Content Page

1. EXECUTIVE SUMMARY....................................................................................................1
2. PRODUCT DESCRIPTION AND APPLICATION..................................................................2
2.1 The Significance of Tourism.......................................................................................2
2.2 The Ethiopian Tourism Industry................................................................................3
2.3 An Overview of Tourism in Tigray..............................................................................4
2.4 Trends in the Inflow of Tourists.................................................................................5
2.5 Tigray’s Major Tourist Attractions.............................................................................6
Source: Own compiled data....................................................................................................8
2.6. Objective of the project............................................................................................9
2.7 The project promoter..............................................................................................10
2.8 Economic and social policies supporting the project..............................................10
3. MARKET AND SERVICE CAPACITY.................................................................................11
3.1 General analysis of the market................................................................................11
3.2 Market study............................................................................................................12
3.2.1 Demand analysis..........................................................................................................12
3.2.2 Projected Demand.......................................................................................................13
3.2.3 Supply analysis.............................................................................................................14
3.3 Service estimations.................................................................................................15
3.3.1 The Components..........................................................................................................15
3.3.3 Pricing and Distribution...............................................................................................16
3.3.4 Service capacity...........................................................................................................16
4. TECHNICAL STUDIES......................................................................................................18
4.1 Location and Site......................................................................................................18
4.2 Land, building and civil works..................................................................................18
4.4 Land Utilization by sub Components and Construction Cost Estimate...................19
4.4 Technology and engineering....................................................................................19
4.7 Environmental pollution reduction.........................................................................21
5. ORGANIZATIONAL, MANAGEMENT AND MANPOWER...............................................21
4.1 Manpower requirement..........................................................................................21
5.2 Training Requirement..............................................................................................22
5.3 Organizational Chart................................................................................................23
6. FINANCIAL PROPOSAL...................................................................................................24
6.1 Financial analyses....................................................................................................24
6.2 Total Initial Investment Cost....................................................................................24
6.3 Service Cost..............................................................................................................25
6.4. Financial evaluation................................................................................................26
6.4.1 Profitability..................................................................................................................26
6.5 Economic Benefits...................................................................................................28
6. ANNEXES........................................................................................................................29
1. EXECUTIVE SUMMARY

The promoter of this project is My liham plc who its founders engaging in various
businesses for more than 10 years. The promoters initiated this project encouraged by
the huge demand of standard lodge services like self-contained rooms, food and drinks
supply, multipurpose hall and recreation center in Hawzien town as well as the overall
favorable investment and business atmosphere in Ethiopia in general and Tigray region
in particular.The promoters has adequate Capital that enable her to successfully run the
envisaged business as They have been involving in various businesses for long years.

Products and Services

Cultural lodging

This profile envisions the establishment of cultural based lodge and recreation center
with the capacity of 30 rooms, one multipurpose hall and internet as well as
refreshment facilities. The present demand for the proposed services in the town are
increasing in relation to the high tourist flow and better road which the demand is
expected to continuously increased.

Cultural Launge

My Liham launge offer svisitors a trendy, fun place to have great food in a social
environment.. My Liham launge forecasts that the majority of purchases will be from the
chef's recommendations. Ethnic recipes will be used to provide the customers with a
diverse, unusual menu. The launge will also be emphasizing healthy dishes, recognizing
the trend within the restaurant industry for the demand for healthy cuisine.

Customers

My Liham launge believes that the market can be segmented into three distinct groups
that it aims to target. The first group is the cultural tourist which number is growing from
time to time. The second group that will be targeted is young happy customers which are

1
growing from time to time. The third group is rich hippies who naturally desire cultural
lodging and organic foods as well as ethnic cuisine.

The total investment requirement is estimated at about Birr 10 million. The project is
financially viable with an Internal Rate of Return (IRR) of 13 % and a net present value
(NPV) of Birr 2.7 million discounted at 10.5%. The envisioned lodge shall have an annual
capacity of room, food, beverage and tour operation services worth a gross sales value
of around Birr 9 million at full capacity.
.
The total required land is about 1.5 hectares of which around 900 m2 will be built-up
area (3000m2 for bedrooms, 250m2 multipurpose hall, 1,500m2 for restaurant hall and
kitchen, and 8177m2 for open air recreation). The land is already possessed by the
owner, it is also found at an appropriate location for lodge establishment with central
gravity to Aksum ,yeha, Debredamo Adwa and Gheralta Mountains. The project is
found to be financially, environmentally and socially viable. Moreover, the project will
have socio economic benefits in ways of creating job opportunities for about 24
permanent and 6 temporary workers. Besides, the envisaged project will generate up to
1.15million to the local government in the form of tax at the initial year. The project
shall be profitable and their socio-economic benefit is significant.

2. PRODUCT DESCRIPTION AND APPLICATION

2.1 The Significance of Tourism

Tourism has significant economic and social benefits. Among the many benefits derived
from the sector, the following are the major ones:
 Promotion of foreign exchange earnings;
 The development of areas with no other immediate possibilities of expanding
economic activities;
 Creation of new jobs;

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  A boost for the local production of goods and services consumed by tourists;
 The generation of more tax revenue for the government;
 The integration of national cultures and societies and safeguarding of the
national cultural identity;
 Reasonable returns on investment in the sector; and
 The promotion of the sort of image of any country that attracts holiday makers
and above all foreign businessmen and government leaders as part of the drive
to step up international political and economic cooperation.

Presently tourism, including conference tourism is the largest industry in the world and
international tourism constitutes the biggest component of international trade. As
indicated in the World Tourism Organization’s (WTO) report, the magnitude of world
tourists in 2009 was 650 million and the number had reached more than one billion by
2013. World receipt from this movement also increased from US$ 929 billion in 1990 to
US$ 1.18 trillion in 2013. See the table below for details:

Table 1: World Receipts from International Tourist Arrivals (Billion US$)

Content 2009 2010 2011 2012 2013
Africa 42.27 45.92 49.57 53.22 56.87
Americans 140.57 146.1 151.63 157.16 162.69
Asia & Pacific 193.37 211.6 229.83 248.06 266.29
Europe 510.67 541.38 572.09 602.8 633.51
Middle East 42.6 47.18 51.76 56.34 60.92
World Total 929.48 992.18 1054.88 1117.58 1180.28
Source: World Tourism Organization, 2014

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2.2 The Ethiopian Tourism Industry

During the Derg regime, the hostile environment for international tourists, the
restriction imposed on private sector participation, the low level of public investment on
tourism promotion and development, inadequate tourist facilities and underdeveloped
infrastructure all accounted for the poor performance of the sector in terms of tourist
flow, foreign exchange generation and job creation.

After the demise of the military government, it is possible to say that, a new era has
dawned for the healthy development of the industry. Recognizing the crucial role
played by the sector in economic development, the Government of Ethiopia has given
due attention to the sector in its Economic Policy.

The new economic policy, the economic liberalization measures and various supportive
proclamations and regulations of the sector issued by the government coupled with the
peace and stability attained in the country are believed to have provided the required
impetus for the development of the tourism and associated industries.

2.3 An Overview of Tourism in Tigray

Tigray, the northern part of Ethiopia is a mountain expanse divided into various chasms
and abyss. The region, dotted with patches of forest like Hugumbirda, Des’a and Kafta
Humera, is also glittered by Lake Hashenge, declared as an important bird ground. The
Adwa mountain peaks, standing proudly unaltered since time immemorial and
embodied with different setups, are tastes of many. Land along the Tekezze gorge, is
covered with trees which protect birds and animals of different species. The place has
also cave paintings which depict pre-history human activities such as hunting, herding,
milking and riding.

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Tigray covering an area of 53,638.59km has an altitude that varies from 600 - 3935
meters above sea level. Its population that exceeds 4.5 million consists of the Tigraway,
Erob and Kunama. Great Majority of the population earn their lives from subsistence
agriculture. The region is recognized as the cradle of the Ethiopian ancient civilization.
The age old Yeha temple and the monolithic stele at Aksum for example ratify the
account. Menebeiti. Hinzat, Adi Akawih, and Sekera archeological sites also add witness
to the long history of the region. Aksum and Yeha yield many more archaeological relics
recalling its past.

Tigray, which still yields history, has centuries old rock-hewn churches. The sanctuaries
with their artful architectural designs, exiting wall painting locations and inestimable
treasures are clustered around towns of Wukro, Atsbi, Hawzien and Abey-Addi. A visit
to these historical monuments does mean to experience our ancestors’ skill and thus,
here some of the Ethiopian ‘elders’ bags’ for the tourists to discover.

Given its outstanding archeological and historic sites, scenic beauty, arts and crafts and
rich cultural diversity, Tigray region has much unique potential for developing and
enjoying its many benefits in tourism.

2.4 Trends in the Inflow of Tourists

Global movement is to a great extent dictated by trends in the economic conditions of

the advanced countries that are the major participants in the tourism industry. Most of
Ethiopia’s international tourist inflow originates from Africa and Europe as shown in the
table below. The fact that both OAU and ECA headquarters are located in Addis Ababa
is the basic reason for Africans to become dominant in international tourist flow. In the
case of Europe the strong economic tie that Ethiopia has had to the continent (almost
half of the country’s export and import are destined to and originate from the European

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Union member countries) and Ethiopia’s membership to ACP as well as the relative
geographic proximity that the country enjoys to continents can be attributed as the
major factors for Europeans to flow to Ethiopia.

Current trends in the world show that the tourism industry is becoming the leading
sector and major employer in the world economy. The travel preferences are also
increasingly shifting in favor of destination in non-industrialized and lesser known
countries which are endowed with ancient cultures and less disturbed ecologies.
Ethiopia offers these demanded attractions and it has the potential to become a unique
and internationally competitive tourist destination. Given all the tourist attractions,
tourism in Ethiopia is still at its infant stage despite some constraints that need to be
addressed gradually and systematically.

Table 2 below shows that the number of international and local tourist flow to the
Tigray region and amount of income earned from the sector in the past ten years
increases from year to year. In 2003, the number of international and local tourists
visited the region were 9,666 and 14,366 respectively and these number is significantly
increased to 32,343 and 41,930 respectively in 2014. Income from the sector is also
raised from 3.2 USD in 2003 to 12.34 million USD in 2014. It is obviously believed that
the demand of service facilities for tourists also significantly increased in all rounds.

Table 2: International and local tourists visit Tigray and income (million USD)
Year International Local tourists Income
tourists Million USD
2003 9666 14366 3.2
2004 13857 15709 4.6
2005 14689 12604 4.75
2006 15662 17991 4.99
2007 17740 22548 6.74
2008 20319 37148 8.43
2009 22293 29411 8.33
2010 24303 31915 9.13
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2011 26313 34419 9.94
2012 28323 36923 10.74
2013 30333 39426 11.54
2014 32343 41930 12.34
Total 255841 334391 94.73
Source: Tigray Culture and Tourism Agency

2.5 Tigray’s Major Tourist Attractions

2.5.1 Culture

Highlights of the 3000 year old cultural history are:

 The historical towns of Axum, Adwa, Yeha, Negash etc
 Various buildings and monuments like Axum’s stelae, Ancient Tombs, Dungur
palace, etc
 Intricately designed rock-hewn churches of the thirteenth century like Abune
Yemata, Debre Mariam Korkor, Dugum Selassie, Debretsion and many others
 Ethiopia’s earliest and most holy Muslim center, Negash
 Paintings including cave paintings;
 Many more others.

2.5.2 Landscape

 Steep mountains such as Alaje, and Adwa mountains which historical battle
against colonialism were held
 The chain mountains of Gheralta
 Deep canyons with dramatic water falls like Tekezze Gorge and Mereb river
 The mysterious Lake Hashenge,

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 2.5.3 Accessibility of the tourist attraction places

By the virtue of its location sero town is most accessible to the vast majority of tourist
attraction places in the region including Aksum and Yiha. Accordingly, the area is
surrounded with the main attractions of Tigray with in 40 to 60 kilometers radius.
Besides, the landscape of the area with amusing view of sunset will make the lodge a
unique destination for landscape seekers. Taking Sero town, where the lodge is going to
be established, as the starting point if we evaluate the distance of major tourist
attraction places as shown in table 3 below we can conclude that the selected place for
the establishment of the lodge is significantly ideal.

Table 3: Accessibility of major tourist attraction places from Hawzien

No Name of the place Distance from Hawzien in Km Description
1 Aksum 0.00 World heritage site
2 Adwa Mountains 9.00 Chain mountains
3 Yeha 9.00 Ancient temple
4 Debre Damo 18.00 6c monastry
Source: Own compiled data

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2.6. Objective of the project

The main objective of undertaking the project is to create the necessary facilities
required for the provision of services compatible with the demanding standards of
pension and catering to the following and other similar clientele groups:

 International governmental and non-governmental official visitors;

 International tourists, businessmen and investors with vacationing, sightseeing,
scholarly, and similar visit purposes;
 International, regional and domestic participants of various conferences,
seminars, workshops, symposia, etc.
 The International Community residing in Addis Ababa and other parts of Ethiopia
 Attendants/participants of various social cultural events such as cultural shows,
concerts, festivals and similar performances;
 Various celebrations, ceremonies, commemorations, and similar group social
events;
 Grand receptions, welcoming and farewell parties;
 Wedding ceremonies and various get together events;

All above have straight demand for lodges of compatible standards which unfortunately
are under chronic shortage in the town. As a result, we witness very often cases when
all lodges in the nearest towns such as Hawzien and Wukro are over-booked,
necessitating sending guests to as far off as Mekelle. The standard lodge established in
Sero town is usually over-booked.

2.7 The project promoter

The promoter of this project My liham plc has adequate experiences that enable to
successfully run the visualized business. She has been involving in various

9
business/trade activities, long experience in running business that would help her to
efficiently manage the envisioned project. Right now she has initiated this lodge and
recreation center encouraged by the positive developments of seen in this business and
by the overall favorable investment and business atmosphere in Ethiopia in general and
Tigray region in particular.

Besides, the promoter has sufficient capacity in terms of financial and managerial
aspects to establish and run the proposed project. The financial requirement for the
establishment of the project is calculated based on the 30% equity from own resource
and 70% from bank loan and the promoter has adequate cash to cover the required
equity and fixed capital for collateral as per the regulation of the bank.

2.8 Economic and social policies supporting the project

The convenience peace and stability as well as constant economic growth of Ethiopia
has significantly changed the face of the country in terms of tourist attraction from all
over the world comprises important events that bring about periodical over booking of
lodges. Similarly, tourist flow to Tigray region in general and Sero town in particular is
constantly increasing from time to time. Besides, the regional Tourism Promotion
Agency is actively working to promote potential tourist attraction sites including
cultural, natural, historical, landscape and religious heritages located in different parts
of the country. Nevertheless, the availability of standard services remained at lower
stage both in terms of quantity and quality. In recent years very few lodges have been
established by local and foreign investors, however they didn’t satisfy the overall
demand of the area.

3. MARKET AND SERVICE CAPACITY

3.1 General analysis of the market

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There are a number of factors which affects the demand of standardized lodge and
recreation center. Of these factors, the most important to have influence is high flow of
tourist and better transportation network. The currently constructed asphalt road that
stretches from Freweyni city to Abi Adi, Mekelle, Adwa and Axum is very good example.
Above all the increase in the number of tourists of the town improves for the provision
of different services as most of the international and local tourists need to stay in
standard lodge services.

Business on lodge and recreation center is one of the leading categories of the service
sector. Especially in tourist attraction areas like Sero town where there is plenty of
potential in natural and religious heritages attracting numbers of international and local
tourists, the role of standard lodge and recreation services is quite crucial. In line with
this, the regional Culture and Tourism Bureou is promoting for the establishments of
such businesses especially in key tourist destination areas including Sero . The regional
government of Tigray at large has also initiated various encouraging packages in relation
to the investments on lodge and recreation such as provision of land, loan arrangement
and duty free benefits.

The envisaged project has a plan to establish a wide range of services in Sero town
including standard room services, food and beverage supply, and recreation center. In
adittion, the lodge will provide standard hall services with the objective to host woreda,
zonal and regional conferences, government and NGOs development symposiums,
social and cultural festivities, etc. Other services would follow step by step.

3.2 Market study

3.2.1 Demand analysis

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Ahferom woreda location is close and center to the major tourist attraction centers of
the Tigray region. The major ones are Aksum, Yeha, Adwa , Debredamo and Gheralta
Chain Mountain, with in 30 and 60 radius k.m location of the town. These tourist
attraction sites are highly recognized and a number of domestic and foreign tourists visit
these sites every day. Aksum ,yeha ,Debredamo and Gheralta Chain Mountain is one of
the most centers of attraction for both domestic and local tourists which is visited
almost every day throughout the year. Of course, there are more tourists who have the
hobby of mountain climbing at any rate; thousands of tourists visit the area. But there
are no sufficient facilities at the site where tourists gather to watch the area.

Many development practitioners including government and NGOs want to organize

trainings, workshops and symposiums in the town but unfortunately the town does not
possess convenient hall to facilitate such events. Above all, the town lacks standard
recreation center which can accommodate kid’s refreshment facilities even though the
demand is growing. If there were standard halls and recreation center, the town could
have received a chance to organize zonal and regional meetings and workshops which in
turn enhance trade as well as services of the town. Many parents would have preferred
to take their kids during their spare time and recreated there. But there is nothing there
to conduct workshops and make recreations.

Table 4: International and local tourists visit Hawzien and income (million USD)
Year International Local tourists Income
tourists Million USD

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2003 2900 2873 0.80
2004 4157 3142 1.15
2005 4407 2521 1.19
2006 4699 3598 1.25
2007 5322 4510 1.69
2008 6096 7430 2.11
2009 6688 5882 2.08
2010 7291 6383 2.28
2011 7894 6884 2.49
2012 8497 7385 2.69
2013 9100 7885 2.89
2014 9703 8386 3.09
Total 76752 66878 23.68
Source: Tigray Culture and Tourism Agency

3.2.2 Projected Demand

Tourism industry is one of the potential sectors of the country to generate foreign
currency. Its contribution towards export and GDP growth is increasing. For example in
2013 tourism has contributed 19% and 2.5% to the country's export and GDP growth,
respectively. As indicated in table 4, the number of tourists arriving in Ethiopia and
receipts from international inbound tourism is increasing from year to year.

The number of domestic and foreign tourists who visit Hawzien and its surroundings
vary depending on the season of the year. During winter season, there are more tourists
visiting the falls. In summer season the number of tourists’ declines. But the number of
tourists who had visited Hawzien during the last three to four years indicates that there
is sufficient demand for standard lodges and related services. Besides serving tourists,
the lodge could be a good recreational center for wedding and also for occasional
ceremonies like wedding, graduation day, short conferences and trainings of woreda,
zonal and regional etc. On the other hand, as GDP and per capita income of the
population increase local people will spend their leisure time with their families at the
lodge. Therefore; it is of paramount importance to establish attractive traditional and
recreational lodge that could accommodate foreign and local tourists.

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 Table 5: Projected International and local tourists visit Hawzien and income (million
USD)
Year International Local tourists
tourists
2016 10865 9713
2017 11461 10265
2018 12057 10817
2019 12653 11370
2020 13249 11922
2021 13845 12474
2022 14441 13026
2023 15037 13578
2024 15632 14130
2025 16228 14682
2026 16824 15234
Source: Own compilation

3.2.3 Supply analysis

In surrounding area there are a total of about 87 bed rooms in lodges and hotels.
Nevertheless, except in Gheralta and Korkor lodges all other hotels have not recreation
center. Even in Gheralta lodge the recreation center is not complete, accessible and
affordable to the local community. In relation to multipurpose hall service, however, all
lodges and hotels have not such facility at all. The available standard rooms, recreation
center and multipurpose hall are described in table below.

Table 6: Supply of standard rooms, multipurpose hall and recreation center in Hawzien town
Hotel Name Number of Multipurpose Recreation center
standard rooms hall
Gheralta Lodge 25 Not available Available

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 Korkor Lodge 10 Not available Available
Total 35

Sources: Own compilation 2019.

3.3 Service estimations

3.3.1 The Components

In order to meet the above stated objectives, the project will incorporate the following
components to be implemented on properly planned and designed basis as per the
requirements of the modern lodge and tourism standards. The envisaged project will
incorporate a lodge with modern comprehensive investment package including
 30 bed rooms (5 twin and 5 single/standard)
 Modern restaurant and bar service,
 A multipurpose hall,
 Souvenir, honey and other local products shop
 Green area and other
 Necessary internal facilities such as laundry, kitchen and bakery, as well as all
other support service facilities.

3.3.3 Pricing and Distribution

Pricing of a lodge and restaurant services as well as the multipurpose hall service could
be classified into four main categories i.e. food, beverage, hall and room booking. In this
regard the daily average price by category of service is given in table 2 below. Type of
food to be prepared at this site comprises both European and culture dishes.

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 Table 7: Average price of service by category
Type of Service Unit Price in Birr

Food 200/meal

Beverage 30/bottle for beer (excluding whisky, whine )

Coffee, tea, macchiato, 18/cup

800/night for local tourists
Bed rent
2000-3000/night for international tourists

Hall rent 1500/session/day

Source: Estimated prices of the services

3.3.4 Service capacity

The service capacity and sales program of the lodge for ten years presented has been
worked out on the assumption of progressively developing market and corresponding
rise in capacity utilization for services of the lodge. Working days are assumed to be
365/year for food and beverage and room booking services. The attainable capacity and
revenue of the proposed lodge for each category of service is estimated from the
market study. The market assessment indicated that there is a great demand gap
between the demand and supply of standard catering and room services. Therefore,
taking in to account the market study and economies of scale of service provision the
lodge is expected to have the following services capacities.

Table 8: Service capacity of the lodge

Sr. No Type of Service Average service capacity

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 1 200 dishes per day
Catering services (Cultural and European dishes)
2 240 bottles per day
Beverages
3 150 caps per day
Café
4 15 persons per day
Bed service
Source: Own estimated service

Table 9: Ten years' production program of the lodge and yearly sales revenue
Types of Services Year 1 Year 2 Year 3-10
@ 75% @85% @100%
OCCUPANCY OCCUPANCY OCCUPANCY
Lodge Rooms 3,653,125.00 4,140,208.33 4,870,833.33
Food, beverage and café 2,966,071.00 3,361,547.13 3,954,761.33
Hall Services 950,000.00 1,076,666.67 1,266,666.67
Total
7,569,196.00 8,578,422.00 10,092,261.00
Source: production plan of the Lodge

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4. TECHNICAL STUDIES

4.1 Location and Site

The envisaged lodge is to be located in Sero town, Ahferom Wereda of the Tigray
region. The site is intentionally selected and is suitable for the intended purpose as
already one can see the gathering of important; cultural, historical and landscape tourist
attraction resources on the selected area.

4.2 Land, building and civil works

The lodge will be established on a total 15000m2 land area.The lodge will basically be
constructed keeping the cultural houses found in the region “Hidmo” made up of stone
wall and wood as well as mud roof. Apart from this the bed will be constructed based on
cultural bed formation structure known as “Medeb” made up of paved stone and
plastered with cement. Such type of bed construction will introduce the culture of the
region and reduce hard currency expenditures. Besides, the lodge will own restaurant,
multipurpose hall, bar room, service quarter, laundry, kitchen, storage, workshop,
parking area.

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4.4 Land Utilization by sub Components and Construction Cost Estimate

Table 10: The share of individual objects

Object Cost (Birr)
30 bedrooms (double and single beds) 6,600,000.00
Café, restaurant and bar 1,220,000.00
Kitchen, store and laundry 1,150,000.00
Staff (lounge, café, CH room) 450,000.00
Binocular position 130,000.00
Workshop 250,000.00
Shops (souvenir, honey) 175,000.00
Swimming pool 750,000.00
Parking 135,000.00
Green area 110,000.00
Play ground 200,000.00
Garden 50,000.00
Covered walk way 150,000.00
Shallow well construction and pump installations 300,000.00
Total 11,670,000
Source: Engineering design of the lodge

4.4 Technology and engineering

The modern lodge and recreation center will adopt the latest available technologies
both in terms of facilities and management strictly as per the standards. With the
general understanding of using the standard technologies in utilization of the standard
technologies in bedrooms, restaurant, bar and other parts of the lodge, maximum
efforts will also be exerted to adopt cultural designs both in construction as well as
utensils selection. Some of the required equipment is summarized and presented on the
duty free imported items of this report.

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Materials and equipment required for a modern lodge and restaurant could broadly be
classified into four categories and indicated in the table below. These are;

 Bed room furniture: the bed will be constructed from paved stone and plastered
with cement locally known as “Medeb” but materials like mattress, blankets, bed
sheets, tables, chairs, cap boards, etc) will be imported from abroad.
 Lodge furniture and equipment will from indegeneoues tress of Awlea ,Zigba
and Tshidi (tables ,chairs, glasses etc)
 Restaurant furniture and equipment (televisions, tables, chairs, refrigerator,
glasses, etc)
 Kitchen utensils (forks, spoons, trays, dish, deep freezer, etc)

Table 11: Materials and equipment required

Materials Unit Quantity Cost (Birr)
Laundry machine No 1 300,000.00
Refrigerator No 50 750,000.00
Pick up vehicle No 1 1,500,000.00
Coffee machine No 3 300,000.00
Electric generator No 1 75,000.00
Beamer No 1 25,000.00
2,950,000
Total

Source: Estimated materials and equipment for the lodge

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Table 12: Office furniture
No Description Unit Quantity Unit Total price
price
1 Chair/beach No 30 1800 54,000
2 Table No 15 6000 90,000
3 Cupboard Shelf No 3 5000 1,5000
4 Computer printer etc No 10 20000 200,000
5 Stationary Bulk 45000
6 Hand bag No 4 500 2000
7 Others 100,000
Total 506,000

4.7 Environmental pollution reduction

The project will be established in accordance with the Master Plan of Hawzien town that
would not affect residential and social service providing areas. Besides to this, the
design, construction and implementation supervision will be carried out by distinguished
consultants and contractors who have applied state of the art technology and expertise
in each of their respective fields in a coordinated manner.

Above all, there should not be negative externality such as; noise, air, water, or noise
pollution expected out of the operations of the project as all these are duly accounted
for. The project will first of all see to it that there will be most minimal wastage. In its
routine operations, the project will have efficient waste disposal and treatment. Rather,
the project shall greatly contribute to the beautification of the surrounding landscape
with its pleasant architectural view, garden and overall aesthetic properties.

5. ORGANIZATIONAL, MANAGEMENT AND MANPOWER

4.1 Manpower requirement

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 The project will require manpower both for administration and production activities.
The total number of manpower is 30, of which 6 are administration staff and 24 involve
in production activities. Besides, the lodge shall engage 12 temporary workers with
annual wage bill of Birr 168,000.00. The total number of labor cost is Birr 774,000.00
. The detail manpower requirement and estimated annual salaries are presented in
Table 15.
Table 13: Manpower Requirement and Annual Labor Cost
No Required Qualification Monthly Total Annual
Position Unit/Average Salary (Birr)
Salary
General Manager 1 BA in hotel &tourism 8,000 96,000
management
Finance & Administration Deputy 1 BA in Management 6,000 72,000
Manager
Chief Accountant 1 Diploma in Accounting 4,000 48,000
Sales Head 1 Diploma in Marketing 4,000 48,000
Supplies Head 1 Diploma in supply management 4,000 48,000
Lodge Supervisor 1 Diploma in Catering 4,000 48,000
Chefs 1 Level III from TVET 3,000 36,000
Cooks 2 Level II from TVET 2,500 60,000
Technicians 2 Level II from TVET 2,000 48,000
Lodge and restaurant workers 6 Grade 8 and above 1,000 72,000
Administrative Officers & Clerks 1 Diploma in ICT 2,500 30,000
Drivers 2 Driving license 2000 48,000
Guards 4 Read and write 1000 48,000
Janitors 6 Read and write 1000 72,000
Total 30 - 774,000

5.2 Training Requirement

Lack of trained casters or technical personnel can constitute a significant bottle-neck to

project implementation and operations. Therefore, employees will be given training on
customer service management and communication, and the training cost is estimated to
Birr 250,000.00

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 5.3 Organizational Chart

General Manager

Executive Secretary

Finance and Admin Head Sales Head

Accountant Supplies Head

Clerk
Lodge Supervisor

Administrative
Chef and Cook

General Service

Lodge and Restaurant

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6. FINANCIAL PROPOSAL

6.1 Financial analyses

The financial analysis of the lodge is based on the data presented in the previous parts
and the following assumptions:-

6.2 Total Initial Investment Cost

The total investment cost of the project including working capital is estimated at Birr 10
million. The major breakdown of the total initial investment cost is shown in Table 17.

Table 14: Initial Costs of Investment

No Cost Items Source of finance

Bank loan Equity Total cost
contribution (Birr)
2 Building and Civil Work 3,505,000.00 3,000,000.00
6,505,000.00
3 Materials and Equipment 1,500,000.00 0.00
1,500,000.00
4 Vehicles 1,450,000.00 0.00
1,450,000.00
5 Backup generator installation 150,000.00 0.00
150,000.00
6 Office Furniture and Equipment 95,000.00 0.00
95,000.00
7 Pre-production Expenditure* 100,000.00 0.00
100,000.00
8 Working Capital 200,000.00 0.00
200,000.00
Total Investment cost 7,000,000.00 3,000,000.00 10,000.000.00

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6.3 Service Cost

The annual service cost at full operation capacity is estimated at Birr 5,682,474.00 (see
Table 18). Of the total production cost 67.05% goes to the operational cost while the
remaining balance 32.95% will be allocated for depreciation and insurance costs. On the
other hand, the material and utility cost accounts for 40.65 per cent, while repair and
maintenance take 3.17 per cent of the production cost.

Table 15: Annual Production Cost at Full Capacity (Birr)

Items Cost %
Raw Material and Inputs 2,170,000.00 38.19
Utilities 140,000.00 2.46
Maintenance and repair 180,000.00 3.17
Labour direct 1,050,000.00 18.48
Lodge overheads 120,000.00 2.11
Administration Costs 150,000.00 2.64
Total Operating Costs 3,810,000.00 67.05
Depreciation 1,572,474.80 27.67
Insurance 300,000.00 5.28
Total Production Cost 5,682,474.00 100.00

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6.4. Financial evaluation

6.4.1 Profitability

According to the projected income statement, the project will start generating profit in
the first 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 life-time of the project. The
income statement and the other indicators of profitability show that the project is
viable.

6.4.2 Break-even analysis

The break-even point of the project including cost of finance when it starts to operate at
full capacity (year 3) is estimated by using income statement projection.

BE = Fixed Cost = 33.35 %

Sales – Variable Cost

6.4.3 Payback 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 five years.

6.4.4 Internal Rate of Return and Net Present Value

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6.4.4.1 Internal Rate of Return (IRR)

The financial evaluation of cash flow is a very important factor to determine the ability
of the project to meet liabilities including service of debt. The envisaged project is
therefore financially viable having IRR after tax of 13%.
Table 16: Internal Rate of Return of the project
A B
Data Description
-10,000,000 Initial cost of a business
275,008 income for the first year
788,648 income for the second year
1,556,051 income for the third year
1,786,981 income for the fourth year
2,025,816 income for the fifth year
2,922,949 income for the six year
3,178,793 income for the seven year
3,443,786 income for the eight year
3,718,385 income for the nine year
4,003,071 income for the tenth year

Formula Description (Result)

=IRR(A1:A11) Investment’s internal rate of return after ten
years (13%)

6.4.4.2 Net Present Value (NPV)

Net Present Value shows the financial viability of the project and it is calculated based
on initial cost and discounted net benefit of the project over the project life time
considering the existing bank lending rate at 18%. Accordingly, as illustrated in table 18
the NPV of the project at the tenth year is Birr 2.78 million which makes the project
financially feasible.

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Table 17: Project Net Present Value

Rate of Discounted
Year Initial Cost Net Benefit Discount Net Benefit
0 10,000,000
1 275,008 1.105 248,876
2 788,648 1.198925 657,796
3 1,556,051 1.300833 1,196,196
4 1,786,981 1.411405 1,266,101
5 2,025,816 1.531374 1,322,875
6 2,922,949 1.661541 1,759,179
7 3,178,793 1.802771 1,763,282
8 3,443,786 1.956007 1,760,621
9 3,718,385 2.122268 1,752,081
10 4,003,071 2.30266 1,738,455
Total Discounted Net Benefit 13,465,462
Net Present Value 2,788,012

6.5 Economic Benefits

The project can create permanent employment for 18 persons and temporary job for 12
people. In addition to supply of the domestic needs, the project will generate Birr 2.15
million in terms of tax revenue at the initial year. The establishment of such lodge will
have generated foreign currency by attracting international tourists.

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6. ANNEXES

Annex 1:- Bank Loan Repayment Schedule (Birr)

Principal Outstanding Interest
Year Balance

0 - 7,000,000 -
1 - 7,000,000 -
2 1,400,000 5,600,000 1,121,132
3 1,400,000 4,200,000 1,009,019
4 1,400,000 2,800,000 896,906
5 1,400,000 1,400,000 784,793
6 1,400,000 0 672,679

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 Annex 2:-Projected Profit and Loss Statement (Birr)

Years 1 2 3 4 5 6 7 8 9 10
Net Sales 7,569,196 8,578,422 10,092,261 10,596,874 11,126,718 11,683,054 12,267,206 12,880,567 13,524,595 14,200,825
Production Cost
Salaries 1,050,000 1,102,500 1,157,625 1,215,506 1,276,282 1,340,096 1,407,100 1,477,455 1,551,328 1,628,895
Benefits 25% 262,500 275,625 289,406 303,877 319,070 335,024 351,775 369,364 387,832 407,224
Raw materials 2,170,000 2,387,000 2,712,500 2,848,125 2,990,531 3,140,058 3,297,061 3,461,914 3,635,009 3,816,760
Utilities 140,000 147,000 154,350 162,068 170,171 178,679 187,613 196,994 206,844 217,186
Consumables 200,000 210,000 220,500 231,525 243,101 255,256 268,019 281,420 295,491 310,266
Fuel and Lubricant 150,000 157,500 165,375 173,644 182,326 191,442 201,014 211,065 221,618 232,699
Repair &maintenance 180,000 189,000 198,450 208,373 218,791 229,731 241,217 253,278 265,942 279,239
Insurance 300,000 315,000 330,750 347,288 364,652 382,884 402,029 422,130 443,237 465,398
Depreciation &
1,572,474 1,572,474 1,572,474 1,572,474 1,572,474 572,474 572,474 572,474 572,474 572,474
Amortization
Interest 1,121,132 1,009,019 896,906 784,793 672,679 560,566 448,453 336,340 224,226 112,113
Total Production cost 7,146,106 7,365,118 7,698,336 7,847,672 8,010,078 7,186,209 7,376,755 7,582,434 7,804,002 8,042,253
Gross Profit 423,090 1,213,304 2,393,925 2,749,202 3,116,640 4,496,844 4,890,451 5,298,133 5,720,593 6,158,571
Profit Tax 148,081 424,656 837,874 962,221 1,090,824 1,573,895 1,711,658 1,854,347 2,002,207 2,155,500
Net Profit 275,008 788,648 1,556,051 1,786,981 2,025,816 2,922,949 3,178,793 3,443,786 3,718,385 4,003,071

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 Annex 3: Project income summary

Description 1st year 2nd year 3rd year 4th year 5th year 6th year 7th year 8th year 9th year 10th year
¨ Sales Revenue 7,569,196 8,578,422 10,092,261 10,596,874 11,126,718 11,683,054 12,267,206 12,880,567 13,524,595 14,200,825
¨ Cost of production 7,146,106 7,365,118 7,698,336 7,847,672 8,010,078 7,186,209 7,376,755 7,582,434 7,804,002 8,042,253
Taxable profit 423,090 1,213,304 2,393,925 2,749,202 3,116,640 4,496,844 4,890,451 5,298,133 5,720,593 6,158,571
Profit tax (35%) 148,081 424,656 837,874 962,221 1,090,824 1,573,895 1,711,658 1,854,347 2,002,207 2,155,500
¨ Net profit 275,008 788,648 1,556,051 1,786,981 2,025,816 2,922,949 3,178,793 3,443,786 3,718,385 4,003,071

Annex 4: Project cash flow statement

31
 year 1 year 2 year 3 year 4 year 5 year 6 year 7 year 8 year 9 year 10
A.CASH IN FLOW
Equity contribution 4,576,050 0 0 0
Bank loan 7,000,000
Sales revenue 7,569,196 8,578,422 10,092,261 10,596,874 11,126,718 11,683,054 12,267,206 12,880,567 13,524,595 14,200,825
Net working capital 300,000
Depreciation 1,572,474 1,572,474 1,572,474 1,572,474 1,572,474 572,474 572,474 572,474 572,474 572,474
Salvage value 572,474
Total cash inflow 24,395,170 10,150,896 11,664,735 12,169,348 12,699,192 12,255,528 12,839,680 13,453,041 14,097,069 15,645,773
B.CASH out FLOW
Fixed capital
Working capital 300,000
Operating cost 6,399,748 6,632,646 6,891,938 7,180,029 7,499,549 6,853,385 7,244,699 7,676,953 8,153,940 8,679,815
Loan repayment 1,067,745 1,067,745 1,067,745 1,067,745 1,067,745 1,067,745 1,067,745 1,067,745 1,067,745 1,067,745
Interest 779,774 701,797 623,820 545,842 467,865 389,887 311,910 233,932 155,955 77,977
Profit tax 148,081 424,656 837,874 962,221 1,090,824 1,573,895 1,711,658 1,854,347 2,002,207 2,155,500
Total cash out flow 8,695,348 8,826,844 9,421,377 9,755,837 10,125,983 9,884,912 10,336,012 10,832,977 11,379,847 11,981,037
Net cash inflow 10,000,000 1,324,052 2,243,358 2,413,511 2,573,209 2,370,616 2,503,668 2,620,064 2,717,222 3,664,736
Cumulative cash flow 10,000,000 17,023,873 19,267,231 21,680,743 24,253,952 26,624,567 29,128,235 31,748,300 34,465,521 38,130,257

32