Insurance 00 0 0 00 0
265. 265.8 265.8 265. 265.8
Repair & Maintenance 80 0 0 80 0
2,000. 2,240.0 2,508.8 2,809.8 3,147.0
Marketing and Promotion 00 0 0 5 3
3.0 3. 3.0 3.0 3.0
Stationery& Communication 0 00 0 0 0
20.0 20.0 20. 20.0 20.0
Auditing fee 0 0 00 0 0
300. 300.0 300.0 300. 300.0
Uniform& safety 00 0 0 00 0
500. 500.0 500.0 500. 500.0
miscellaneous expense 00 0 0 00 0
335,150.3
Oper/cost before dep&Int 6 402,463.83 430,473.18 460,456.63 492,553.97
1,043. 1,043.1 1,043.1 1,043.1 1,043.1
Depreciation 15 5 5 5 5
68.7 68.7 68. 68.7 68.7
Amortization 0 0 70 0 0
Operating Cost Before 336,262.2
Interest 1 403,575.68 431,585.03 461,568.48 493,665.82
1,710.
Interest Expense 17 1,532.49 1,354.81 1,177.13 999.45

34
9.3 Project Implementation
The project implementation schedule covers the activities starting from the feasibility study
evaluation and approval up to and including the trial-run and commissioning. It is envisaged that
the complete implementation program requires a total of 12 months starting from the feasibility
study approval.

Table10 ; Implementation Plan Summary

No. Activity Time Table

1 Land requisition Sep, 2020
2 Finalized design Jan, 2021
3 Bank loan requisition Feb, 2021
3 Contractual agreement with local contractor Apill, 2021
Construction of buildings and shed
Arrangements of supply of water pipeline, telephone
and electric power line installation
4 Purchase of Machinery& equipment May ,2021
Machinery and Equipments installation Jun, 2021
5 Recruitment of personnel &Training for employees Aug, 2021
6 Purchase of Cotton Aug, 2021
7 Purchase of office equipment Aug, 2021
8 Trial production Aug, 2021
9 Promotion May, 2021 and on wards
10 Start to selling the product for customers May. 2021 and on wards

35
 10. FINANCIAL BUDGET OF THE INVESTEMENT
10.1 Investment Cost
The total initial investment cost required for the project is 20,000,000.00 The items and
cost breakdown is shown in the following table.

Table 11 Investment Cost Schedule

Description Unit Total Investment cost
Factory Building & Civil works Birr 3,000,000.00
Machinery & Equipments Birr 7,390,000.00
Furniture’s and Office equipment Birr 41,500.00
Sub-total Birr 10,431,500.00
Pre- Production Expenditure * Birr 687,000.00
Initial Working Capital Birr 8,881,500.00
Total Birr 20,000,000.00

* N.B Pre-production expenditure includes training (Birr 600,000 thousand ) and Birr 87,000
thousand costs of registration, licensing and formation of the company including documentation,
commissioning expenses, etc.

10.2 Financing Structure

Total Initial
Investment Cost Equity Contribution Debt Finance
Item Unit Amount % Amount % Amount

Factory Building & Civil works Birr 3,000,000.00 20 600,000.00 80 2,400,000.00

Machinery & Equipments Birr 7,390,000.00 20 1,478,000.00 80 5,912,000.00

Furniture’s and Office equipment Birr 41,500.00 20 8,300.00 80 33,200.00
Pre- Production Expenditure * Birr 687,000.00 100 687,000.00
Initial Working Capital Birr 8,881,500.00 20 1,776,300.00 80 7,105,200.00
Total Birr 20,000,000.00 4,549,600.00 15,450,400.00

10.2.1 Required Loan

As indicated in the above table, it is planned that the promoter would contribute 20% of the total
investment cost and the remaining 80% would be financed by Bank.

36
 It is proposed that the loan of birr 15,450,400.00will be cover the cost of Machinery &
Equipments and working capital

10.2.2 Loan Repayment

The 80 % bank financing, which is birr 15,450,400 would be payable within 10 years at quarterly
repayments with 11.5% annual interest rate. Loan repayment schedule as shown below

Table 12 : Loan Repayment Schedule

0.02875
Year Quarter Interest 0.02875 Repayment Balance
0         15,450,400.00
1 1St   444,199.00 386,260.00 15,064,140.00
  2nd   433,094.03 386,260.00 14,677,880.00
  3rd   421,989.05 386,260.00 14,291,620.00
  4th 1,710,166.15 410,884.08 386,260.00 13,905,360.00
2 1St   399,779.10 386,260.00 13,519,100.00
  2nd   388,674.13 386,260.00 13,132,840.00
  3rd   377,569.15 386,260.00 12,746,580.00
  4th 1,532,486.55 366,464.18 386,260.00 12,360,320.00
3 1St   355,359.20 386,260.00 11,974,060.00
  2nd   344,254.23 386,260.00 11,587,800.00
  3rd   333,149.25 386,260.00 11,201,540.00
  4th 1,354,806.95 322,044.28 386,260.00 10,815,280.00
  1St   310,939.30 386,260.00 10,429,020.00
4 2nd   299,834.33 386,260.00 10,042,760.00
  3rd   288,729.35 386,260.00 9,656,500.00
  4th 1,177,127.35 277,624.38 386,260.00 9,270,240.00
  1St   266,519.40 386,260.00 8,883,980.00
5 2nd   255,414.43 386,260.00 8,497,720.00
  3rd   244,309.45 386,260.00 8,111,460.00
  4th 999,447.75 233,204.48 386,260.00 7,725,200.00
  1St   222,099.50 386,260.00 7,338,940.00
  2nd   210,994.53 386,260.00 6,952,680.00
6 3rd   199,889.55 386,260.00 6,566,420.00
  4th 821,768.15 188,784.58 386,260.00 6,180,160.00
7 1St   177,679.60 386,260.00 5,793,900.00
  2nd   166,574.63 386,260.00 5,407,640.00

37
   3rd   155,469.65 386,260.00 5,021,380.00
  4th 644,088.55 144,364.68 386,260.00 4,635,120.00
8 1St   133,259.70 386,260.00 4,248,860.00
  2nd   122,154.73 386,260.00 3,862,600.00
  3rd   111,049.75 386,260.00 3,476,340.00
  4th 466,408.95 99,944.78 386,260.00 3,090,080.00
9 1St   88,839.80 386,260.00 2,703,820.00
  2nd   77,734.83 386,260.00 2,317,560.00
  3rd   66,629.85 386,260.00 1,931,300.00
  4th 288,729.35 55,524.88 386,260.00 1,545,040.00
  1St   44,419.90 386,260.00 1,158,780.00
10 2nd   33,314.93 386,260.00 772,520.00
  3rd   22,209.95 386,260.00 386,260.00
  4th 111,049.75 11,104.98 386,260.00 0.00
15,450,400.00

11. Financial Analysis

11.1 Profitability

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Profit maximization is the overriding factor in most management decisions. Thus, an economic
profitability analysis is necessary to determine whether investing in a Yarn processing plant will
result profit in the long run. Considering the implementation of the project as planned, the
project will remain profitable right from the beginning. According to the projected income
statement, the company will generate a net profit of Birr 6,271,030 during the first year and Birr
14,221,080 in the second year birr 21,541,210 in the third year, birr 29,890,970 in the fourth birr
and in the fifth year reach to Birr 39,390,130 . The income statement and the other indicators of
profitability show that the project is viable. Projected p/L statement shown below

Habtamu Techal Textile Factory

PROJECTED PROFIT AND LOSS STATEMENT (000)
REVENUE Yr 1 Yr 2 Yr 3 Yr 4 Yr 5
CAPACITY 80% 90% 90% 90% 90%
       

SALES 346,931.00 425,424.00 463,713.00 505,447.00 550,936.87

OPERATING COST 335,150.36 402,463.83 430,473.18 460,456.63 492,553.97

GROSS MARGIN 11,780.64 22,960.17 33,239.82 44,990.37 58,382.90
DEPRECIATION 1,043.15 1,043.15 1,043.15 1,043.15 1,043.15
AMORTIZATION 68.7 68.7 68.7 68.7 68.7
Profit before INT&TAX 10,668.79 21,848.32 32,127.97 43,878.52 57,271.05
1,710. 1,532.4 1,354. 1,177. 999.
INTEREST EXP. 17 9 81 13 44
8,958. 20,315.8 30,773. 42,701.3 56,271.
Profit before TAX 62 3 16 9 61
2,687. 6,094.7 9,231. 12,810.4 16,881.
Tax Expense30% 59 5 95 2 48
6,271. 14,221.0 21,541. 29,890.9 39,390.
Net Income 03 8 21 7 13

11.2 Project Liquidity

Many profitable companies go bankrupt because of cash flow deficiencies. That is why our
main concern will be to have sufficient cash on hand to meet our payment obligations, and be
prepared for unexpected needs of cash. Our conservative projections indicate that our
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business is able to generate positive cash flows and sufficient cash reserves. In addition to
normal cash inflows and outflows, we will focus on establishing sufficient cash reserves for
contingencies. That includes a possible line of credit with our bank, which could be used in
slow sales periods as well. This is a good way to control the cash flow risk. The following
tables show the projected cash flow.
Habtamu Techal Textile Factory

Projected Cash Flows Statement (000)

beginning 1Yr 2Yr 3Yr 4Yr 5Yr

 
Cash from Operation            
Cash Sales   346,931 425,424 463,713 505,447 550,936.87
Equity 4,549.60          
New Long term 15,450.40          
Liability
             
Sub total cash rec 20,000.00 346,931 425,424 463,713 505,447 550,936.87
             
Expenditure            
Operational Expense   335,150.36 402,463.83 430,473.18 460,456.63 492,553.97
Profit Tax Paid Out     2,687.59 6,094.75 9,231.95 12,810.42
Principal Repayment   386.26 386.26 386.26 386.26 386.26
Purchase f/ Assets 10,431.50          
Payment of Interest   1,710.17 1,532.49 1,354.81 1,177.13 999.44
Pre production exp. 687          
             
Cash Spent 11,118.50 337,246.79 407,070.17 438,309.00 471,251.97 506,750.09
             
Net Cash Flow 8,881.50 9,684.21 18,353.83 -7,835.82 34,195.03 44,186.78
Beg. Balance   8,881.50 18,565.71 36,919.54 29,083.72 5,111.31
Cash Balance 8,881.50 18,565.71 36,919.54 29,083.72 5,111.31 49,298.09

11.3 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 3 years.

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11.4 Internal Rate of Return and Net Present Value
The company’s Net Present Value is Birr 2,412,613. Internal Rate of Return is 18%. Since the
company has positive NPV and IRR is 18%, the prospect of project is profitable for investment.

11. 5 PROJECT MONITORING AND EVALUATION

Monitoring of the project will be carried out as a continuous process to provide qualitative and
quantitative information & data on the management and technical aspects. The monitoring
system will not only focus on providing data on inputs, outputs and effects but also considers the
processes involved in project implementation. The information so generated in the process will
be used to improve management through guiding management decisions to ensure effective
implementation of the project.

The monitoring tool will be monthly report; business report will be done a regular manner. As a
result monthly reports on the progress business implementation will be prepared from bottom to
top level of management, and a follow up activities according to the schedule.

Habtamu Yarn Factory will conduct evaluation of the project at the end of each phase of the
project implementation. The project management shall establish indicators for monitoring and
evaluation to verify the success of the investment. The result of the evaluation should be
incorporate in to the next project planning and lessons learned from experience.

12. CONCLUSIONS
The future prospect of Yarn factory in Ethiopia is bright since the entry of private firms in the
textile production businesses will have a significant development indicating the profitability.
Investing in textile industry for long-life textile production in Ethiopia is a promising opportunity

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for textile investors. Investing on yarn processing in Ethiopia is a profitable business since
financially viable with having a high internal rate of return. The textile processing investments
could increase capacity in textile products into a range of markets including export to EU & USA
and other destinations options.

 The financial results show that the project is profitable, although there will be some
dependence on bank for long term loans.
 The proposed Yarn project is a viable and could target the identified niche market in the
short term and the export market in the long term.
 The strength of the proposed project lies on its strategy aimed at exploiting the interaction
between value addition technologies and opportunities offered by different market players.
 Product quality will be enhanced by introducing other attributes preferred by consumers
It is therefore concluded that the proposed project is financially viable. The demand for
Cotton yarn is strong and growing, a situation that will ensure adequate cotton yarn
production levels and sufficient return to investment.

13. Key assumptions

The financial analysis of the project where based on the data presented in the previous chapters
and the following assumptions:-

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All buildings and construction costs needed for the project are taken from engineers’ estimation
reports or bill of quantities.
Depreciation Rates
Building infrastructure 10% straight line
Machinery and Equipment 10%
Other furniture and other equipment’s 10%
Amortization
Pre-operating cost 10%
Land lease hold amortized over the lease period of 40 years.

The investor will contribute 30% of his own capital as equity and secure a term bank loan (70%
of the total capital payable in 10 years) to finance the project
 Interest rate: 11.5% per annum on declining balance and due on quartile basis.
 Costs will increase by 7%
 Sales price will increase by 9%

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