186.

PROFILE ON OUTSKIRT LODGE

 186-2

TABLE OF CONTENTS

PAGE

I. SUMMARY 186-3

II. SERVICE DESCRIPTION 186-3

III. MARKET STUDY AND SERVICE CAPACITY 186-4

A. MARKET STUDY 186-4
B. SERVICE CAPACITY & SERVICE PROGRAMME 186-7

IV. MATERIALS AND INPUTS 186-8

A. MATERIALS 186-8
B. UTILITIES 186-9

V. TECHNOLOGY & ENGINEERING 186-9

A. TECHNOLOGY 186-9
B. ENGINEERING 186-11

VI. MANPOWER & TRAINING REQUIREMENT 186-16

A. MANPOWER REQUIREMENT 186-16
B. TRAINING REQUIREMENT 186-18

VII. FINANCIAL ANLYSIS 186-18

A. TOTAL INITIAL INVESTMENT COST 186-18
B. OPERATION COST 186-19
C. FINANCIAL EVALUATION 186-20
D. ECONOMIC BENEFITS 186-22
 186-3

I. SUMMARY

This profile envisages the establishment of an TFEC shared Company lodge

with a capacity of serving 40,000 customers per annum.

The potential customers for the proposed service are estimated at 225,692 persons per
annum. The potential customers are expected to reach at 508,301 persons
by the year 2020.

The total investment requirement is estimated at about Birr 25.59 million, out of which
Birr 2.72 million is required for lodge equipment. The lodge will create employment
opportunities for 247 persons.

The project is financially viable with an internal rate of return (IRR) of 15.92 % and a
net present value (NPV) of Birr 10.40 million, discounted at 8.5 %.

II. SERVICE DESCRIPTION & APPLICATION

An TFEC shared Company l o d g e is a building usually providing meals, overnight

accommodations and other guest services including park lodges, hunting lodges, and
ski lodges are usually located in or near mountains or tourist attractions in the areas at
the edge of a town or city, farthest from the center . It is a type of lodge, which
specifically utilizes the open environment and associated natural and historical
attractions for recreational purpose of its customers

An TFEC shared Company lodge service is one type of local/International tourist

attraction area where services related with
 Physiographic;
 History and
 Recreational features are provided.
In this profile study, tourist lodge services of recreational feature are considered.
 186-4

III. MARKET STUDY AND SERVICE CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

An TFEC shared Company lodge is a type of lodge, which specifically utilizes the
open environment and associated natural and historical attractions for recreational
purpose of its customers. Mekelle is the center for east Africa and various international
organizations. Besides, almost all forms of tourists arrive and depart through mekelle
owing to its opportunity of being the gateway to the out side world and to the different
parts of Ethiopia. This and the endowment of mekelle with various historical and natural
attractions make it an appropriate site for TFEC shared Company service provision.

The highest share of customers for TFEC shared Company lodges are domestic
and international tourists. mekelle is visited by almost every tourist coming to Ethiopia
to stay rarely more than two days during arrival and departure excluding conference goers
with some average
3 – 5 days and also large numbers of businessmen, diplomats and conference goers.
Studies show that currently more than 20,000 Diaspora travelers a year mostly stay in
mekelle. Further, transiting visitors are growing at between 15 % and 25 % from
2001 – 2005 reflecting the development of mekelle as a hub for regional air
travel.

Therefore, as almost all foreign tourists arrive and depart through mekelle, the potential
customers for TFEC shared Company lodges in the city could be estimated by the
volume of tourists arriving. Table 3.1 shows international tourist arrivals during 1997-
2010.
 186-5

Table 3.1
INTERNATIONAL TOURIST ARRIVALS DURING 2002-2010

Year Number Of Tourists Arrived

2002 139,000
2003 112,000
2004 115,000
2005 135,954
2006 148,438
2007 156,327
2008 179,910
2009 184,077
2010 227,398
Average 155,345
Source: Ministry of Culture and Tourism

As can be seen from Table 3.1, arrival of tourists during 2002-2010 has been steadily
increasing registering an annual average growth rate of 7%. The average number of
tourists arriving during the years 2002-2004, 2005-2007 and 2008-2010 was 122,000,
156,327 and 197,128 respectively showing a rising trend.

Assuming that the average number of tourists that arrived during the last three years
( 2008 – 2010 ) which was 197,128 reasonably indicates the number of tourists arrival
for the year 2011, and considering the past growth trend of tourist arrivals (7%) will
continue in the near future the present (i.e. 2010) number of tourist arrivals is estimated
at 225,692 and this number shows the potential number of customers for TFEC shared
Company lodges.
 186-6

2. Projected Demand

As indicated above the service provided by TFEC shared Company lodges is

influenced by the number of tourist arrivals. Therefore the expected number of customers
is assumed to increase at an average growth rate of 7% which is equivalent to the average
growth rate registered by tourist arrival in past. Accordingly, taking the estimated
p r e s e n t demand as a base and applying a growth rate of 7% the number of customers
for TFEC shared Company lodge service is projected as shown in Table 3.2

Table 3.2
PROJECTED NUMBER OF TOURIST ARRIVALS

Year Number Of Tourists

2009 241,490
2010 258,395
2011 276,482
2012 295,836
2013 316,544
2014 338,703
2015 362,412
2016 387,781
2017 414,925
2018 443,970
2019 475,048
2020 508,301

3. Pricing

Currently, TFEC shared Company lodges charge from Birr 80 to 250 per night.
Usually, the lodges charge lower prices for local tourists and higher prices for foreigners.
For the purpose of this study an average price of Birr 120 per night (excluding meals) is
adopted.
 186-7

B. CAPACITY AND SERVICE PROGRAMME

1. Capacity

Based on the market study for the forecasted arrivals of tourists and the economic scale
of service provision, the envisaged TFEC shared Company lodge will provide
services to a total of 40,000 local and international tourists per annum. The service
will be given for three shifts of eight hours per day.

2. Service provision program

The project requires some years to penetrate into the market and capture a significant
share. It will start providing services at 60% and 90% of its rated capacity in the first and
second year of service provision, respectively. Full-service provision shall be attained in
the third year and then after. The proposed service provision program is shown in
Table 3.3.
Table 3.3
SRVICE PROVISION PROGRAMME

Service Year of Service Provision

1 2 3-10
% Of Service Provision
60 90 100
Capacity
Number of local and
international tourists per 24,000 36,000 40,000
annum
 186-8

IV. MATERIALS AND INPUTS

A. RAW MATERIALS
The type materials and the estimated cost, in local currency, for the provision of TFEC
shared Company lodge services are indicated in Table 4.1.

Table 4.1
ANNUAL MATERIAL AND CONSUMABLE REQUIREMENT AT
FULL SERVICE CAPACITY ( LUMP SUM)

Sr.
Description Total Cost (000) Birr
No.
1 Raw and processed food stuffs 300.00
(wet and dry)
2 Beverages 200.00
3 Soft drinks 50.00
4 Fruits 30.00
5 Cleaning agents 10.00
6 Cleaning materials 5.00
7 Towels 30.00
8 Pair of Bed sheets 50.00
Blankets, 85.00
9 Table clothes 20.00
10 Food stuffs and other inputs for 40.00
horses
11 Plant seedlings 30.00
12 Fertilizer 20.00
19 Pesticide 20.00
20 Insecticide 10.00
21 Other miscellaneous inputs 100.00
Sub Total 1000.00
 186-9

B. UTILITIES

The major utilities required by the center are electricity, fuel oil and water. The
estimated annual requirement at full capacity and the corresponding cost is given in Table
4.1.The envisaged TFEC shared Company lodge will also utilize water from drilled
wells for the purpose of an artificial lakes for fishing, plant and garden watering and other
related purposes

Table 4.1
ANNUAL UTILITIES REQUIREMENT AND ESTIMATED COST

Sr. Description Unit of Unit price Cost ('000

Qty.
No. Meas. (Birr) Birr)
1 Electricity KWh 40,000 0.4736 18.944
2 Fuel oil (stand by
Lt 1000 6.90 6.9
diesel generator)
3
3 Water M 5000 3.25 16.25
42.094
Total

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Service provision process:

The envisaged outskirt lodge will provide its services for both local and international
tourists.
The main services and the number of areas where the provision of services could take
place are as follows:
 Swimming
 Fishing,
 186-10

 Trekking,
 Hiking,
 Wild life viewing (Mammals and birds),
 Hippo spotting,
 Mountaineering, or climbing,
 Mountain biking,
 Horseback riding etc.
In addition to the above-mentioned recreational features, the envisaged TFEC shared
Company lodge will provide:
 Accommodation with/with out break fast,
 Dinning and coffee ceremony,
 Laundry service
 Special occasions services
o Conferences,
o Honeymoons,
o National music, art exhibition and other festivals/events,
o Family, small reunion / retreat, or a business meeting etc.

Accommodations are equipped with satellite TV, VCR/DVD, broad multimedia

connection, and some rooms are also provided with fish cleaning facilities with de-
schalers and complimentary fish freezing unit.
The envisaged lodge will have a total 50 bed rooms (15 double bed rooms with breakfast,
10 single bed rooms with breakfast,10 three bed rooms with break fast and the remaining
15 bed rooms are single bed room with/with out break fast).
All the services in the lodge (recreational, dinning, coffee ceremony, and special occasion
services) are rendered to customers up on their request.
 186-11

Customers can make a booking to every services where payment with foreign currency
(for international tourists) and with local currency (for local tourists) are available with
both in cash and by means of credit cards.
The provision of the service doesn't have any adverse impact on the environment.

B. ENGINEERING

1. Machinery and Equipment

The list of machinery, equipment and other facilities required for provision of TFEC
shared Company lodging services and the corresponding cost is estimated to be Birr 2,
720,000, out of which are all required in local currency (See Table 5.1).
Table 5.1
MACHINERY, EQUIPMENT& TOOLS REQUIREMENT & COST

Sr. Total cost

Description UOM Qty
No. (‘000 Birr)
1 Broadband internet line with all
Unit 2 30.00
accessories (supply and installation)
2 Satellite TV service with
Unit 2 10.00
accessories (supply and installation)
3 Desktop computer with accessories
Set 40 300.00
(network supply and installation)
4 Bed with side drawers, assorted
set 50 90.00
type and sizes
5 Fishing rod with accessories Set 20 44.50
6 Mountain climbing tools and
Set 20 50.00
accessories
7 Public addressing system (supply
Set 2 100.00
and installation)
8 CCTV (supply and installation) Set 1 470.00
9 Foldable chairs Pcs 200 20.00
10 View zooming device with
accessories Set 4 600.00

11 Security mobile Radio, weapons Lump

80.00
and inspection device (Assorted) sum
12 First aid kit Set 4 20.00
 186-12

Sr. Total cost

Description UOM Qty
No. (‘000 Birr)
13 Table and chairs for restaurant,
bedrooms, offices (assorted type pcs 500 100.00
and sizes)
14 Catering and kitchen tools and Lump
80.00
equipment (assorted type and sizes) sum
15 Refrigerator (assorted type and Lump
60 90.00
sizes) sum
16 Plastic chairs with table and
Set 30 50.00
umbrella
17 Wheel barrow Set 10 2.00
18 Spade with handle Pcs 30 1.50
19 Fork with handle pcs 30 1.50
20 Scrapper with handle pcs 30 1.50
21 Vacuum cleaners and accessories
pcs 8 40.00
(Assorted)
22 Mobile diesel generator with
canopy attachment and control Set 1 20.00
system 11KW
23 Mobile grinding machine with
Set 2 5.00
accessories (Assorted)
24 Mobile drilling machine with
Set 2 5.00
accessories (Assorted)
25 Mobile arc welding transformer Set 2 20.00
26 Mobile gas welding machine Set 2 20.00
27 Mechanic tool kit with metallic box Set 2 5.00
28 Lawnmower and its accessories Set 5 30.00
29 TV-set Set 30 120.00
30 Retractable aluminum ladder
Pcs 4 10.00
(Assorted)
31 Plumber tool kit with metallic box Set 2 5.00
32 Refrigerator maintenance and repair
Set 1 4.00
kit
33 DVD player Set 40 40.00
34 Cafeteria facilities Set 2 55.00
35 Other miscellaneous items 200.00

Total 2720.00
 186-13

2. Land, Building and Civil Works

The envisaged TFEC shared Company lodges requires a total plot of land of 27,000
2 2
m area out of which 10000 m area is the indoor built-up area which consists of the
2 2
following buildings Accommodations(1500m ) administration offices reception(900m ),
2 2 2 2 2
restaurant(2500m ), kitchen(150m ), store(260m ), toilet(150m ) etc. 7000 m area is the
2
out door built -up area which includes the swimming pool(600m ), artificial lake for
2 2 2 2
fishing(500m ), horse riding field(1500m ), cafeteria(250m ), generator house(30m ),
2 2 2
warehouse(150m ), park(2500m ), parking lot(270m ), walk ways, garden and guard
2
room(200m ).

2
Assuming an average indoor and outdoor construction rate of Birr 8000 per m , the total
cost of civil and building is estimated Birr 80,000,000.

According to the Federal Legislation on the Lease Holding of Urban Land (Proclamation
No 272/2002) in principle, urban land permit by lease is on auction or negotiation basis,
however, the time and condition of applying the proclamation shall be determined by the
concerned regional or city governments depending on the level of development.

In Mekelle the city’s Land Administration and Development Authority is directly

responsible in dealing with matters concerning land. Accordingly, the initial land lease
rate in Mekelle set by the Authority b a s e d on the location of land is as shown in
Table 5.1.
 186-14

Table 5.1
INITIAL LAND LEASE RATE IN MEKELLE

Sr. Land Initial Price in

No Location of the land Grade m
2

1 Central Business zones 1 1167.3

2 1062.9
3 916.2
Places That are Under
2 Transit 1 716.4
2 647.1
3 559.8
3 Expansion Zones 1 245.7
2 207

Source; Mekelelle City Land Administration Authority

As can be seen from Table 5.2 the initial land lease rate ranges from Birr 1,167.3 to
2
132.3 per m .
Considering the nature of the project expansion zones are recommended as the best
locations for the project. Accordingly, the least land lease rate in the expansion zones
2
which is Birr 132.3 m is adopted.
The Federal Legislation on the Lease Holding of Urban Land legislation has also set the
maximum on lease period and the payment of lease prices ( See Table 5.2 and Table
5.3.)
 186-15

Table 5.2
LEASE PERIOD

Lease Period
Type of Service ( Years)
Residential area 99
Industry 80

Education, cultural research health, sport,

NGO and religious 99
Trade 70
Urban Agriculture 15
Other service 70

Table 5.3
LEASE PAYMENT PERIOD

Period of Payment
Sr. According to the Grade of
No. Service Type Towns
Private residential are obtained
1 through tender or negotiation 50 - 60 years
2 Trade 40 - 50 years
3 Industry 40 - 50 years
4 Real estate 40 years
5 Urban Agriculture 8 - 10 years
6 Trade and social service 40 - 50 years
7 Others 40 years

Moreover, advance payment of lease based on the type of investment ranges from 5% to
10%. For those that pay the entire amount of the lease will receive 0.5% discount from
the total lease value and those that pay in installments will be charged interest based on
the prevailing interest rate of banks. Moreover, based on the type of investment, two to
seven years grace period shall also be provided. The lease price is payable after the grace
period annually.
 186-16

Regarding, the terms and conditions of land lease the mekelle City Government have
adopted Article 6 of the Federal Legislation with very minimal changes. Therefore, for
the purpose of this project profile since the project is engaged in social service , 99 years
lease period, 50 years lease payment completion period, 5% down payment and seven
years grace period is used.

2
Accordingly, the land lease cost of the project, at rate of Birr 132.3 per m for 99 years of
holding is estimated at Birr 63.69 million. Assuming 5% of the total cost ( Birr 4.58
million ) will be paid in advance as down payment and the remaining Birr 87.10 million
will be paid in equal installments with in 50 years, the annual lease payment is estimated
at Birr 1,741,994.

VI. MANPOWER AND TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT

The total manpower requirement, including skilled and unskilled labor is 247 persons.
The corresponding total labor cost, including fringe benefits, is estimate at Birr
2,940,750. Table 6.1 shows the list of manpower required and the estimated annual labor
costs.
 186-17

Table 6.1
MANPOWER REQUIREMENT & LABROUR COST

Sr. Position Req. Salary (Birr)

No. No. Monthly Annual
1. General manager 1 5,000 60,000
2. Secretary 1 1,000 12,000
3. Head, finance & administration 1 3,500 42,000
4. Tour operator 30 30,000 360,000
5. Salesman 2 4,000 96,000.00
6. Ticket attendant 4 2,800 33,600
7. Receptionist 4 3,600 43,200
8. Live saver 4 3,600 43,200
9. Financial clerk 1 800 9,600
10. Security officer 1 2,000 24,000
11. Snr. Technician 2 2,200 26,400
12. Chief cook 2 2,400 28,800
13. Cook 12 10,800 129,600
14. Restaurant attendant 20 16,000 192,000
15 Laundry service attendant 4 2,800 33,600
16 Accommodation attendant 20 16,000 192,000
17 Maintenance technicians 5 3,750 45,000
18 Purchaser 1 900 10,800
19 Security guards 7 4,900 58,800
20 Driver 5 3,500 42,000
21 Cashers 2 1,500 18,000
22 Room Cleaner 30 18,000 216,000
23 Out side cleaner 20 13,000 156,000
24 Store keeper 2 1,400 16,800
25 Guard 40 28,000 336,000
26 Cafeteria Attendant 10 6,800 81,600
27 Gardener 6 3,300 39,600
28 Laborer 10 4,500 54,000
Total 247 2,352,600
Workers benefit (25% of BS) 588,150
Grand total 2,940,750.00
 186-18

B. TRAINING REQUIREMENT

Tour operators and the various attendants of the lodge need to get local tailor made
training and attachment training at similar centers. The cost of training is estimated at
Birr 150,000.

VII. FINANCIAL ANALYSIS

The financial analysis of the TFEC shared Company lodge project is based on the
data presented in the previous chapters and the following assumptions:-

Construction period 1 year

Source of finance 70 % equity
30 % loan
Bank interest 8.5%
Discount cash flow 8.5%
Accounts receivable 30 days
Raw material ( perishable) 3 days
Raw Material ( non perishable) 30 days
Cash in hand 5 days
Accounts payable 30 days
Repair and maintenance 5% of machinery cost

A. TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr
25.59 million.. The major breakdown of the total initial investment cost is shown in Table
7.1.
 186-19

Table 7.1
INITIAL INVESTMENT COST

Sr. Cost Items Local Foreign Total

No. Cost Cost Cost
1 Land lease value 4,580.00 - 4,580.00
2 Building and Civil Work 80,000.00 - 80,000.00
3 Lodge Equipment 2,720.0 - 2,720.00
4 Office Furniture and Equipment 15,000.00 - 15,000.00
5 Vehicle 450.00 - 2,450.00
6 Pre-production Expenditure* 1,433.94 - 1,433.94
7 Working Capital 209.28 - 1,209.28
Total Investment cost 125,593.2 - 125,593.22
2

* N.B Pre-production expenditure includes interest during construction ( Birr 1.28

million ), training ( Birr 50 thousand) and Birr 100 thousand costs of registration,
licensing and formation of the company including legal fees, commissioning
expenses, etc.

B. OPERATING COST

The annual operating cost at full capacity operation is estimated at Birr 6.17 million
(see Table 7.2). The major components of the operation cost are direct labour, financial
cost and material and input which account for 22.86 %, 18.16% and 16.19%
respectively. The remaining 42.79 % is the share of utility, labour overhead, repair and
maintenance, depreciation and administration cost.
 186-20

Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Cost %
Material and Inputs
1,000.00 16.19
Utilities 42.09 0.68
Maintenance and repair
136.00 2.20
Labour direct 1,411.56 22.86
Labour overheads
588.15 9.52
Administration Costs 941.04 15.24
Land Lease Cost - -
Total Operating Costs 4,118.84 66.70
Depreciation 935.00 15.14
Cost of Finance 1,121.44 18.16
Total Production Cost
6,175.28 100

C. FINANCIAL EVALUATION

1. Profitability

Based on the projected profit and loss statement, the project will generate a profit through
out its operation life. Annual net profit after tax will grow from Birr 837.04 thousand to
Birr 3.74 million during the life of the project. Moreover, at the end of the project life the
accumulated cash flow amounts to Birr 28.34 million.

2. Ratios

In financial analysis financial ratios and efficiency ratios are used as an index or yard
stick 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
 186-21

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.

3. 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 ( year 3) is estimated by using income statement projection.

BE = Fixed Cost = 27 %
Sales – Variable Cost

4. Payback Period

The pay back period, also called pay – off period is defined as the period required to
recover 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 6 years.

5. Internal Rate of Return

The internal rate of return (IRR) is the annualized effective compounded return rate that
can be earned on the invested capital, i.e., the yield on the investment. Put another way,
the internal rate of return for an investment is the discount rate that makes the net present
value of the investment's income stream total to zero. It is an indicator of the efficiency or
quality of an investment. A project is a good investment proposition if its IRR is greater
than the rate of return that could be earned by alternate investments or putting the money
 186-22

in a bank account. Accordingly, the IRR of this project is computed to be 15.92 %

indicating the viability of the project.

6. Net Present Value

Net present value (NPV) is defined as the total present ( discounted) value of a time
series of cash flows. NPV aggregates cash flows that occur during different periods of
time during the life of a project in to a common measuring unit i.e. present value. It is a
standard method for using the time value of money to appraise long-term projects. NPV
is an indicator of how much value an investment or project adds to the capital invested. In
principal a project is accepted if the NPV is non-negative.

Accordingly, the net present value of the project at 8.5% discount rate is found to be
Birr 10.40 million which is acceptable.

D. ECONOMIC BENEFITS

The project can create employment for 247 persons. The project will generate Birr 6.14
million in terms of tax revenue. The project could be one of the sources for foreign
exchange earning by giving services to international tourists.