Final Project Mebratu

Business Plan of Mebratu Tesfaye – Freight Transport Business
UNIT ONE
Executive Summary
The contribution of transportation to a country's development is high. Its share of contribution to the
GDP of a country is incontrovertible, though the nature & extent of the contribution varies from country
to country. Transportation plays a big role in what is known in both national & international trade as
invisible trade. It has been confirmed that its share in this respect in many developed countries is as high
as 36%.
The role of transportation in the investment sector varies between the developed and the developing
countries. Because a good part of infrastructure development has been taken care of in the developed
countries, most of the investment there focuses on automotive equipment, whereas the investment in the
developing countries focuses on infrastructure development. Of the total investment expenditure of
developing countries, 30-35% goes to infrastructure development, whereas in the developed countries
the share of expenditure for same is only 15-20%.
In terms of creating job opportunities, the share of the transportation sector in the developing countries
is only 2-4% due to the low-level performance of the economy, while in the developed countries, the
figure stands at 4-8%. And the job creating role of the sector does not include the labor force deployed
in the building of infrastructure. When the living condition of a country's population improves, the
population's transport demand increases accordingly. While the per capita transport demand in the
developing countries covers a travel distance ranging between 200 and 500km, that of the developed
countries lies between 7,000 and 10,000km.
This study is done for Ato Mebratu Tesfaye’s existing freight transport business and his expansion
project plan in the transport sector, till this time he has been involved into several types of business
atmospheres and become successful since 2002. In addition, he has managed to acquire two Isuzu NPR
vehicles and generate sufficient income for his business, personal draws and additional fixed
investments. By saving some of the money he earns for the last years and grants a transport loan from
one of the private Bank in the town, he now plans to invest his savings on one additional new Isuzu NPR
vehicle.
The new motor vehicle will give him a chance to provide his freight transport service to his clients in a
better way and safety as well as make extra revenue for the promoter of this business. Ato Mebratu has a
current contractual agreement with one of the building materials manufacturer in East Industry Zone (L
and H Building Materials Plc), his agreement consists of delivering doors & other materials from
Dukem to Addis Ababa, 30 days in a month with 3,700.00 birr per trip payment.
Currently he dispatch at least three times a day with his two Isuzu Trucks, but most of the time he
delivers four to six times a day that lead to an average daily income of birr 14,800.00. At present, the
promoter Ato Mebratu has request the bank to grant him a transport loan of 3,000,000.00 birr that will
be repaid back within the next five years with all the interest and related charges.
Ato Mebratu has been made market assessment in Addis Ababa for the type and price of Isuzu NPR
trucks and made his decision on the type of vehicle available and convenient for his transport business.
The type of vehicle he chooses is Isuzu NPR truck used to freight transport business and has a good
return on investment with a total cost of 3,000,000.00 birr.
The transportation business is one of the profitable sectors in the nation with ample manpower and
resources; he knows the business for the last five years, planning to engage with his own capital
contribution and debt equity.
The project, as per the financial analysis and examination will be profitable and will repay its debt
equity within the specified period of time including all its interests and related charges.
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Introduction
This study is organized for Ato Mebratu Tesfaye freight transport business plan and will be presented to
Financial Institutions for requisition of transportation long term debt. Ato Mebratu is a well known and
one of the respected and responsible driver and business men in the sector.
The promoter has an ideal mix of educational background, versatile work and business experience in a
wide range of business sectors and activities’ including the transportation sector. He is fully familiar
with the envisaged project, locality area and environment. He is therefore highly enthusiastic to
contribute as a corporate citizen playing socially responsible and exemplary roles as developmental
entrepreneurs.
He is also cognizant of the fact that transport sector is the mainstay of the Ethiopian economy plus as the
main resource of the country, it contributes the predominant share of the GDP, Construction works,
Import/Export earnings and is the source of livelihood of the majority of the population.
This brief survey has been undertaken to assess the technical as well as economic viability of the
complex outfit. As subsequent sections of the report reveal, the project shall be financially sound while
its socio-economic contributions cannot be neglected.
Currently, Ato Mebratu makes a total transport service income of more than 2,000,000.00 birr per year.
(As per the Financial Statements of Year 2014 Ec.)
At present the promoter Ato Mebratu plans to purchase one Isuzu NPR truck, which will be used for the
transportation service of several cereals, furniture, building materials, machineries and equipments in the
town, Bishoftu and Addis Ababa.
He requests the bank to cover the purchasing cost of the new truck, where as the promoter will cover the
remaining working capital requirement of the business. Purchasing cost of the truck will take birr 3
million birr and the working capital requirement for the business will take 500,000.00 birr, therefore, the
total loan request or purchasing cost of the truck is birr 3,000,000.00. As a result this study is mainly
structured in order to assess the viability and profitability of the new project of Ato Mebratu; whether it
is being competitive in ever changing market or not.
This project, which has been initiated by the promoter who has been encouraged by the current
favorable investment atmosphere in Ethiopia, especially focused on the transportation sector since it is
the main economical sector of the country on which the government relies on to move forward the
developmental route of the nation.
The major factors that motivated the promoter for the involvement to the transportation sector are
opportunities created for new entrants into the sector of transportation of several types of furniture,
machinery, equipments and household equipments transportation demand in the town. The major
opportunities for engaging in the business of this sector are:
 The sector is proved to be one of the profitable business sectors in the nation
 He can manage the business easily since he knows the sector for the last 5 years
 He can own and do the business at the same time
 He has a lot of clients who needs this type of transportation services
 He has a job agreement with L and H Building Materials Plc
 The construction work is currently growing
 There are sufficient demand and supply to the business
 He can drive his own car and cut some commission payments
 Banks willingness to give long term debt
 The government's support for the establishment of local light & heavy duty truck importers
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Location
Even though the promoter resides in Dukem, based on the nature of the business he can move from one
place to another and region to region in order to be profitable and make the periodically loan
repayments.
The Study
This study relies much on secondary data that was obtained from various documents and publications
available. This is also supported by intensive interviews with key informants, on-field visits to different
sites and focused group discussions of various stakeholders. Major Chain actors involved in
transportation sector have been characterized and mapped.
In the following section, objectives of the project and theoretical framework of the nation and its
transportation economic status in particular are put forward. Then after, it attempts to address the social
and economical situation of the country. The overall position of transportation sector in Ethiopia and its
market analysis in the national and global economy is deeply clarified in the next section, which will
then be followed by a discussion on the marketing analysis and the promoter’s operational and
technological aspects. The final section of this project intensively shows the financial analysis of the
new project including the conclusion and recommendation part of the study.
Projects Goal
The goal of Ato Mebratu Tesfaye lies on the transportation sector elevation and poverty reduction and
improving the livelihood of drivers, co-drivers and other stakeholders related with the transportation
sector. Play a great role for sustainable growth of transportation sector as a national level, through new
technological advancements, an improved and advanced heavy duty trucks, and increased the output and
profitability of the project.
Mission of the Project
 Contribute to the development of the country by providing quality and efficient transportation
services in order to enhance resource distribution services;
 Provide efficient, high quality value adding services combined with the highest ethical, safety and
environmental standards locally;
 Bring the distribution services of resources and inputs to the international standard;
 Strive to operate at all times in a responsible manner which means fair and honest treatment of all
those with whom the promoter deals, including customers, officials, employees and the general
public; and
 Provide favorable working atmosphere and opportunity for creativity and growth for several types
of stakeholders.
Objectives of the Project
The General Objective of the Proposed Project is: By using advanced and improved technological
medium weight duty trucks, contribute to the increased non-interrupted resources & materials and inputs
delivery to several stakeholders and give a hand for the next five year transformation plan of the country
and thereby to bring the country to self-sufficiency, promote import/export of diversified construction
inputs, contribute to economic development and poverty reduction, conservation of integrity of natural
resources and the environment as a whole.
What will the Project Achieve?
Working with local partners and stakeholders in Ethiopia, especially with Building Contractors; will
make the project to achieve the following objectives:
 Increase the promoter’s income through higher services and lower input cost
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 Improve environmental quality through using advanced and new technological vehicles and reduced
carbon air pollution
 Engage in the modern transport sector services and managements
 Widen its transportation services to heavy weight freight and public transportation sectors including
unban transportation services so as to enhance the involvement on the renaissance of the economic
development of the nation
 Serve as a demonstration center for similar projects as an exemplary one for other investors within
Ethiopia and the citizens from abroad who involve in similar sectors
 Participation and co-operation in community development schemes in the locality and the region in
general through financial, material and other resources by means and capacity of the project
 Generate business profit to sustain the promoter’s growth and development
 Contribute for the advancement and growth of the poorly performed transport sector of the country
 To create strong and sustainable technological system transfer and linkage between stakeholders
Beneficiaries of the Project
 The owner
 Isuzu NPR truck importers
 Private Micro Enterprises at loading/unloading sectors
 Consumers of different construction material inputs
 Contractors
 Financial Institutions, Banks & Insurances
 Resource extracting Companies and Persons
 Commission workers
Developmental Impact of the Project in Socio-economic
Given the multi-sectoral nature of the transport economic sector in Ethiopia and as a major gear to
enhance the renaissance and transformation of the country, a valuable impact will be create since every
economic sector needs sufficient supply of material inputs as well as transportation services.
The project will help the sector to minimize the current market price of transportation cost if it is
assisted by the government, banks and related parties to extensive involvement of freight transportation
trucks, help for the foreign exchange earner of the producing factories, as an important source for human
and animal shipments, as well as provider of urban and rural employment, improvements as an input in
the production and processing of the agricultural and industry sectors. As a whole it will have significant
socio-economic development impact.
Application and Business Address
Promoter: Ato Mebratu Tesfaye Defar
Address: Dukem Town, K. 01 Hno. New
Telephone: +251 924 647997
Type of Project: Freight Transport
Legal form of Business: Sole Proprietorship
Total Capital: 5,050,000.00 birr
Tin No.: 0045026546
Registration Agency: Dukem Town Revenue Bureau
Summary of Total Current Investment Costs
Ato Mebratu Tesfaye transport business start-up costs & current investments are listed below. The
purpose of this business plan is to secure a 3,000,000.00 birr transport loan from debt equity.
Investments made so far
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Description Value
Isuzu NPR - 03-OR-74121 950,000.00
Isuzu NPR - 03-OR-13339 1,100,000.00
Working Capital 500,000.00
Total 2,550,000.00
Financials
The previous financial record of the promoter shows the profitability of the existing business since its
start-up. For the projected financial records of the business margins are forecasted to be respectable.
Year one sales will be exceptional with a steady growth rate for the next five years.
This project is an existing business that combines a customer-centric business with an explosive
industry. Freight transport business is becoming increasingly popular in Ethiopia with more and more
people becoming active participants. Even for those who are not true participants, it is now “cool” to
have your car “tweaked out” even just for aesthetics. An investment made in this project means a high
growth, profitability and reasonable risk opportunity.
Past financial performance of the business is depicted on the following table.
Description Yr 2013 Yr 2014 Yr 2015
Sales 1,971,000.00 2,076,850.00 1,806,300.00
Gross Profit 1,359,990.00 1,412,258.00 1,083,780.00
Net Profit 476,529.60 517,333.49 425,904.45
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UNIT TWO
Background of the Business
A Brief History of the Development of Modern Transportation in Ethiopia
When we speak of modern transportation in the Ethiopian context, the reign of Emperor Menelik holds a
cardinal place. According to some writers, the idea of road construction started with the reign of
Emperor Tewodros, when he used manual labor for clearing land for a pathway across which to haul his
canon, the Sebastopol, to Mekdela. Since, however, the purpose of the roadway had nothing to do with
serving the public, let us limit our observation to the fact alone and pass on to the reign of Menelik.
Using his close relationship with the government of Austria, Emperor Menelik imported the roller, one
of the technological products of the time, circa 1885-1887Gc. But the building of the roadway itself on
which this roller was operated carried out by clearing the forest and leveling the land with a labor force
drawn both from the governments army and the public. Documents reveal that the first bridge to be built
was that across the Awash, which took place in 1886/87. According to the records, after the roller was
transported to Addis Ababa, Menelik had a 45-Kilometer stretch of road built through the combined
labor of the military and the civilian population, while the roller was simultaneously put to work on this
same road, but it did not take long for the machine to break down and be abandoned, never, it appears, to
function ever after. Different historical sources also point out that the first automobile came to Ethiopia
in 1907/08, Gregorian calendar, following which other cars with different models were imported from
England and Germany. The sources also point out that in 1908, Gregorian calendar; several trucks were
operating in Dire Dawa during the dry season. Given the cultural disposition of the society at the time,
those who were able to operate cars seemed to have satisfied themselves with the idea of just driving the
respective vehicles they owned, traffic laws and regulations being alien to them until the years between
1915 and 1917.
Gradually, however, oral directives and orders were given both to vehicle operators and pedestrians.
Although the Italian invasion of 1935-41 had inflicted damage on the country, it nevertheless had its
own contribution to the expansion of modern transportation. It has been reported that public
transportation, but especially taxi and bus services, started in Ethiopia during the Italian invasion.
Although, according to historical records, the first motor vehicle operator was Emperor Menelik himself,
the first operator with a legal driver's license was Negadras Tesemma Eshete, who learned the skill
while he was in Germany. Regarding the promulgation of transportation codes, the laws promulgated in
1934 and 1935 (Ethiopian Calendar) are considered the first written laws. At the level of government
offices, however, the first institution in charge of transportation was the Road Transport Administration
Bureau, which was established in 1960. Prior to that, the administration of most of transportation
activities was the responsibility of a board and some share companies under the jurisdiction of the
Ministry of Transport and Communications.
Regarding the administration of other transportation systems, we find that rail transport administration
came into being along with the beginning of rail transportation in the 1910s. As for air transport, Captain
Mekonnen Beri tells us, in his book, “Aviation in Ethiopia” that the first airplane came to Ethiopia in
1921. Following that, towards the end of the 1930s (more specifically in 1938), Ethiopian Airlines was
legally established. Regarding water transport, the Ethiopian Merchant Navy was established during the
reign of Emperor Haile Selassie, towards the end of the 1950s and the beginning of the 1960s, alongside
which seaport and maritime transport offices as well as maritime transport authority were mandated to
administer the country's international water transport system.
The 1950s and '60s constitute that period in the history of the development of our country's
transportation sector in which much was accomplished. The period was one during which many
agencies and companies were created and competitions among them to provide better services and
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attract passengers and clients flourished. Consequently several laws and regulations related to the
administration of transportation were issued. After 1967/68, however, many things changed, especially
changes that brought the development of transportation to a virtual standstill. Several transport
companies were nationalized and brought under the jurisdiction of Freight Transport Agency and Public
Transport Corporation. Everything pertaining to transportation was administered through zonal
structures.
During the Derg period, the role of private transportation was restricted, because of which there was a
high shortage of public transportation. The building and administration of transportation infrastructure
was completely under the jurisdiction of the Highway Authority. This centralized transportation service,
as well as infrastructure development and administration, continued until 1984/85, a situation that is still
fresh in our memory.
The Current Situation of the Ethiopian Transport Sector
The transportation branches for which data are available in Ethiopia are Road transport, Air transport,
Rail transport and Water transport. Of these four types, the biggest service provider is the road transport
branch. Accordingly, 90% of freight transportation both in the import and export sectors and 95% of the
public transportation services is provided by the road transport branch. Whereas the majority of the
urban population covers short- and medium-range distances on foot, in the urban areas people for the
most part travel on foot, save for those limited instances where they use draught animals. It has been
noted that the size of the population with access to modern transportation in Ethiopia does not exceed
40% (Federal Transport Authority, Megabit 2006). When we look at the overall situation in the transport
sector, we observe instability of operation and, in some cases, deterioration.
When we look at the total manpower employed by the government, the share of the labor force
employed by government institutions in the transport sector, namely, Transport Authority, Ethiopian
Road Authority, Road Fund Administration, is 46.7%. This figure does not include the manpower
employed by the regional transport institutions. Following in second place, the air transport sector's
share of manpower is 39.3%. At the moment, of all the branches of the transport sector, these two
branches have the best performance records.
As per the current data considered based on the high construction works performed by the government
and private individuals and institutions throughout the country, there is a high demand of heavy duty
freight transports including providers of different types of construction materials.
Profile of the Country's Road Transport
According to data obtained from the Federal Transport Authority, the annual rate of increase in the
number of vehicles was 14%, with only 166,310 vehicles for 2007. The past 12 years from 1996-2007
constitute a period during which the increase in the number of vehicles in the country was high.
Compared to the other African countries, the number of motor vehicles in Ethiopia is very low. When it
comes to loading capacity in terms both of freight and passengers, the number of vehicles with low and
midlevel capacities is very limited. A large share of the country's motor vehicles goes to private
(domestic) cars with over 37% of the total. While the share of public transport vehicles stands at 70%,
the remaining 30% goes to freight transport.
The Strong Points of the Transport Sector
While the modern transport system in our country is about a hundred years old, it has not been
developed as it should have. Of the different modes of transportation, rail and freight transport
especially have been on a path of regression, with the former faring even worse to reach a stage of total
closure. With regard to showing improvement and growth, the level of the changes registered in our air
transport system makes it the one area in which we should take pride. Although this branch of the
transport sector is more than 60 years old, the level of development it has currently attained is one that
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gives it pride of place both in Africa and around the world. Notable among its strong points is its
capacity to maintain a steady and sustainable growth, with no trace of vacillating.
One can assert that road transport is everything to Ethiopia. The reason simply is that there is no other
transport branch that is as close home to the hearts of the people than this branch in terms of providing
services for transporting passengers as well as freight goods. In this regard, among the strong points of
the country's road transport, we find the following:
 It has the lion's share (90-95%) when it comes to transporting passengers and freight goods within
the country;
 The effort made in the area of building new roads and upgrading and expanding the existing ones is
highly significant;
 The ability of the sector to create jobs for many Ethiopians;
 The high role it plays in bringing producers and consumers together;
 The improvement shown in the level of our use of modern vehicles for transporting goods and
passengers;
 The initiatives taken, relative to the previous regime, to extend administrative structures to the
lowest possible level, thereby affecting the principle of decentralization.
The Weak Points of the Transport Sector
In poor countries, such as ours, any social and economic activity is confronted with many problems and
constraints both internally created and caused by external pressures. These problems can be taken care
of through structural changes in systems as well as minor adjustment measure. This being the case, it is
easy to realize that there is a high level problem of capacity limitation and lack of proper management
initiative in poor countries, such as Ethiopia. With respect to this, when we turn our attention to our
countries transport sector, but especially to road, rail and water transport, we find that the sector suffers
from many serious weaknesses, among which we find the following:
 The country does not have competent and safe transport policy and strategy;
 Adopting issuing to fire fighting laws, proclamations, regulations and directives; Problems of traffic
safety in the road transport sector;
 Unlimited and uncontrolled selling of driving licenses in several regions;
 Absence of limits on the producing year of motor vehicles imported into the country;
 Absence of strategic systems of functioning transports service sectors and agencies;
 The prevalence of measures those are detrimental to our natural environment resources;
 Lack of proper attention and attitude towards non-motorized vehicles;
 The uneven distribution of transport vehicles throughout the country, one result of which is high
traffic congestion in few cities;
 The relative expensiveness of transport unit cost per passenger/freight tone; lack of knowledge on
the part of many operators about their running costs, except for a few modern transport companies;
 Problems of service operation allotment that does not discriminate between new and old vehicles;
 Lack of effort in expanding urban transport;
 Denying rural transport the attention due to it;
 The limited nature of the country's strategy with respect to withstanding the pressures from
countries with sea ports.
Economic Growth Performance
According to the National Accounts data produced by the Ministry of Finance and Economic
Development (MoFED) the Ethiopian economy experienced a real GDP growth rate of 11.8 percent in
2017/18. Over the past 5 years the real GDP grew by 11.7, 12.6, 11.6, 11.5 and 11.8, respectively. This
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impressive growth is attributed to a significant double digit growth especially in the service sector
averaging 13 percent in the last 5 years. The growth in the distributives services sector has continuously
increased from 6.4 percent in 2013/14 to 15.2 percent in 2017/18.
Sectoral Growth Performance
1960/61 -
1991/92 -
1997/98 -
2015/16
2017/18
2018/19
1974-75
2007/08
2009/10
2011/12
2013/14
-90/91
73/74
96/97
Agriculture & Allied Activities 2.1 0.6 4.5 4.7 10. 16. 13. 10. 9.4 7.5
5 9 5 9
Industry 7 3.6 8.7 7.1 6.5 11. 9.4 10. 10. 10.
6 2 2 4
Distributive Services 7.8 2.5 8.9 7.2 5.5 6.4 14. 14. 16. 15.
7 2 0 2
Other Services 6.9 4.7 8.1 8.9 6.5 6.1 10. 12. 12. 18.
9 5 5 9
GDP 3.7 2 6.3 6.2 -2.1 11. 12. 11. 11. 11.
7 6 6 5 8
Per capita GDP 1.4 0.5 3.4 5.3 -4.8 8.7 9.6 8.6 8.2 8.3
Source: Ministry of Finance and Economic Development
Transport and Safety
Safety is critical in any transport system. The degree of safety that one will enjoy differs from one mode
of transport to the other. Evidently, air transport is considered as the safest mode of transport while road
transport the least safe. According to the World Bank, every year more than 1.17 million people die in
road accidents around the world, of which about 70 percent occur in developing countries. Sixty-five
percent of the deaths involve pedestrians, out of which 35 percent are children. Over 10 million are also
crippled or injured each year. It has been estimated that at least 6 million more will die and 60 million
will be injured in developing countries during the next 10 years unless urgent actions are taken. The
majority of road accident victims (injuries and fatalities) in developing countries are not motorized
vehicle occupants, but pedestrians, motorcyclists, bicyclists and Non-Motorized Vehicles (NMV)
occupants. The Global Burden of Disease study undertaken by the World Health Organization (WHO),
Harvard University and the World Bank showed that in 2014 traffic crashes were assessed to be the
world’s seventh most important health problem, and by the year 2020 this would move up to third place
in the table of leading causes of death and disability. According to World Bank, Ethiopia had 3 vehicles
per 1,000 populations just next to Bangladesh, Togo and Sao Tome and Principe each of which had 2
vehicles per 1,000 populations. Despite the low per capita vehicle ownership, the country’s accident
record is very high. Road traffic accidents have been growing in Ethiopia overtime, with the exception
of the two recent years of 2006/07 and 2007/08. The registered growth is presumed to be significantly
under-stated due to the challenge of getting the exact number of accidents occurring throughout the
country. This could be due to under reporting, sheer absence of information, negligence, informal
negotiations between victims and drivers, or absence of traffic police at accident sites at the time of the
occurrence. The number of deaths, serious, and slight injuries increased, on average, by 6, 4.5 and 3.6
percent, respectively, in the period 2002/03-2007/08. All the three effects of traffic accidents have been
trending together due to their joint occurrence.
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Road Traffic and Composition

Traffic is concentrated on a few major routes, including many radiating from Addis Ababa, with around
80 percent of traffic in 2020 moving on half the surveyed network. The all-weather network has a length
of 16,593 km, thus comprising 49 percent of the surveyed ERA network for 2020. Over these (15) all-
weather roads estimated traffic movements were 4,717 million vehicle-km per day, or 79 percent of the
total surveyed traffic in 2020.
Estimated Traffic Flows on Selected Routes in 2020
(’000 vehicle-km per day)
Routes Cars Buses Trucks Truck & Trailers All Vehicles
Addis Ababa - Adama (98 km) - 252.5 184.9 306.5 110.9 854.9
Adama - Awash (125 km) - 31.6 31.8 73.0 72.4 208.8
Awash - Mille - Galafi (491 km) - 33.9 17.2 77.0 194.4 322.5
Total: Addis Ababa - Galafi (714 km) - 318.0 233.9 456.5 377.7 1,386.2
Other All - Weather Roads (5,879 km) - 668.8 914.4 1,462.6 286.5 3,332.2
Total: All - Weather Roads (6,593 km) - 986.8 1,148.3 1,919.1 664.2
4,718.4
Other Surveyed Roads (6,945 km) - 246.7 224.5 637.1 137.4 1,245.7
All Surveyed Roads (13,538 km) - 1,233.5 1,372.8 2,556.2 801.6
5,964.1
Source: Based on ERA Traffic Report
Based on the assessment of this study the truck which the promoter of this business Ato Mebratu will
buy will use to transport and deliver construction materials and inputs to individual demanders,
contractors, companies and government enterprises and agencies.
Therefore the main transport route he will use mainly is between Addis Ababa and Awash as well as
Addis Ababa and Hawassa. There are also secondary flows out side this region and it will be used if he
can get contractual jobs. Ato Mebratu is programmed himself to drive his own vehicle since he has full
capacity and knowledge about the nature of the cars and the business as well.
Major Pricing Issues
For freight haulage, the tariffs set out by the Transport Authority suggest that, in general, operating costs
are not being fully recovered. This may be due to insufficient allowance for vehicle depreciation &
replacement. There are consequent issues of quality of service (convenience, frequency, etc) & vehicle
roadworthiness standards. As a land-locked country with a large & relatively sparsely populated land
area, Ethiopia faces considerable difficulties & high costs in reaching regional & international
markets, importing key imports & delivering services to firms. Transport can form a very high
proportion of Export Value. For instance, in a study of the garment trade in 2021 it was found that
transport costs formed some 28% of the Value Added. When handling & Port Fees were excluded this
dropped to 18 percent, but this remains a high proportion. In a study of the coffee trade in 2021 it was
found that transport costs formed some 10 percent of the value of one ton of coffee.
However in the resource input transports the main factor is the load capacity of the product loaded and
the distance of the unload area/place are the main factors in pricing. The competition and the availability
of transport are well sufficient to support the needs of demanders. Other price changing factor is that of
cost of fuel and oils and the length and nature of the road.
The resource transport industry is affected by the peak periods caused by bunched arrival and demand of
materials and construction periods. In such situations all available truck capacity has failed to cope.
During peak times, transport prices have jumped from over two times average prices, whilst in non-peak
time prices have dropped to the lowest.
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Freight Transport Service Forecast

In order to keep pace with the growing economic activity, replacement of old fleet, upgrading of
trucking technology and expansion, is required to match with the pattern of change in the nature of
demand. Furthermore, measures to restrict import of used vehicles and replacement with obsolete trucks
will tend to reverse the present distribution of old trucks. It is expected that there will be a shift towards
modern trucks, which currently account for a relatively low proportion of the trucking fleet. In order to
have sufficient number of modern trucks in the business, there has to be sustainable increase in
economic activity as a whole.
Considering the strong positive performance of the Ethiopian economy in recent years and taking into
account that it is in the earlier stages of transition to a full market economy, the increase in road freight
transport fleet will be at a high rate for future.
Political Context
Institutional Structure Including Allocation of Powers between Jurisdictions
The present institutional structure of the Federal Democratic Republic of Ethiopia (FDRE) is of
relatively short provenance. In 1991 was formed the Transitional Government that laid the basis for
the current constitutional arrangements which were ratified by a Constitutional Assembly in late 1994,
and took effect in 1995.
The federal arrangement, established under the Constitution, has guaranteed the rights of the Regional
States to administer their own affairs. They are empowered to formulate policies that are appropriate for
their respective development; to lay the foundation for economic and social infrastructures; to
participate directly in sectors that are critical for their economic development; and to safeguard law and
order in their own areas.
Other Relevant Government Institutions
The highest level relating to commercial road transport is the Federal Government of Ethiopia,
responsible for determining national policies and strategies, as well as developing regulatory
framework in the form of basic laws. To this effect, special organs of the federal government have been
established. These authorities are discussed below.
The second level (type of function) relates to Regional level authorities and the third level (type of
function) to City administrations/municipalities which are similarly dwelt upon in the following
paragraphs.
Ministry of Transport and Communications (MoTC): The Ministry of Transport and
Communications (MoTC) was established with responsibilities for the overall national transport
policy and the preparation of basic laws and directives governing commercial road transport.
Transport Authority: The organization with prime responsibility for control and regulation of
road transport is the Transport Authority (TA), formerly named the Road Transport Authority until its
remit was widened in 2005 to also include rail and maritime transport activities. Despite this widening
of the TA scope, regulation of road transport has remained the dominant function. In fact some maritime
functions which were transferred to the TA have now been re-assumed by the parent Ministry of
Transport and Communications (MoTC).
Ethiopian Roads Authority (ERA): The Ethiopian Roads Authority is a federal government institution
with responsibilities for providing, improving and maintaining the major roads (trunk, link and main
access roads).
The Federal Police Commission: The Federal Police Commission is entrusted, among other functions,
with the management of road traffic and enforcement. The Regional Police Commissions share these
functions.
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Regional Bureaus of Transport and Communications: The Regional Bureaus of Transport and
Communications have been empowered to administer the regulations of road transport, including
registration and technical inspections of motor vehicles and regulating commercial road transport
services within their geographic jurisdictions. This came into effect in accordance with Proclamation
No. 7/1992 (Transitional Government of Ethiopia: 1992), and the Regulation for the Definition
of Powers and Duties of the Central and Regional Executive Organs of the Transitional Government
of Ethiopia (Transitional Government of Ethiopia: 1993). They also have powers to establish and
operate public road terminals.
Regional Rural Road Authorities: The Regional Rural Road Authorities have responsibilities for
providing roads that are functionally classified as collectors and feeders, or what are more commonly
called rural roads.
City Administrations/Municipalities: The third level/type of governmental commercial road transport
functions relate to city administrations/municipalities. City administrations, particularly Addis Ababa,
have substantial commercial road transport responsibilities, including roads, parking, transit systems,
terminals and traffic management.
However, city transport authorities with comprehensive roles have not yet begun to appear.
Transport Associations
The largest freight transport associations may have 200 to 300 members, operating 300 to 400 trucks,
but many are much smaller; on average, however, there are over 100 trucks per association. Eighteen
associations operate more than 100 trucks.
The characteristics of the sampled transport associations/operators (public, liquid and dry cargo freight)
are summarized as follows:
 Associations are groupings of in general a small number of vehicle owners;
 Associations act as brokers facilitating prompt loading to their members and collecting
commissions for the services they render;
 As associations are not registered companies, but are groups of independent operators, the sizes of
their combined capital could not be estimated;
 There are deficiencies in data management: in recording, organizing, retrieving operational
and financial data for management purposes;
 Some of the associations do not have proper office facilities and personnel. Offices of most
associations are not well organized, there is insufficient space and they serve other purposes aside
from transport. Conversely, some have organized offices with the necessary human resources; very
few associations have small and clean offices with reasonably skilled personnel;
 In general associations are fragmented, uncoordinated and unorganized;
 Associations are preoccupied with day-to-day management of operations;
 They do not engage in business planning, study of costs, revenues, tonnages and other operational
and financial performance indicators. There are no organized consultations on problems of common
interest;
 In general, a shortage of skilled staff, a lack of proper facilities and ineffective
management, an absence of rationale for pricing, the instability of demand, poor asset management
and weak financial position characterize a large share of the associations that were sampled;
Private Companies
The Private Limited Companies are better organized in having better organizational designs with the
required job descriptions, position classification and pay systems, facilities -workshop, terminals, and
stores, than the associations. They have better data management systems, although most companies were
not willing to provide access to records for commercial reasons. The private transport carriers should
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enhance their organizational capacity, so that they can effectively carry out business planning, fleet
scheduling, cost analysis and tariff setting, financial management and control in order to be sustainable
within a competitive environment. In order to adopt a competitive environment and improve service
quality, it may be necessary to determine optimum fleet size for efficient management and adjust
association membership accordingly. Of particular significance is for private transport carriers to
establish their business objectives in terms of vehicle productivity, market share and profitability for
sustainability. As the technology of commercial road transport continues to change, the dependence of
passengers and shippers on a limited number of common carriers (generally for-hire carriers) will
change. Some operators can even afford to operate their own truck fleets. As the regulatory environment
is becoming more competitive, the hire-carriers, particularly the associations have to be much more
responsive to the needs of shippers.
Financial Performance and Sustainability
Access to Credit/Loan
Access to credit/ loan from financial institutions is critical for modernization and sustainability of the
commercial road transport industry. An inability of most transport operators to generate surplus from
their activities for reinvestment is one of the major inhibiting factors in the improvement and
modernization of the commercial road transport industry in Ethiopia.
As part of the process of evaluating the level of access to credit financial institutions (banks and
insurances) provide to the Commercial Road Transport sector, and to examine the operational results of
the operators engaged in the business, questionnaires were distributed to nine banks, six insurance
companies and fifteen transport organizations. Almost all of the contacted organizations responded to
the questionnaires.
Data collected from the commercial banking system showed that loans to the commercial road
transport industry have been increasing, reaching cumulative amount of more than 2 billion. The interest
rate falls in the range of 16.5 to 18 percent p.a., whilst the maximum loan tenure is 5 years.
The financial needs of the commercial road transport industry should be evaluated so that a range of
flexible and affordable solutions (at competitive interest rates and affordable monthly payments) could
be tailored to meet business requirements for modernization in a globalized and competitive economy.
All of the banks surveyed, provide credit facility for partial financing of purchases of commercial
vehicles (freight and public). Some of the financiers have only 3 to 5 years of experience in granting
loans to the sector. Although banks consider trucking as a high-risk business, the non-performing loans
(NPL) of the industry are minimal or negligible, and for some of the banks the NPL is almost zero. It is
striking that the Non-Performing Loan (NPL) from the total amount provided by commercial banks for
transport companies is less than 7 percent. This figure is far lower than the aggregated maximum of 15
percent (set by the National Bank) or than an internationally accepted NPL hurdle of 10 percent.
Even those loans reported as “Non Performing Loans” by some banks, have been settled through the
process of negotiation and rescheduling. This signifies that borrowers are meeting their commitments
accordingly or are credit worthy. This is a fundamental issue when considering the future upgrading of
the technology of the vehicle fleet to enhance competitiveness, through the reduction of unit vehicle
operating costs.
 Most banks have the same terms and conditions for both urban and rural transport
commercial vehicles.
 Most banks require a clearance from all financiers, which show that the applicants have non-default
status; no record of any mal-operational practice of checking account in the banking industry;
 Applicants are expected to have:
- Sufficient experience and be licensed to operate in the business, and
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- Tax Identification Number;

 There are no banks that finance 100 percent of the value of vehicles to be purchased by creditors.
 Different banks have different criteria on the kind of vehicle they finance.
- Some banks finance truck with loading capacity of up to 10 tons; buses less than 45 seats.
- Others finance a truck with trailer up 300 quintals loading capacity, a fuel tanker with
40,000 liters loading capacity and a bus with at least 30 seats.
- Some banks require that the motor vehicle to be purchased meets the standard specification of the
Transport Authority;
 The maximum tenure of the loan is 4-5 years; and
 If the loan is sought for the procurement of tanker, some banks require a tripartite agreement,
involving the borrower, the oil company and the bank.
Financial Constraints
The transport industry suffers from a lack of sources of finance both for capital investment and for
working capital. Cash flow is a problem for all transport companies as they seek to retain their position
or expand. There is an urgent need for more banking services and the establishment of leasing services.
Cash flow problems are also a reflection of a lack of business management experience in the industry.
It is usual that cash income from transport activities exceeds direct cash expenses (particularly in the
first few years of operation), as an excess of revenue over direct expenses is needed for vehicle
depreciation purposes.
The excess cash generated will often be spent on peripheral activities and not re-invested, leading to
cash flow problems later. A clear example of this is where depreciation is ignored altogether or at best
not accounted for in saving (or investing elsewhere) to replace the vehicle at due time. In this situation
vehicles have to literally last the lifetime of the owner. Performance in the industry could be improved
with new training in management skills. This could be done through aid funding at low cost and quite
quickly.
Increasing costs of operation (particularly the rise in the price of construction materials and inputs) vis-
à-vis regulated tariff and market rate for the services provided has resulted in some cases in poor
financial performance. This has major implications for the future replacement of trucks, and the
modernization of the industry for greater competitiveness and sustainability. The future prognosis for the
financing of replacement of trucks remains uncertain.
The loan tenure is very short (3-5 years) and not really suitable for fleet replacement which typically
requires medium term finance (8-10 years). From the point of view of access to credit, commercial road
transport is not yet generally recognized as an industry. There are serious weaknesses in the
development of databases and their management which could generate valuable business information.
Motor Vehicle Insurance
An effective insurance industry has a critical role in improving the safety of the commercial road
transport system. The Ethiopian Insurance business, when compared with other neighboring countries
like Kenya, can be classified as an infant industry. A review of what insurance products the insurance
industry in Ethiopia offers, specifically tailored for the commercial road transport industry, including
heavy motor fleet liability and road freight has been carried out as part of the study of this project.
The Ethiopian insurance industry is not yet well developed, with relatively limited offerings and
coverage. According to data collected from most of the private insurance companies, about 60 percent of
the revenue generated by the industry is from "Motor Policy Insurance". One of the key issues raised by
transport operators is that there is no sound rationale for the valuation of property. It has also been stated
that the premium is insufficient to cover loss or damage to property. Although data management
capacity is weak, it has been confirmed by most of the insurance companies that the total number of
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commercial road transport vehicles with Comprehensive motor insurance policies is not more than
279,531, or about 40 percent of the total registered and inspected fleet.
In general, the insurance industry has to expand its services with insurance products specifically
tailored for the commercial road transport industry, including heavy motor, fleet, liability and road
freight. Some of the observations made include the lack of a clearly defined framework for motor
insurance policy, the absence of statute of limitations, the lack of thresholds for making claims, the lack
of any provision to expand choices of services, and weaknesses in the development of databases.
The premium structure of comprehensive motor insurance cover of the commercial road transport
vehicle differs from company to company and generally depends on the following factors:
 Age & Use of the vehicle;
 Value & Carrying capacity of the vehicle.
Since there is no minimum premium rate fixed by the regulatory body, the premium rate for
commercial vehicle varies among the insurance companies. There are few insurance companies who
have established their own fixed minimum premium rate; whereas most of the insurance companies have
ranges of minimum and maximum rates for each category of commercial road transport vehicles (cargo,
public and tankers).
Most of the insurance companies could not provide complete statistical data on commercial road
transport vehicles insured on “individual organization” basis as they haven’t organized their database in
such manner. According to information collected from some insurance companies, the total number of
commercial road transport vehicle that are insured over the last 5 years is to be about 279,531 or about
40 percent of the total registered and inspected vehicles.
This shows that 60 percent of the vehicles on the road are without any type of insurance coverage except
third party insurances. Almost all insurance companies have taken some underwriting measures by the
form of premium loading and increase compulsory excess on some highly risky (ISUZU trucks) and
expensive vehicles due to repetitive accidents by the drivers, which resulted in substantial increase in
compensations settled. Third party insurance in commercial road transport industry is long
overdue. According to Proclamation No. 14/1992 (The Road Transport Regulation, FDRE, August
2005), the Authority is empowered among others to “ensure that all motor vehicles have third party
insurance coverage; and in consultation with the appropriate organs, issue and enforce directives relating
to the provision of insurance policy coverage for passengers and cargo”.
According to the information derived from the survey, all insurance companies support the
implementation of compulsory third party motor insurance policy in the sector. Draft legislation for
compulsory third party motor insurance has been submitted to the Council of Ministers, reviewed and
passed by the House of People’s Representatives of the Federal Democratic Republic of Ethiopia.
Manpower Requirement
Due to the nature of the business, no need of excess manpower is required to run the project. The
proposed project will be managed and run by the promoter of the business Ato Mebratu Tesfaye who
has adequate and ample work and driving experience for the last 5 years in the business. Some of the
times the promoter will give his vehicle to co-driver, so that the promoter only need two drivers & one
co-driver with a monthly salary of birr 4,500.00
Description No Monthly Salary Annual Salary Experienc
Background e
Driver 3 4,500 162,000 10+ 2 Years
Grand Total 3 4,500 162,000
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Vehicles
One Isuzu NPR vehicle will be purchased with the loan gained from Financial Institutions with an
estimated total cost of birr 3,000,000.00, where as the promoter has two Isuzu NPR’s from his own
capital contributions.
Sr. Description UoM Qty Unit Price Total Price
No. (Birr) (Birr)
1 Isuzu NPR - to be purchased Pcs 1 3,000,000.00 3,000,000.00
2 Isuzu NPR - 03-OR-74121 Pcs 1 950,000.00 950,000.00
3 Isuzu NPR - 03-OR-13339 Pcs 1 1,100,000.00 1,100,000.00
Grand Total 5,050,000.00 5,050,000.00
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UNIT THREE
Transportation Service Plan
Demand Gap: - The development programs of Ethiopia entail full participation of the population and
benefiting the population phase by phase. On the other hand, the Government has developed Agriculture
Development Led Industrialization (ADLI) Strategy which supports the country to eradicate poverty and
it is at the stage of its implementation.
Based on the umbrella of this development strategy all sector development programs are at operational
stage for the full implementation of the strategy.
The Government of Ethiopia has developed wide range of development program on the promotion and
expansion of power sector and electricity service. Accordingly there are projects on going on power
development, transmission and distribution. On the other hand the search on oil exploration and studies
has been done and today this activity is strengthened. The purpose of oil exploration is to use fuel for the
transport service and transport service will enhance the economic development of the nation. Realizing
these factors for the last 15 years the Ethiopian Federal Democratic Republic of Ethiopia (EFDRE) has
given high priority for infrastructure development. The development of the infrastructure coupled with
the high national income has exacerbated the demand for fuel. In addition to transport, fuel is important
for industry, agriculture, households and societal service. The demand for freight transportation will
increase when the economic growth of the nation increases.
Thereafter to transport construction material inputs and other materials the freight transport business will
be enhanced and encouraged, thus there is a huge demand for freight, liquid as well as public
transportation trucks and vehicles.
Some Important Challenges in Road Transport
There is no visible preparedness, in view of Ethiopia’s possible World Trade Organization Accession
Agreement (in terms of freight transport, maintenance and repair services, storage and warehousing,
etc.); and there is an absence of, or inadequate, freight forwarding and cargo consolidation services at
strategically located centers. Some important challenges have been identified in the recently completed
studies as follows:
Lack of Motorized Transport: More percent of the vehicles are found around and in Addis Ababa.
Elsewhere in the country pre-dominate non-motorized transport. Transport of goods by pack animal is
widespread. Most urban journeys are made on foot, and given the size of city mobility in Addis Ababa
are particularly low. There is not enough rural transport, especially on unpaved roads. Measures are
needed to encourage freight and public transport services and intermediate transport.
Poor Vehicle Productivity: Poor vehicle productivity, which is reduced by the poor road system,
enforced traffic delays for customs and other purposes, and the age of the fleet. The system of
transport associations reduces competition and vehicle utilization.
Poor Safety: The road safety situation is serious and will become more so. Ethiopia has one of the
highest accident rates, per vehicle/km in the world. More than half of those killed in roads accidents
each year are pedestrians.
Increasing Air Pollution: Since the Brundtland Commission report, the central importance and inter-
connected dimensions of sustainability have become understood. Not only this is a necessary national
goal, it has become an urgent global imperative. Controlling green-house gases [GHGs] by greater
energy efficiency and changing the energy mix have particular implications for the transport sector that
remains heavily dependent on CO-intensive fuels. Solutions require a holistic approach to land use
development and accessibility and energy efficiency.
Pollution is a growing problem in Addis Ababa. Reducing the sulfur content in diesel fuel would follow
world trends and is needed to benefit from the more modern and cleaner engine technology in the
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recently imported vehicles. A project is needed to ensure such change goes smoothly. Looking further
ahead, the use of domestic electricity, biomass or natural gas for transport needs to be investigated
and implemented over time as opportunities arise.
Investment Incentives set by the Government
To encourage private investment, the Ethiopian Government has developed a package of incentives
under Regulations No.84/2003 for investors engaged in new enterprises and expansions, across a range
of sectors. These incentives are available both to foreign and domestic investors and the said
Regulations doesn’t discriminate between a foreign and domestic investor or between foreign investors
of different nationalities. The type of incentives that are available both to foreign and domestic investors
who need to involve in construction material input transportation sector are the following:
Customs Duty Exemption: A 100 percent exemption from the payment of import customs duty and
other taxes levied on imports is granted to investment capital goods and construction materials necessary
for the establishment of a new enterprise or for the expansion or upgrading of an existing enterprise as
well as spare parts worth up to 15 percent of the value of the imported capital goods;
 Investment capital goods imported without the payment of import customs duties and other taxes
levied on imports may be transferred to investors enjoying similar privileges;
 Exemptions from customs duties or other taxes levied on imports are granted for raw materials and
packing materials necessary for the production of export goods. Taxes and duties paid on raw
materials and packaging materials are drawn back at the time of exports of finished products. The
voucher system and bonded manufacturing warehouse facilities are also in place.
 All goods and services (except semi-processed hides and skins below crust level) destined for
export are exempted from any export and other taxes levied on exports.
Loss Carry Forward: Business enterprises that suffer losses during the tax holiday period can carry
forward such losses for half of the income tax exemption period, after the expiry of such period.
Remittance of Funds: Foreign investors are entitled to make the following remittances out of Ethiopia
in convertible foreign currency at the prevailing rate of exchange on the date of remittance:
 Profits and dividends accruing from investment;
 Principal and interest payment on external loans;
 Payments related to a technology transfer agreement;
 Proceeds from the sale or liquidation of an enterprise;
 Proceeds from the transfer of shares or of partial ownership of an enterprise to a domestic investor;
 Expatriate employees may remit, in convertible foreign currency, unspent salaries and other
payments accruing from their employment in hard currency.
18
UNIT FOUR
Marketing Analysis
To attain the project objectives, the strategies to be followed will include providing efficient and reliable
customer services, utilizing modern distribution and service facilities, strengthening the marketing wing
of the project, introducing productivity improvement schemes, establishing standards for enhanced
quality of services.
Since the project will engage in the business of distribution of resources & materials and input products,
the promoter will focus on distribution of furniture, equipments, machineries, and other materials due to
the better need and cost of the products.
In order to meet its sales targets, the promoter Ato Mebratu has planned to create a distribution network
plan through usage of several commission brokers and agents. Ato Mebratu has made an agreement with
one building manufacturer in East Industry Zone, Dukem.
The promoter delivers building materials and doors from the production area to the Head Office of the
company at Addis Ababa; this trip has a range of four to six trips per day with the current available
trucks. For the purpose of this study an average of four trips per day with three Isuzu trucks has been
considered.
Generally the previous work experience of the promoter helped him how he can manage the business
without an interruption and continuous supply of resources. Plus the new truck that will purchase in
relation with the loan provided by the Bank will serve Ato Mebratu to increase his daily as well as
monthly income.
The Ethiopian commercial trucking industry serves as a key link between raw material suppliers,
manufacturers, wholesalers, distributors, and contractors in most industries. According to the Ethiopian
Roads Authority, the industry includes heavy duty trucks, dry van trucks, high & low bed trucks,
refrigerated and bulk/tank trucks for different types of freights all over the country. Timely acquisitions
of these trucks will help to compete in the market for medium and long distance freight transports in the
country. This market serves businesses ranging from the packaged goods/grocery industry to the
clothing industry to high-tech equipment, as well as commercial relocations and construction input
materials.
Customers which require frequent construction input materials generally have the appropriate-sized
loading for the standard of products. Ato Mebratu will begin by focusing specifically on the segment of
building contractors in Addis Ababa and Sheger town around Oromiya region, after the first year he is
planning to expand his service destination to the entire regional states of Ethiopia.
By serving those clients, Ato Mebratu can provide an affordable transportation solution for new and
growing clients. Resource & raw material suppliers sometimes require a smooth and good
communications to sell and load the materials on time. These segments are expected to yield some extra
customers in the future, but by focusing first on the middle of the supply chain with contractors; Ato
Mebratu will introduce himself to raw material suppliers and customers who may require frequent and
un-interrupted supply of input materials to their services without having massive problems.
Resource & Construction Input Material Demands
Unless one is equipped with special natural ability to predict the future, it is very difficult, in this
changing world of ours, to say with any degree of certainty what turns things that are good or bad at
present would take tomorrow. This notwithstanding, in order to live on this earth, one ought to have a
vision of some kind and work and live with some degree of faith and hope. Because of the changing
nature of developments, it has been observed over the years when goals envisioned at one time in a
given present changed either for the better or for the worse at another moment ahead. Similarly, in our
attempt to project what could possibly become of our transport sector in the future, we have to recognize
19
that the state of affairs in the other social and economic sectors of our country plays a crucial role.
Because, the fate of the transport sector, more than any other sector of the economy, is determined by
what takes place in the other sectors.
Input materials are considered to be so needy in all economic status of the country, it is due to the fact
that there will be a construction work whether it is in a good or bad economic conditions. The difference
will lie on the quality and quantity needed only.
To some extent there is a high rate of economic growth for the last few years in Ethiopia, the growth in
the transport sector which provides resources & construction input materials are also increases with a
high speed too, because the backward and forward linkage between the different sectors will increase.
Conversely, the growth of the transport sector will in turn contribute highly to country's economic
growth. To cite one example by way of corroborating this claim, the one sector that made a significant
contribution to the economic growth of Ethiopia is the special increase made in the transport sector,
especially in the area of road infrastructure development, following the policies of the Government.
Because the linkage between the general economy and the transport sector would result in mutual
support, in which the one contributes to the other, the envisioned change and growth will take place in
line with the projections made.
Competition and Efficiency
For the market economy to work effectively, competition needs to be on an equal basis so that the most
efficient can survive and the least efficient go out of business. Bankruptcies are not a loss to the
economy, as the assets remain and will be used by others. The threat or reality of bankruptcy is an
essential part of the economic mechanism that leads to efficiency. If efficient organizations cannot
survive and grow because of unequal competition from protected inefficient operators, or from hidden
subsidies to others, then efficiency will not be achieved.
The Government does not yet insist on realistic standards of vehicle condition that would eliminate
some of the older less efficient and more polluting vehicles, as well as those that are dangerous for the
driver, pedestrians or other road users.
As a general rule current government policies and the tax regime has create an incentive for private
companies to invest in new vehicles that would lead to greater transport efficiency.
Entrance to Market
The governing legislation for transportation is the 1992 Proclamation to Provide for the Regulation of
Road Transport. Subsequent legislation allows each Regional administration (including the City of
Addis Ababa) to develop its own regulatory framework, but this opportunity has not yet been availed. In
effect, this proclamation deregulated the supply of such transport in line with the prevailing accepted
view of the time.
It was anticipated that new market entrants would be attracted to the business opportunity, and this
would both improve service quality and reduce the financial burden on the public sector in its provision.
Any intending operator can readily procure a business permit from the City administration (the
Transport Authority acting on behalf of the Bureau of Trade and Industry). The only provisos are that he
must have a vehicle with a valid certificate of roadworthiness, and must employ a driver with the
appropriate category of license. This permit covers the whole of the conurbation, and is not confined to a
specific route or area.
Competitive Edge
Ato Mebratu will establish a competitive edge through its determined focus on on-time deliveries for its
specific target market. By having high-quality communication systems, operational choices and
marketing materials will all be oriented around his goal. By making customers more assured of on-time
delivery with the promoter of this business than with competitors, they will be more likely to use the
20
business overall, as they can never be sure when a few hours can make an incredible difference to their
potential revenues or expenses.
Sales Forecast
As per the current scenario of the business plus work experience of Ato Mebratu, he can manage to
provide his service at least four times in a day. Otherwise if the delivery site is near to the supply station
he can manage to provide six times a day. The agreed payment is birr 3,700.00 per trip.
No of No. of Gross
Project Truc Trip/ Income/ Total Income Total
Years Type of Service k Month Trip Per Month Revenue/Year
1 Transportation Service 3 120 3,700.00 444,000.00 5,328,000.00
Market Analysis
Potential Customers Customer Share
Manufacturing Company 51%
NGO's & Organizations 16%
Contractors & Schools 14%
Walk-in Clients 19%
Total 100%
Milestones
The accompanying milestone table highlights our plan with specific months. This schedule reflects the
strong commitment to organization and detail.
March 2023 Preparation of Business Plans & supporting documents
March 2023 Requesting Transport Loan
April 2023 Purchasing of one Isuzu NPR
April 2023 Operation at full capacity of the business
Sustainability and Expansion Strategy
The future of a business lies in the numbers of loyal customers that they have; the capacity and
competence of the employees; their investment strategy and the business structure. If all of these factors
are missing from a business (company), then it won’t be too long before the business close shop.
One of the major goals of starting the transport business is to build a business that will survive off its
own cash flow without the need for injecting finance from external sources once the business is
officially running. We know that one of the ways of gaining approval and winning customers over is to
retail our wide range of quality & safe transportation service delivery a little bit cheaper than what is
obtainable in the market and he is well prepared to survive on lower profit margin for a while.
Ato Mebratu will make sure that the right foundation, structures and processes are put in place to ensure
that his staff welfare is well taken-of. His business’s corporate culture is designed to drive his business
to greater heights and training and re–training of his workforce is at the top burner.
He knows that if that is put in place, he will be able to successfully hire and retain the best hands he can
get in the industry; they will be more committed to help him build the business of his dream.
Future Development & Exit Strategies
Every business undertakings be it large or small should have to have future development plan. It is a
plain fact that business activities are undertaken in a dynamic and turbulent environment. Hence to
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overcome or minimize the risks of uncertain future business risks, every project should devise effective
strategies that enable them to be successful in their operation & lifetimes. Likewise the envisaged
project has devised strategies to overcome the future risk of operation.
 The first strategy is diversification of its activities to different other business forms.
 The second future development plan of the project is expanding its services & vehicles in many
other parts of the country.
 The third strategy of the project is making a joint venture with other similar business
undertakings either from domestic or foreign partners from abroad.
 The final strategy of the project is selling the whole project to other interested organizations or
individuals.
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UNIT FIVE
Justification of the Project
Statement of Understanding: Ato Mebratu Tesfaye confirms that he will fully understand and will
adhere to the requirements of the technical specification and all design and standards referenced or
otherwise applicable.
Key Success Factors
The three main critical success factors that affect the decision to invest in the proposed business setup
are:
Hands on Experience: Having a thorough knowledge and hands on experience of all the relevant
technical details is a must for entry into this type of business sectors. Relevant work experience is the
most important pre-requisite because it has a direct impact on the successful management of the
business. The owner Ato Mebratu Tesfaye has ample work & educational experience for doing the
business successfully.
Marketing Skills: Another critical factor is that the entrepreneur must have effective PR and marketing
skills. These marketing skills should enable the entrepreneurs to carry out business development
activities to target its potential customers and also to maintain its existing client base.
Technical Skills: The third critical factor relates mostly to technical skills required especially for
operating vehicles, computerized and manual machineries and equipments. The technical staffs should
be properly trained in order to completely inspect the freight transport business, take exact
measurements, and serve to clients or advice clients with their transportation demands. In case of
unskilled workers handling these cases, there will be loss of time, equipment and most important of all
unsatisfactory service will lead to customer dissatisfaction and total loss.
 Good knowledge of project management
 Deliver various types of freight transport services promptly
 Quality & Safe delivery & product care with competitive fair price
 Using highly experienced and professional work forces to penetrate the market and wins its
competition easily
 Access to credit
 Maintaining a reputable and untarnished reputation in the community
 Flexible hours
Basis & Presumptions
 The business is expected to work at 100% service efficiency
 The promoter will own three Isuzu NPR trucks including the new one
 30 days delivery service will be achieved as per the contract agreement
 Each truck will deliver the products two times a day from Factory to destination
SWOT Analysis
The intention of starting the freight transport in Dukem is to test run the business for a period of 2 to 5
years to know if the promoter will invest more money, expand the business and then purchase additional
vehicle to inject to the current business.
The promoter, Ato Mebratu has been quite aware that there are several freight transport service
providers all over the town and even in the same location where he intend locating his business, which is
why he follow the due process of establishing a business. He knows that if a proper SWOT analysis is
conducted for his business, he will be able to position his business to maximize its strength, leverage on
the opportunities that will be available to him, mitigate his risks and be welled equipped to confront his
threats.
23
Ato Mebratu employed the services of an expert and Business Analyst without bias in retailing to help
him conduct a thorough SWOT analysis and to help him create a business model that will help and
achieve his business goals and objectives.
This is the summary of the SWOT analysis that was conducted for the Freight Transport Business;
Strength:
Its location, the business operating on both (retail store and warehouse), varieties of payment options,
wide range of services delivery from different manufacturing outlets and private destinations and his
excellent customer service culture will definitely count as a strong strength for his business. So also, his
team of highly qualified and responsible staff members is also a plus for the business.
 The existing promising market for freight transport business
 Availability of skilled labor force for the project
 Geographical location of the project area
 Dukem is a busy town having a connection with different major towns and peasant associations
Weakness:
A major weakness that may count against the business is the fact that the financial capacity to compete
with multi – million birr capital transport organizations.
Opportunities:
The fact that the business is going to be operating its transport delivery service is close to one of the
largest business & manufacturing area, East Industrial Zone, Dukem, that provides the business with
unlimited opportunities to get ample transportation demand to different destinations. Ato Mebratu has
been able to conduct thorough feasibility studies and market survey and identifies who are the potential
clients that will be looking for when they demand the transport service; he is well positioned to take on
the opportunities that will come to the way of his transport business.
 Existence of good policy environment for investment
 Government incentive for investment
 Existence of high demand for improved and equipped modernized freight trucks & spares
 Availability of professionals around project area
 Premium prices can be obtained by providing quality & safe delivery service
Threat:
Just like any other business, one of the major threats that may face is economic downturn. It is a reality
that economic downturn affects purchasing / spending power. Another threat that may likely confront
him is the arrival of new technological advancements in the transport sector. So also, unfavorable
government policies may also pose a threat for businesses.
 Government policies and procedures may be could be characterized as a threat
 Market share competitors in the region as well as in the country
Mitigation Plans
 Support the business with additional business opportunities and services
 Accustomed the business with the policy changes
 Fulfilling the required government regulations
 Revising the business strategies frequently
 Forecasting the future trends and making necessary arrangements to cope with change
24
UNIT SIX
Financial Projections & Analysis
The financial analysis of the project is based on the data provided in the previous chapters and the
following assumptions:-
 Total Project Cost: 5,550,000.00
 Source of finance: 46% Owner’s Equity – (2,550,000.00)
54% Debt Equity – (3,000,000.00)
 Bank interest: 14.5%
 Loan Period: 5 Years
 Repayment Period: Monthly
 Insurance Expense: 2.4% of Fixed Assets
 Depreciation Expense: 20% of Fixed Assets
 Work in progress: 365 days
 Accounts receivable: 30 days
Loan Request
 The credit requirement that the promoter of this project presented to the association is 3,000,000.00
birr that can be repaid back within the next 5 years including all the interest and related charges.
 The repayment will be made monthly due to the nature of the business.
 The requested loan amount will be utilized for purchasing of 1 Isuzu NPR truck (100% of the loan
will cover for purchasing cost of the vehicle).
Loan Repayment Schedule
 Banks are assumed to charge an interest rate for transportation term loans which lasts for five years
is 14.5% per year as per the present scenario.
 Hence the requested transportation term loan will be paid within the scheduled period through
monthly repayment amount of 70,584.84, which leads to an annual repayment amount of
847,018.08, the related interest charges and principal payments are presented below.
Years Annual Interest Principal Outstanding Loan
Repayment Payment Payment Balance
0 - - - 3,000,000.00
1 847,018.08 406,484.50 440,533.58 2,559,466.42
2 847,018.08 338,186.23 508,831.85 2,050,634.57
3 847,018.08 259,299.30 587,718.78 1,462,915.79
4 847,018.08 168,182.11 678,835.97 784,079.82
5 847,018.08 62,938.26 784,079.82 0.00
Total 4,235,090.40 1,235,090.40 3,000,000.00 0.00
Total Investment Cost
The total initial investment cost of the project is estimated at 5,550,000.00 br., out of which 54%
(3,000,000.00 br.) will be covered from the financial institution in the form of debt equity, which will be
used for purchase of one Isuzu NPR as per the presented request of the promoter. Out of the total project
plan the promoter covers 46% of the total cost br. 2,550,000.00. Details are indicated in tables.
Initial Investment Cost & Source of Finance
Items Total Cost Owners Equity Debt Equity % Share
3,000,000.0
Isuzu NPR (to be purchased) 0 - 3,000,000.00 54.05
25
Isuzu NPR 03-OR-74121 950,000.00 950,000.00 - 17.12

1,100,000.0
Isuzu NPR 03-OR-13339 0 1,100,000.00 - 19.82
Working Capital + Contingency 500,000.00 500,000.00 - 9.01
5,550,000.0
Total Investment Cost 0 2,550,000.00 3,000,000.00 100.00
Revenue Projection
Even though the existing price for resource transportation service in the market has fluctuates, the
current market price of transportation shows that in each trip from the Dukem to destination in Addis
Ababa ranges from 4,500.00 to 6,500.00 birr per trip. In addition to that in sales forecast of this study as
well as the existing market proves that at least Ato Mebratu will trade four trips to his client daily. For
this study the daily trip has been taken as four trips and on average birr 3,700.00 will be gain for each
trip.
So that he will produce total sales of birr 5,328,000.00 birr on the first year of operation, it is assumed
with an average service price of 3,700.00 and minimum working days per month of 30 days as per the
contract agreement. The market price is expected to get higher by 5% annually.
Projec No of
t Truc Trip/ Income/ Total Income Total
Years Type of Service k Month Trip Per Month Revenue/Year
Associated Costs and Other Expenses
The collected information is based on estimates made by this study & information’s collected from
related professionals & stakeholders regarding the different cost items involved in the production of
transportation sector income per truck. Even though the underneath costs are some of the costs that will
be incurred at the time of service, due to the nature of the costs plus the existing price inflation observed
in the Ethiopian market makes them difficult to forecast their exact price.
The illustration has assumed that the associated costs will be incurred on average for each trips made by
the trucks & then converted to yearly costs & expenses. 30.41% is considered to be the total cost of each
trip and 53.14% is considered to be the total operational expenses including depreciation and interest
expenses, so that 16.45% will be considered to be net profit before tax per trip.
In each trip of the vehicle the associated costs are determined as per the following assumptions:
Type of Costs Birr %
Fuel & Gas Expense 135,000.00 30.44
Oil & Grease Expense 18,000.00 4.06
Car Wash 9,000.00 2.03
Repair & Maintenance 28,800.00 6.49
Labor Cost 9,000.00 2.03
Salary Expense 13,500.00 3.04
Tyre & Battery Expense 219,000.00 49.37
Other Expense 11,250.00 2.54
Total %age 443,550.00 100.00
26
Other than the above daily expenses, there will be extra expenses incurred yearly; those expenses are
Purchase of Tires, Battery, Insurance Expenses, Depreciation Expenses and Bank Interest fees are
considered as annual expenses. All expenses and costs are expected to rise by 4% annually.
Transportation Fuel & Gas Input Costs:
Generally speaking, as per the current situations observed from the trucks involved in the sector and
personal experience of Ato Mebratu, each truck on average uses a transportation fuel and gas expense of
birr 1,500.00 for each trip. In addition the vehicle will convey its service for its clients 30 days per
month. So that the vehicles will utilize birr 135,000.00 birr of fuel and gas expense per month. The fuel
and gas input with corresponding costs will be expected to increase by 4% annually. The details are
shown below:
Projected Fuel & Gas Cost
Projec
t Trip/ Fuel and Gas Expense / Total
Years Type of Cost Month Exp / Trip Month Expense/Year
1 Fuel and Gases Expense 120 1,500.00 135,000.00 1,620,000.00
Other Associated Expenses:
Tire & Battery Expense: The major essential cost of the transportation service sector is that, costs
incurred for replacing & maintaining tires & battery for the vehicles. The trucks need 18 new tires & 3
batteries every year as per the current scenario. It is the current situation that each tire for Isuzu truck
will have a cost of birr 10,500.00 & 10,000.00 birr for new battery for replacement expenses every year.
It will be estimated by this study to increase this cost by 4% per year & presented below.
Projec
t Unit Cost Unit Cost Total
Years Type of Cost of Tire of Battery Expense/Year
1 Tire & Battery Expenses 10,500.00 10,000.00 219,000.00
Oil, Lubricants, Car Wash, Repair & Maintenance Service Expenses: The Oil & Lubricants expense
is estimated through the experience of the promoter’s previous history and the current market price of
oils and lubricants. This study collects the information that each vehicle will take birr 6,000.00 for oil
and lubricants, birr 3,000.00 for car wash service and birr 9,600.00 for repair and maintenance fee, labor
cost will be birr 3,000.00, salary expense will be birr 4,500.00 and other expenses will be birr 3,750.00
every month. Due to the current inflation rate and un-stability of purchasing costs of commodities, these
expenses are expected to rise by 4% each year.
Oil, Lubricants, Car Wash, Repair & Maintenance Service Expenses are estimated as follows:
Monthly Projected Years
Type of Expenses Expense 1 2 3 4 5
18,000.0
Oil & Lubricants 0 216,000.00 224,640.00 233,625.60 242,970.62 252,689.45
Car Wash Service 9,000.00 108,000.00 112,320.00 116,812.80 121,485.31 126,344.72
27
28,800.0
Repair & Maintenance 0 345,600.00 359,424.00 373,800.96 388,753.00 404,303.12
Labor Costs 9,000.00 108,000.00 112,320.00 116,812.80 121,485.31 126,344.72
13,500.0
Salary Expense 0 162,000.00 168,480.00 175,219.20 182,227.97 189,517.09
11,250.0
Other Expenses 0 135,000.00 140,400.00 146,016.00 151,856.64 157,930.91
89,550.0 1,074,600.0 1,117,584.0 1,162,287.3 1,208,778.8 1,257,130.0
Grand Total 0 0 0 6 5 1
Insurance Expense: Is expected to be 2.4% of the value of total fixed assets owned by Ato Mebratu
Tesfaye. 121,200.00 birr will be assumed as an annual insurance expense of the project. (5,050.000.00 *
2.4% = 121,200.00 birr)
Qty Price Insurance Expense
1 3,000,000.00 72,000.00
1 950,000.00 22,800.00
1 1,100,000.00 26,400.00
Total 5,050,000.00 121,200.00
Depreciation Expense: Fixed assets of the project will have their proportional depreciation expenses as per
the following determination.
Fixed Assets Qty Original Value Rate Annual Depreciation
Isuzu NPR 1 3,000,000.00 20% 600,000.00
Isuzu NPR 1 950,000.00 20% 190,000.00
Isuzu NPR 1 1,100,000.00 20% 220,000.00
Total 3 5,050,000.00 1,010,000.00
Salary Expenses: The promoter will have to hire three drivers for the job with a monthly salary of birr
4,500.00, that will lead to an annual salary expense of birr 162,000.00. Annually it is assumed that 4%
increment will be expected from salary expense.
Description No Monthly Salary Annual Salary Backgroun Experienc
d e
Driver 3 4,500 162,000 10+ 2 Years
Grand Total 3 4,500 162,000
Projected Operational Costs
Hence, the annual transportation cost at full operating capacity of the project is estimated at Birr
3,034,800.00.
Ato Mebratu Tesfaye
Projected Total Cost Table
Project Year
Cost Items 1 2 3 4 5
Fuel & Gas Expense 1,620,000.00 1,684,800.00 1,752,192.00 1,822,279.68 1,895,170.87
Tire & Battery Expenses 219,000.00 227,760.00 236,870.40 246,345.22 256,199.02
Oil & Lubricants 216,000.00 224,640.00 233,625.60 242,970.62 252,689.45
Car Wash Service 108,000.00 112,320.00 116,812.80 121,485.31 126,344.72
Repair & Main. Exp. 345,600.00 359,424.00 373,800.96 388,753.00 404,303.12
Labor Cost 108,000.00 112,320.00 116,812.80 121,485.31 126,344.72
Insurance Expense 121,200.00 121,200.00 121,200.00 121,200.00 121,200.00
28
Salary Expense 162,000.00 168,480.00 175,219.20 182,227.97 189,517.09

Other Expense 135,000.00 140,400.00 146,016.00 151,856.64 157,930.91
Operational Costs 3,034,800.00 3,151,344.00 3,272,549.76 3,398,603.75 3,529,699.90
Depr. Exp. 1,010,000.00 1,010,000.00 1,010,000.00 1,010,000.00 1,010,000.00
Non-oper. Costs 1,010,000.00 1,010,000.00 1,010,000.00 1,010,000.00 1,010,000.00
Total Cost 4,044,800.00 4,161,344.00 4,282,549.76 4,408,603.75 4,539,699.90
Determination of Working Capital Requirement
The project needs a total working capital need of birr 4,428,399.89 annually to cover all its costs,
operational expenses and personal draws. Whereas, the promoter needs 369,033.32 birr of working capital
requirement monthly to cover all its cash outflows.
Annual Working Working Capital for % age
Description Capital Requirement 1 Month Share
Fuel & Gas Expense 1,620,000.00 135,000.00 36.58
Tire & Battery Expenses 219,000.00 18,250.00 4.95
Oil & Lubricants 216,000.00 18,000.00 4.88
Car Wash Service 108,000.00 9,000.00 2.44
Repair & Main. Exp. 345,600.00 28,800.00 7.80
Labor Cost 108,000.00 9,000.00 2.44
Insurance Expense 121,200.00 10,100.00 2.74
Salary Expense 162,000.00 13,500.00 3.66
Other Expense 135,000.00 11,250.00 3.05
Bank Repayment 847,018.08 70,584.84 19.13
Owner's Draw 144,000.00 12,000.00 3.25
Contingency 402,581.81 33,548.48 9.09
Total 4,428,399.89 369,033.32 100.00
Projected Income Statement
Ato Mebratu Tesfaye
Projected Income Statement
Project Years
Description 1 2 3 4 5
Revenue:
5,328,000.0 5,594,400.0 5,874,120.0 6,167,826.0 6,476,217.3
Total Revenue 0 0 0 0 0
1,620,000.0 1,684,800.0 1,752,192.0 1,822,279.6 1,895,170.8
CGS - Fuel & Gas 0 0 0 8 7
3,708,000.0 3,909,600.0 4,121,928.0 4,345,546.3 4,581,046.4
Gross Profit 0 0 0 2 3
Operating Expense:
Tyre & Battery Expenses 219,000.00 227,760.00 236,870.40 246,345.22 256,199.02
Oil & Lubricants 216,000.00 224,640.00 233,625.60 242,970.62 252,689.45
Car Wash Service 108,000.00 112,320.00 116,812.80 121,485.31 126,344.72
Repair & Main. Expe 345,600.00 359,424.00 373,800.96 388,753.00 404,303.12
Labor Wage Expense 108,000.00 112,320.00 116,812.80 121,485.31 126,344.72
Insurance Expense 121,200.00 121,200.00 121,200.00 121,200.00 121,200.00
Salary Expense 162,000.00 168,480.00 175,219.20 182,227.97 189,517.09
29
Other Expense 135,000.00 140,400.00 146,016.00 151,856.64 157,930.91

Depreciation Expense 1,010,000.0 1,010,000.0 1,010,000.0 1,010,000.0 1,010,000.0
0 0 0 0 0
Bank Interest Fees 406,484.50 338,186.23 259,299.30 168,182.11 62,938.26
2,831,284.5 2,814,730.2 2,789,657.0 2,754,506.1 2,707,467.2
Total Operational Exp. 0 3 6 8 9
1,094,869.7 1,332,270.9 1,591,040.1 1,873,579.1
Profit Before Tax 876,715.50 7 4 4 4
Profit Tax-35% 288,850.42 365,204.42 448,294.83 538,864.05 637,752.70
1,052,176.0 1,235,826.4
Profit After Tax 587,865.07 729,665.35 883,976.11 9 4
Projected Depreciation Schedule
Ato Mebratu Tesfaye
Projected Depreciation & Amortization Schedule
Original Rat Depr. Project Years
Description Value e% Amount 1 2 3 4 5
1,010,00 1,010,00 1,010,00 1,010,00 1,010,00 1,010,00
Isuzu NPR*3 5,050,000 0.20 0 0 0 0 0 0
1,010,00 1,010,00 1,010,00 1,010,00 1,010,00 1,010,00
Total 5,050,000 0.20 0 0 0 0 0 0
Projected Cash Flow Statement
This study applies a Decomposition Approach of projection of cash inflows and outflows of Ato
Mebratu Tesfaye. Cash flows rather than profits are used in financial analysis for the following three
reasons.
 Cash is what ultimately counts; profits are only a guide to cash availability: they cannot actually be
spent.
 Profit measurement is subjective, the time period on which income and expenses are recorded, and
so on, are a matter of judgment.
 Cash is used to pay the term loans and owners equity-owners equity are the ultimate method of
transferring wealth to the project holders as a dividend at the time of official declaration of the
members.
Ato Mebratu Tesfaye
Projected Statement of Cash Flow
Project Years
Description 1 2 3 4 5
Cash Inflows:
1,513,331.5 2,585,765.0
Beg. Cash on Hand 500,000.00 0 0 3,717,782.33 4,909,458.45
3,000,000.0
Bank Loan 0 0.00 0.00 0.00 0.00
5,328,000.0 5,594,400.0 5,874,120.0
Total Revenue 0 0 0 6,167,826.00 6,476,217.30
8,828,000.0 7,107,731.5 8,459,885.0 11,385,675.7
Total Cash Inflows 0 0 0 9,885,608.33 5
Cash Outflows:
30
3,000,000.0
Investment Cost 0 0.00 0.00 0.00 0.00
1,620,000.0 1,684,800.0 1,752,192.0
Direct Cost of Sales 0 0 0 1,822,279.68 1,895,170.87
1,414,800.0 1,466,544.0 1,520,357.7
Operational Costs 0 0 6 1,576,324.07 1,634,529.03
Bank Loan 847,018.08 847,018.08 847,018.08 847,018.08 847,018.08
Personal Draw 144,000.00 158,400.00 174,240.00 191,664.00 210,830.40
Tax Payment 288,850.42 365,204.42 448,294.83 538,864.05 637,752.70
7,314,668.5 4,521,966.5 4,742,102.6
Total Cash Outflows 0 0 7 4,976,149.88 5,225,301.08
1,513,331.5 2,585,765.0 3,717,782.3
Net Cash Inflow 0 0 3 4,909,458.45 6,160,374.67
31
Projected Balance Sheet

Ato Mebratu Tesfaye
Projected Balance Sheet
Y E A R S
DESCRIPTION 0 1 2 3 4 5
ASSETS
CURRENT ASSETS
500,000.0 1,513,331. 2,585,765. 3,717,782. 4,909,458.4 6,160,374.
Cash 0 50 00 33 5 67
Inventory 0 0 0 0 0 0
Total Current Assets 500,000 1,513,331 2,585,765 3,717,782 4,909,458 6,160,375
FIXED ASSETS
Building and Civil
Work 0 0 0 0 0
Isuzu NPR (3x) 5,050,000 5,050,000 5,050,000 5,050,000 5,050,000 5,050,000
Accumulated
Depreciation 0 -1,010,000 -2,020,000 -3,030,000 -4,040,000 -5,050,000
Total Fixed Assets 5,050,000 4,040,000 3,030,000 2,020,000 1,010,000 0
Total Assets 5,550,000 5,553,331 5,615,765 5,737,782 5,919,458 6,160,375
LIABILITIES & Capital
2,559,466. 2,050,634. 1,462,915.
Bank Loan 3,000,000 42 57 79 784,079.82 0.00
448,294.8
Business Tax Payable 0 288,850.42 365,204.42 3 538,864.05 637,752.70
Sub Total 3,000,000 2,848,317 2,415,839 1,911,211 1,322,944 637,753
CAPITAL
Owner's Equity 2,550,000 2,705,015 3,199,926 3,826,572 4,596,515 5,522,622
Sub total 2,550,000 2,705,015 3,199,926 3,826,572 4,596,515 5,522,622
Total Liabilities and
Capital 5,550,000 5,553,331 5,615,765 5,737,782 5,919,458 6,160,375
32
UNIT SEVEN
Financial Evaluations
Profitability
Based on the projected profit and loss statement, the project will generate a profit throughout its
operation life. Annual net profit after tax will be Birr 587,865.07 at the first year of its operation and at
the end of the project year it will have a profit of birr 1,235,826.44.
Liquidity
The cash flow projection also shows an incremental cumulative cash balance from Birr 1,513,331.50 of
the first project year to Birr 6,160,374.67 of the last projection period implying that the project will not
face liquidity constraint to finance its operational cost meeting at the same time its debt obligation.
Ratios
In financial analysis financial ratios and efficiency ratios are used as an index or yardstick for evaluating
the financial position of a firm. It is also an indicator for the strength and weakness of the firm or a
project. Using the year-end balance sheet figures and other relevant data, the most important ratios such
as return on sales which is computed by dividing net income by revenue, return on assets (operating
income divided by assets), return on equity (net profit divided by equity) and return on total investment
(net profit plus interest divided by total investment) has been carried out over the period of the project
life and all the results are found to be satisfactory.
Acid Test Ratios: - Is a strength indicator that determines whether a firm has enough short-term assets
to cover its immediate liabilities without selling inventory. The acid-test ratio is far more strenuous than
the working capital ratio, primarily because the working capital ratio allows for the inclusion of
inventory assets. As per the determination of this ratio it shows that the project has an acid test ratio of
0.53 at the beginning of the project year and 9.66 at the end of its projected years.
Debt Ratio: - A financial ratio that measures the extent of a company’s or consumer’s leverage. The
debt ratio is defined as the ratio of total debt to total assets, expressed in percentage, and can be
interpreted as the proportion of a company’s assets that are financed by debt.
The higher this ratio, the more leveraged the company and the greater its financial risk. As per this ratio
indicates that at the end of first year the projects debt ratio shows 0.46 and then will decline as long as
the loan is paid regularly, finally at the end of its project life the debt ratio will become zero.
Asset Turnover Ratio: - The amount of sales or revenues generated per birr of assets. The Asset
Turnover ratio is an indicator of the efficiency with which a company is deploying its assets.
Generally speaking, the higher the ratio, the better it is, since it implies the company is generating more
revenues per birr of assets. At the first the project will record a 0.96 asset turnover ratio and finally will
reach 1.05 at the end of its project life.
Gross Profit Margin: - A financial metric used to assess a firm's financial health by revealing the
proportion of money left over from revenues after accounting for the cost of goods sold. Gross profit
margin serves as the source for paying additional expenses and future savings. This study proves that the
project will amount 0.70 gross profit margins at the beginning and 0.71 at the end of its project life.
Return on Assets/Return on Investment: - An indicator of how profitable a company is relative to its
total assets. ROA gives an idea as to how efficient management is at using its assets to generate
earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is displayed as a
percentage. Sometimes this is referred to as "Return on Investment". The project reaches 0.11 percent of
Return on Asset/Investment at the beginning and finally will reach 0.20% of Return on
Assets/Investments at the end of its project life.
33
Break-even Analysis
The break-even analysis establishes a relationship between operation costs and revenues. It indicates
the level at which costs and revenue are in equilibrium. To this end, the break-even point of the
project including cost of finance when it starts to operate at full capacity is estimated by using income
statement projection.
BE = Fixed Cost = 2.20%
Sales – Variable Cost
Payback Period
The payback period, also called pay–off period is defined as the period required recovering the original
investment outlay through the accumulated net cash flows earned by the project. Accordingly, based on
the projected cash flow it is estimated that the project’s initial investment will be fully recovered within
its project life time.
Socio - Economic Benefits
There are several objectives and reasons for the creation of this project due to its viability. The social
and economic benefits of the proposed project include the following:
 Contributes towards transportation service coverage in the country thought improves the lack of
freight transportations existence in major towns of the country other than the metropolis
 In addition to supply of the domestic needs, the project will generate Birr 2,278,966.42 in terms of
tax revenue within the next five years of project life
34
UNIT EIGHT
Conclusions & Recommendations
As discussed above, transport sector is the driving force of all forms of economic sectors. If there is no
transportation facility, there is no economic growth in a nation. There are a number of options for
mitigating the current price hike of freight transportation & become much expensive in the future. These
options could be categorized into three groups - efficiency & conservation measures, using available
local resources including transportation services, & developing alternative resources. Nevertheless for
all type of freight transportation resource one of the most common and adopted type of solution is
importing less polluted and advanced technical and mechanical heavy duty trucks from abroad, even
though Ethiopia does not manufacture this vehicles, it imports a huge amount of vehicles from abroad,
in order to bring this sector improved those imported vehicles should be scattered in the hands of
individual traders and private enterprises so as to enter to the untouched business opportunities. Since
this sector has an enormous gap between the demand and supply of freight transportations, the
government should develop several types of incentives and make it practical in the future. Therefore
financing this project in other words will also mean helping the consumers, stakeholders and the country
as a whole and moving the countries goal forward.
Conclusions: This business plan indicates that this project is feasible, for the reason that:
 The project can repay all its debt including the interest with in its proposed life period.
 The project is believed that, Ato Mebratu Tesfaye will play his own part to the modern commercial
freight transportation sector of the nation.
 The financial analysis confirms sustainability of the projects growth and development.
 Improve market intelligence; competitive power can be increased by knowing the markets: the users
as well as the competitors.
 By investment in advanced technologies and by implementing codes of conducts and road safety
standard more added values can be generated.
 The loan provider Bank will gain an interest income of birr 1,235,090.40 in the proposed time.
 Doing international business means complying with international trade rules on contract discipline
and quality. Ethiopia has to regain name as reliable importer in this field. It is important to realize
‘contract is contract’ for creating a sustainable business environment with International partners.
Recommendations: The overall analysis for Ato Mebratu Tesfaye project to participate in transport
sector within Ethiopia highlights the following facts:
 Ethiopia has ample potential for the sector of freight transport that would suffice the domestic
market;
 In spite of this potential, very limited proportion is being currently produced which is channeled
almost entirely to the domestic market;
Furthermore, government should assist the sector in forming transport associations and other forms of
links to promote their marketing accesses.
The next stage that needs a lot of work on part of both the private sector and the government is in terms
of improving the efficiency and productivity of the transportation services, road safety measures,
standardized rules, policies and regulations.
Consequently this study believes that financing this project will have a direct and indirect positive effect
on the project owners’ wealth as well as other stakeholders and yet the project will have a great impact
to the development and renaissance of the country as a whole.
35

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Final Project Mebratu

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Business Plan of Mebratu Tesfaye – Freight Transport Business

Road Traffic and Composition

Freight Transport Service Forecast

- Tax Identification Number;

Isuzu NPR 03-OR-74121 950,000.00 950,000.00 - 17.12

Salary Expense 162,000.00 168,480.00 175,219.20 182,227.97 189,517.09

Other Expense 135,000.00 140,400.00 146,016.00 151,856.64 157,930.91

Projected Balance Sheet

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