PROJECT FEASIBILITY STUDY FOR THE ESTABLISHMENT

OF FOOTWEAR AND ACCESSORY PRODUCTS

PROJECT OWNER: PRIVATE PROMOTOR

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 Table of Contents
EXECUTIVE SUMMARY ......................................................................... - 5 -
CHAPTER ONE: INTRODUCTION ........................................................... - 7 -
1.1. Background Information ............................................................... - 7 -
1.2. Objectives of the Study ................................................................. - 9 -
1.2.1. General Objective..................................................................... - 9 -
1.2.2. Specific Objectives ................................................................... - 9 -
1.3. Methodology of the Study.............................................................. - 9 -
1.5. Methods of Analysis .................................................................... - 11 -
1.6. Scope and Limitations of the Study ............................................. - 12 -
CHAPTER TWO: PRODUCT AND COMMODITY DESCRIPTION ............. - 13 -
2.1. Introduction ............................................................................... - 13 -
2.2. Product description and applications .......................................... - 14 -
2.3. Purpose of the project ................................................................. - 15 -
2.4. Business Legal Status................................................................. - 15 -
CHAPTER THREE: MARKET STUDY ..................................................... - 16 -
3.1. Overview of Ethiopian foot wear and accessory market................ - 16 -
3.2. Factors affecting demand and supply of the local market ............ - 16 -
3.3. Market Prospects ........................................................................ - 17 -
3.4. Demand projection ..................................................................... - 18 -
3.5. Price Determination .................................................................... - 19 -
3.6. Marketing Strategy, segmentation and distribution ..................... - 20 -
CHAPTER FOUR: TECHNICAL STUDY .................................................. - 22 -
4.1. Introduction ............................................................................... - 22 -
4.2. Project location and site .............................................................. - 22 -
4.3. Technology, production process and Engineering ........................ - 23 -
4.4. Source of Technology .................................................................. - 27 -
4.5. Plant capacity and production program ........................................... 28
4.6. Project layout .................................................................................. 28
4.7. Machinery and equipment’s ............................................................. 30
4.8. Material Supplies and inputs ........................................................... 35
4.9. Office furniture and equipment ........................................................ 36
4.10. Vehicle .......................................................................................... 37
4.11. Utilities ......................................................................................... 38
CHAPTER FIVE: ORGANISATION, MANAGEMENT AND MANPOWER ........ 39
5.1. Organization and Management ........................................................ 39
5.2. Manpower Requirement ................................................................... 40
5.3. Training requirement and Employee Remuneration and Benefits ..... 40
CHAPTER SIX: FINANCIAL ANALYSIS ...................................................... 42
6.1. Investment Requirement .................................................................... 42
6.2. Expected Financial Results .............................................................. 42
6.2.1. Profit/Loss Forecast.................................................................... 43
6.2.2. Cash Flow Forecast..................................................................... 43
6.2.3. Balance Sheet Projection............................................................. 44
6.3. Measures of project worth ................................................................ 44
6.3.1. Net present value ........................................................................ 44
6.3.2. Internal Rate of Return (IRR) ....................................................... 44
6.4. Sensitivity Analysis .......................................................................... 45
CHAPTER SEVEN: ECONOMIC AND ENVIRONMENTAL IMPACT
ASSESSMENT ............................................................................................. 1
7.1. Environmental Analysis ..................................................................... 1
7.2. Social Analysis .................................................................................. 2
CHAPTER EIGHT SUCCESS AND RISK FACTORS ....................................... 3
8.1. Key Success Factors .......................................................................... 3
8.1.1. Macro Level Success factors .......................................................... 3
8.1.2. Sector Level Success factors ......................................................... 3
8.2. Risk Factors ...................................................................................... 4
8.2.1. General Risk ................................................................................. 4
8.2.2. Sector Level Risk Factors .............................................................. 6
8.3. Risk Mitigating Measures ................................................................... 8
CHAPTER NINE: CONCLUSION AND RECOMMENDATIONS ..................... 12
9.1. Conclusion ...................................................................................... 12
9.2. Recommendations ........................................................................... 13
References ................................................................................................ 14
Annexes .................................................................................................... 16
Annex....................................................................................................... 18
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 PURPOSE OF THE DOCUMENT

Private promotor has commissioned Karamara Training and consultancy

(KTC), to prepare a Feasibility Study for the Establishment of household
plastic products manufacturing plant. As per the agreement between the two
parties a Draft Report on Feasibility Study for the said project was submitted
by KTC earlier. This Final Report is, hence, prepared by KTC incorporating
the comments of a promotor and other stakeholders on the Draft Report.

The report consists of the market, technical, environmental, social, and

financial analyses components on the feasibility study of the envisaged plant.
The market study aspect contains product description and application,
supply trend; present demand, factors that affect local demand, demand
projection, demand-supply gap, market share analysis, and market mix
assessment, while the technical and financial study consists of Material
Input, Location, Site and Environment, Technology and Engineering,
Organizational Structure and Human Resource, and Financial and Economic
Study components.

All the information included in the feasibility study is based on

data/information gathered from secondary and primary sources and is based
on certain assumptions. Although due care and diligence have been taken in
compiling this document, the contained information may vary due to any
change in the environment. Karamara Training and consultancy who has
prepared this feasibility study do not assume any liability for any financial or
other loss resulting from this study. The next section provides a synoptic
summary of the findings under each component.
 EXECUTIVE SUMMARY

The prevailing project is a footwear and other leather accessories

manufacturing factories with a capacity of 208,000 and 104,000 pcs shoes
and Outer sole per annum respectively. The plant is intended to sell 80 % of
its product to the local market and 20 % of its product to the Export market.
The total investment cost required for the project is Birr 38.8 million. It is
planned that 23 % or Birr 9.1 million is contributed by the promoter and the
remaining 77 % or Birr 29.7 million would be financed by the bank.

The contribution of the project to the socio-economic development of the

country is through employment creation, saving foreign currency, generation
of income to the owners as well as the employees, and generating income to
the government in the form of tax. Regarding the environmental impact, the
concerned organ believes, the benefits that result from the implementation of
the project outweigh the adverse socio-economic & socio-ecological impacts.

Concerning the market aspect of the project, the feasibility study reveals the
existence of a wide demand gap for the products. It is expected that the
country’s economy, especially the construction sector, grows at a faster rate,
which simultaneously boosts the demand for these products.

The financial analysis reveals the project will generate a net profit of Birr 11
and Birr 18 million during its first and tenth year of operation respectively.
The cash flow projection shows positive growth in the cumulative cash
balance, it will grow from Birr 10.2 of the first year to Birr 83.9 million in its
tenth year of operation. These imply that the project will not face liquidity
constraints to meet its operational cost and debt obligation. The project is
financially viable with an internal rate of return (IRR) of 41% and a net present
value (NPV) of Birr 66.5 million, discounted at 12%.

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 FOOTWEAR & LEATHER ACCESSORIES PRODUCTS
Project Summary
I. Project Investment
Description Amount Percentage
Total Fixed Investment Costs 30,264,103 78%
Working Capital 8,571,052 22%
Total 38,835,155 100%
II. Source of fund
Description Amount D/E Ratio
Debt - Bank Loan 29,719,490 77%
Equity 9,115,665 23%
Total Investment Cost 38,835,155 100%
III. Expected Financial results
Description Year-1 Year-10
Sales Revenue 69,250,771 103,876,157
Profit (Loss) 11,070,773 18,180,227
Cumulative Cash Balance 10,260,574 94,742,535
NPV after Tax 66,565,278
IRR before Tax = 56%
IRR after Tax = 41%
IV. Sensitivity Analysis
Description IRR After Tax
When Revenue decreased By 10% 27%
When Operating Costs increased By 10% 31%
When Investment Costs increased By 10% 37%
 CHAPTER ONE: INTRODUCTION

1.1. Background Information

Ethiopia’s leather and footwear industry has significant international

comparative advantages owing to its abundant and available raw materials,
highly disciplined workforce and cheap prices. The country boasts the largest
livestock production in Africa, and the 10th largest in the world. Ethiopian
leather and leather products industry encompasses tanning and dressing of
leather, manufacture of luggage and hand bags, and manufacture of
footwear’s. The firms in the industry produce products such as leather shoes
and boots, canvas and rubber shoes, plastic footwear’s, leather upper and
lining, leather sole, semi processed skins, leather garment, plastic sole and
crust hides, and wet blue hides.
According to CSA survey of the Ethiopian manufacturing sector in 2018/19,
there are 141 firms engaged in manufacturing of leather and leather products,
except one firm which is owned by the government, the rest are private firms.

Ethiopia annually produces 2.7 million hides, 8.1 million sheepskins and 7.5
million goatskins. This comparative advantage is further underlined by the
fact that the costs of raw hides and skins constitute on average 55-60% of the
production of semi processed leather. The gross value of production of leather
and leather products industry in 2018/19was around 9 billion birr out of
these firms owned by the private produce 8 billion birr and the government
firms produce 1 billion birr. The value added of the industry in 2018/19 was
2.2 billon birr.

The growth rate of both industry and service shows increments while
agricultural growth decline. The growth rate and the share to GDP of
industrial sector in Ethiopian economy is still low.

There is, however, a very big move by the government of Ethiopia to boost the
contribution of the sector to overall economic development of the country. To
that end, the government issued Industrial Development Strategy, about ten
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years ago, and recently; the sector has been given more attention by the Five
Year Growth and Transformational Plan (GTP).The Industrial Development
Strategy of Ethiopia proclaims to promote industries that heavily use
agricultural inputs, labor intensive, and use less capital and technology. Food
industry is among the industries that have such attributes. In recent years,
the industry is growing decently though it is not meeting the foreign currency
earning set by the government.

Ethiopia has one of the largest livestock sector in the world and the formal
LLP sector has existed for almost a century (LIDI 2017). The government
under the Emperor Haile Selassie started to regulate the sector and
established the Livestock and Meat Marketing Board in 1964 (Abebe/Schaefer
2015). The Derg-regime expelled foreign investors and established the
National Leather and Shoe Corporation to manage eight tanneries and six
large shoe factories (ibid.). With the end of the Derg-regime came a
reorientation towards market-oriented economic reforms and privatization
processes. This, in combination with an industrial policy focus implemented
since the early 2000s allowed for the expansion of and upgrading in the
Ethiopian LLP sector, leading to increasing FDI-inflows and local investments
since the mid-to-late 2000s and early 2010s.

A key shift in the development of the Ethiopian LLP sector was initiated by
the introduction of an export tax on different types of semi-processed leather
since the late 2000s. A major challenge of the Ethiopian LLP sector used to
be the high share of raw hides and skins as well as semi-processed leather
exports. The value of finished leather is much higher than that of raw hides
and skins or semi-finished leather. This is even truer with respect to the value
of manufactured products, which is a main motivation for promoting
processing industries in Ethiopia. Since the introduction of the export tax,
Ethiopia has successfully increased finished leather and leather product
exports while exports of semi-processed skins and hides started to disappear.
Nonetheless, the increase of export earnings after the introduction of the
export taxes stayed well below the expectations of the government (Oqubay
2015), in part because the increase of higher value exports was accompanied
by lower volumes (UN Comtrade 2018).

The expansion and upgrading processes are reflected in trade and

employment data. The value of LLP exports increased from an average of USD
53 million between 1996 and 2000 to USD 135 million between 2013 and
2017 (UN Comtrade 2018:).

1.2. Objectives of the Study

1.2.1.General Objective

The main objective of the study is to prepare a Feasibility Study for the
establishment of foot wear and other leather accessories producing plant in
Somali regional state, and provide a comprehensive report consists of market,
technical, environmental, social and financial analyses components on the
envisaged project to help investors in the region make informed investment
decisions.

1.2.2.Specific Objectives

To examine the raw materials availability, their market arrangements and

constraints
To investigate the market, the market channels and arrangements of the
products
To portray the organizational structure and manpower requirement.
To analyze the financial, environmental and socio economic impact
assessment of project.
To show the production process and technological options.
To set workable parameters.

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 “One step forward….. Creating the future”

Who are we?

1. Our Vision
We aspire to be one of the leading and trusted training and consultancy firm in
Ethiopia, providing multi-disciplinary training and advisory services to our
clients.
2. Mission

We exist to provide demand-driven training and professional consultancy

services to our clients to simplify complex business problems.
3. Values
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 Safety and Integrity
 Confidentiality in business dealings
 Honesty and Commitment to work.
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4. Objectives
 To be a recognized firm in business Training and consultancy
 Maintain and enhance Karamara’s representation as to the best Training
and consulting firm in the nation.
 To provide Environmental Impact Assessment studies on different projects.
 To engage in demand-driven research and project feasibility studies
 To positively contribute to regional and national development agenda
5. What do we offer?
5.1. Short Term Training in Accounting and Finance
 International Financial Reporting Standard (IFRS)
 Accounting system Design and Installation
 Inventory Management
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 International Public SAS
 Finance for Non-Financial Professionals
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 Financial Manual Development
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 Budgeting and Scheduling Projects
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 Monitoring and Evaluation
 Impact Evaluation (Quantitative Based)
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5.4. Research
 Demand-Driven Research
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 Project Proposal Development
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 Consultancy Service for Economic Development, Business, and
Investment
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Jijiga, Ethiopia
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