Project profile on garment

industry

TABLE OF CONTENTS

Contents Pag

1
 es
Table of I
contents....................................................................................................................
...............
Tables: ..................................................................................................................... II
................................
1. Executive 1
Summary........................................................................................................
............
2. Product Description and 2
Application.....................................................................................
3. Market Study, Plant Capacity and Production 2
Program.................................................... 2
3.1 Market 2
Study...................................................................................................... 7
.............. 12
3.1.1 Supply-Demand 13
Analysis......................................................................................... 13
3.1.2 Projected 14
Demand...........................................................................................
........
3.1.3 Pricing and
Distribution......................................................................................
....
3.2 Plant Capacity and production
capacity......................................................................
3.2.1 Plant
Capacity...........................................................................................
.................
3.2.2 Production
program...........................................................................................
......
4. Raw Materials and 15
Utilities..................................................................................................... 15
4.1 Raw 16
Materials.................................................................................................
...................
4.2 Utilities...................................................................................................
................
5. Location and 16
Site.................................................................................................................
.......
6. Technology and 17
Engineering.................................................................................................... 17

2
 .. 22
6.1 Production 22
Process................................................................................................... 23
.........
6.2 Source of
technology..............................................................................................
.........
6.3 Machinery and
Equipment..............................................................................................
.
6.4 Land use, building and civil
works..................................................................................
7. Manpower and Training 24
Requirement...................................................................................... 24
7.1 Manpower 25
requirement.........................................................................................
........
7.2 Training
requirement.........................................................................................
............
8. Financial 25
Analysis.......................................................................................................... 25
............... 26
8.1 Underlying 26
Assumption............................................................................................. 27
.......
8.2 Pre-production
cost.........................................................................................................
.
8.3 Total investment
cost......................................................................................................
8.4 Production
Costs.......................................................................................................
.........
9. Financial 27
Evaluation.......................................................................................................
..............

TABLES

Table Pag

3
 es
Table: 3.1 Export plans of knitted and woven 4
garments...................................................................... 5
Table: 3.2 Apparel products exported from year 2002 up to 6
2011................................................. 8
Table: 3.3 Apparel products imported from year 2002 up to 9
2011.................................................. 10
Table: 3.4 World and Ethiopia’s Apparel import demand projection for years 2011- 11
2022........
Table: 3.5 Apparel supply gaps projected for years 2011- 12
2022....................................................... 13
Table: 3.6 Summary of apparel surplus import demand projected for years 2011- 14
2022......... 15
Table: 3.7 Sales plan for the envisaged 16
plant........................................................................................ 22
Table: 3.8 Estimated Average selling prices of unit kilogram for different product 24
categories.......................................................................................................... 25
............................... 26
Table: 3.9 Annual sales plan for the envisaged 26
plant........................................................................... 27
Table: 3.10 Production
plan.........................................................................................................................
Table: 4.1 Raw materials requirement and cost at full
capacity........................................................
Table: 4.2 Utilities requirement and cost at full
capacity..................................................................
Table: 6.2 Machinery and equipment requirement and
cost...............................................................
Table: 7.1 Manpower requirement and annual
salary............................................................................
Table: 8.1 Financial
assumptions................................................................................................................
Table: 8.2 Design, consultancy, training and test run
costs...............................................................

4
Table: 4.2 Investment
cost........................................................................................................................
Table: 4.2 Production cost at full
capacity.............................................................................................

1. Executive Summary

According to 2011 trade report, by International Trade Center (ITC), the total
apparel products imported by the world was about 196,786,089,000 USD in
value, from which about 83,324,000.00 USD was imported by Ethiopia. Taking
these values as a base line and average growth rate of 2% and 4% respectively,
the present (2013’s) world import demand for apparel products is estimated to
be 204,736,247,000.00 USD, which is approximately about 50 billion
pieces/year, and the amount to be imported by Ethiopia is estimated to reach
90,123,238.00 USD, which is approximately about 22million pieces/year. There
is a total production capacity of about 73 million woven and knitted garments
existing current in the country, from which only about 75% (56.25 million
pieces) is utilized yet. In the previous year, about 27.5% (15.48 million pieces)
of total production was exported by the country. Based on the above
assumptions, there exists about 25% (18.25 million pieces) unutilized capacity,
currently, which would cover about 13 million pieces of local demand
proportionately. Hence, deducting 13 million from 22 million, we get 9 million
capacity gaps to meet only the local extra demands for various garment
products. The import demand is likely to reach at 60 billion pieces/year globally,
and 31.5 million pieces/year for Ethiopia by the year 2022.
This project profile envisages the establishment of a garment factory which is to
be engaged in production of different apparel products such as trouser, jacket,
coat, shirt, blouses, baby garments, etc with a capacity of 1,500,000pcs/annum.

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The envisaged factory is intended to sale 69% of its products to the
international market and the rest 31% to the domestic market so that it enables
the project promoter to reach the vast market opportunities both internationally
and locally.
The total investment cost is estimated to be Birr 48,004,668.50, out of which
14.3% is required for plant and machinery, 13.5% is for working capital, 45% for
building and civil work, and the rest 27.2% is to be expended for land lease,
vehicle, office equipment, and other prep-production expenses. The project will
create employment opportunity for 499 persons.
The project is financially viable that it will reach breakeven point approximately
at 28% of the capacity and has a payback period of 3years.
Generally, the project has a backward linkage effect with textile industries,
which are enormously developing throughout the country. The establishment of
such factory will have a foreign exchange saving and earning effect to the
country by exporting to the world market and substituting the current imports.

2. Product description and application

Apparels are ready to wear garment products produced through different

manufacturing processes that involve different steps, beginning with the idea
or design concept and ending with a finished product.

The major products of the envisaged factory include trousers, coats, jackets,
shirts, blouses, baby garments, and etc. They can be used either as casual
clothes or working clothes under different operations accordingly.

Different fabric types; such as cotton fabrics, polyester fabrics, nylon fabrics,
polyester-cotton blended fabrics, denim fabrics, and others, are used to
manufacture these products tailored to customers’ requirement.

3. MARKET STUDY AND PLANT CAPACITY

3.1 MARKET STUDY

3.1.1. Supply-Demand Analysis

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 The population of the world is ever growing and almost reaching seven billion
at this point in time. Besides this, the economy of majority of the world
population is also seen increasing from time to time. This was due to the
economic policy improvements adopted by most part of the world continents
like Africa, East and Middle Asia, and South America to increase the welfare
of their people. And it is obvious that the more improved the economic
welfare of people, the more they expend on purchase of apparel and food.

Therefore, as long as the people’s expending capacity continues improving

parallel with population growth, it makes this time the most strategic for
textile industries in general and garment factories in particular than ever
before.

Besides the globally increasing demands for textile products, there are also a
number of advantages and incentives that motivate project promoters in
Africa in general and in Ethiopia in particular. Among these are:

 Tax free and unlimited quota market for textile products in economic
giant continents like US and Europe.
 70% by 30% loan scheme of Development Bank of Ethiopia
 Provision of land necessary for investment at reduced rate
 Duty free import of machineries and equipments, construction
materials (those not available locally), and spare parts (whose value
not greater than 15% of that of investment capital goods)
 Exemption from export tax on local products
 Duty drawback schemes on export sales
 2 to 7 or more years’ income tax exemption, for exporting investors
 3 to 5 years holyday for loan repayment
 Provisions of loss carry forward privileges, for about half of the tax
exemption period, and other.

Along with the above incentives and motivations the textile manufacturing
industries are migrating to Africa and other poor countries due to the increase of
labor cost in countries like Turkey, Italy and others. On the contrary, Ethiopia

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has relatively lower cost labor force and good source of raw material. All the
listed reasons fueled the textile sector to show up dramatic change in number
and influence the economy of the country.

Even though, there is apparel production capacity of about 20 million pieces of

woven garment and 53 million pieces of knitted garments per year in the
country (attainable capacity in 2012/13- source TIDI), there is still bigger
domestic and international apparel product demand.

The market segment for proposed project is 69% targeted to the international
market and 31% to local market for the coming 10 years. Ethiopia has exported
few amount of apparel products for the past 10 years despite the fact that the
market for developing nations are still at large and the government had planned
in its five years’ Growth and transformation plan to export apparel products as
it is depicted in the following table.

Table 3.1 Export plan of knitted and woven garment

Year(EC Knitted Garment Weaved Garment Total Growth Rate

) (million USD) (million USD) (million USD) (%)

2010/11 35 30 65 -
2011/12 70 60 130 100
2012/13 158 135 293 125
2013/14 245 210 455 55
2014/15 350 300 650 43

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 Table 3.2 List of apparel products exported from year 2002 up to 2011

a/ Export in Net-Mass (Kg)

Products Category 2002 GC 2003 GC 2004 GC 2005 GC 2006 GC 2007 GC 2008 GC 2009 GC 2010 GC 2011 GC
Men's suits, jackets, trousers etc
& shorts 0.00 0.00 00 00 0 0 0 0 0 NA
NA
Men's Shirts 0 26,898.00 113,882.10 34,918.02 137,871.68 34,035.38 133,414.37 37,887.51 84,623.30
NA
Women's blouses and shirt 0 0 16,053.00 3,343.10 14,044.80 4,588.74 3,329.15 79,551.63 17,302.40
Women's suits, jackets, dresses NA
skirts etc & shorts 0.00 0.00 129935.10 38261.120 151916.48 38624.12 136743.52 117439.14 101925.7
NA
Babies Garment 12,000.00 3,206.00 1,617.00 190.00 60.00 0 0 619.00 62.00
Sub Total 12000.00 3206.00 261487.20 190 60 00 273487.04 619 62 NA
NA
Others 24000.00 6412.00 522974.40 380 1200 0 546974.08 1238 124
TOTAL SUM 50,483.00 118,120.00 695,807.10 436,455.90 502,480.26 351,970.05 797,423.05 383,980.71 770,251.07 NA
Source: Extracted from Ethiopian Custom & Revenue Authority’s Report Data Base

b/ Export in CIF Value (USD)

Products Category 2002 GC 2003 GC 2004 GC 2005 GC 2006 GC 2007 GC 2008 GC 2009 GC 2010 GC 2011 GC
Men's suits, jackets, trousers
etc & shorts 0 0 0 0 0 0 0 0 0 5,523,000.00
Men's Shirts 0 81,672.84 296,523.54 150,779.52 332,130.43 161,705.54 897,504.22 173,275.85 302,803.55 3,010,000.00
Women's blouses and shirt 0 0 104,850.00 9,673.67 24,351.95 15,328.78 17,170.95 134,671.80 114,523.37 1,707,000.00
Women's suits, jackets,
dresses skirts etc & shorts 00 0 401373.54 160453.19 356482.38 177034.320 914675.17 307947.65 417326.92 934,000.00
Babies Garment 14,927.52 4,789.11 2,601.42 913.75 651.59 0 0 4,465.41 556.88 1,000.00
Sub Total 14927.52 4789.11 805348.5 913.75 651.59 0 0 620360.71 556.88 11175000.00
Others 29855.04 9578.22 1610697 1827.5 1303.18 0 0 1240721.42 1113.76 22350000.00
6,369,908.7
TOTAL SUM 139,978.44 441,512.79 2,071,977.57 1,848,311.55 1,284,572.00 1,129,664.23 3,698,695.09 1,524,693.84 4 15,079,000.00
Source: Extracted from Ethiopian Custom & Revenue Authority’s Report Data Base (for 2002-2010) and from
International Trade Center’s Report Data Base (for 2011)

Table 3.3 List of apparel products imported from year 2002 up to 2011

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 a/ Import in Net-Mass (Kg)
Products
Category 2002 GC 2003 GC 2004 GC 2005 GC 2006 GC 2007 GC 2008 GC 2009 GC 2010 GC 2011 GC
Men's suits, jackets,
trousers etc & shorts 0 0 0 0 0 0 0 0 0 NA
NA
Men's Shirts 1,058,841.00 1,075,427.00 1,166,219.67 1,362,717.44 1,400,606.93 1,261,987.18 1,090,756.96 858,196.92 1,089,465.78
Women’s Blouse & NA
Shirts 1,424,375.00 3,352,335.00 4,408,382.15 5,282,327.25 4,428,796.86 3,909,073.72 3,793,738.67 3,086,521.82 3,559,410.19
Women's suits, NA
jackets, dresses skirts
etc & shorts 2483216.00 4427762.00 5574601.82 6645044.69 5829403.79 5171060.9 4884495.63 3944718.74 4648875.97
NA
Babies Garments 1,024,064.00 1,091,768.00 1,272,262.00 1,332,488.86 1,930,724.17 1,564,047.98 1,517,166.18 1,822,585.25 1,879,744.86
Sub Total 5990496.00 9947292.00 12421465.64 14622578.240 13589531.75 11906169.78 11286157.44 9712022.73 11177496.8.00 NA

Others 11980992.00 19894584.00 24842931.28 29245156.48 27179063.5 23812339.56 22572314.88 19424045.460 22354993.6 NA
13,647,855.0 NA
TOTAL SUM 10,102,315.00 0 15,164,258.02 16,847,199.42 17,413,742.58 17,520,563.38 16,782,472.07 15,037,538.38 16,894,150.83
Source: Extracted from Ethiopian Custom & Revenue Authority’s Report Data Base

b/ Import in CIF Value (USD)

Products Category 2002 GC 2003 GC 2004 GC 2005 GC 2006 GC 2007 GC 2008 GC 2009 GC 2010 GC 2011 GC
Men's suits, jackets,
trousers etc & shorts 0 00 00 0 0.00 0 0 0 0 27,843,000.00
Men's Shirts 2,789,159.25 3,120,870.93 4,394,774.93 5,401,072.27 6,247,318.39 5,660,860.32 4,315,687.65 3,953,866.70 5,282,019.74 18,992,000.00
Women’s Blouse &
Shirts 4,045,438.95 7,245,238.58 10,129,091.21 15,484,537.70 14,248,330.31 15,172,403.72 15,250,053.17 14,174,649.41 18,983,938.03 7,109,000.00
Women's suits,
jackets, dresses skirts
etc & shorts 6834598.2 10366109.51 14523866.14 20885609.97 20495648.7 20833264.04 19565740.82 18128516.11 24265957.77 5,801,000.00
Babies Garments 2,963,509.05 3,761,129.44 5,278,856.55 5,986,315.18 9,204,267.31 7,254,710.43 5,974,899.67 8,188,282.53 8,610,384.69 2,402,000.00
Sub Total 16632705.450 24493348.46 34326588.83 47757535.12 50195564.71 48921238.510 45106381.310 44445314.750 57142300.23 62147000.00
Others 33265410.9 48986696.92 68653177.66 95515070.24 100391129.42 97842477.02 90212762.62 88890629.5 114284600.46 124294000.00
TOTAL SUM 34,684,511.41 45,397,594.59 54,094,071.63 67,771,848.04 74,784,893.17 84,856,675.37 79,117,252.58 82,876,321.34 98,905,403.43 83,326,000.00
Source: Extracted from Ethiopian Custom & Revenue Authority’s Report Data Base (for 2002-2010) and from
International Trade Center’s Report Data Base (for 2011)

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3. 1.2. Projected Demand

From previously presented export and import records (Table 3.2 a, b and Table
3.3 a, b) of apparel products of the nation, the following facts could be
recognized after thorough analysis made on it.
Export on apparel products in general and some products like: women’s blouses,
shirts, skirts, trousers shorts, and Men’s shirts, trousers and shorts in particular
had been increasing from year to year for the last ten years. Only in 2011, about
11 million USD total sales had been made for the mentioned products, which is
about 136% greater than that of the preceding year, 2010 (Table 3.2 b).
Import of these same products had been also increasing consecutively from year
2002 (which was about 26.8 million USD) to year 2010 (which was about million
72.9 USD). The increment from year 2002 to 2010 was 172%. In 2011, the sales
became 62.15 million USD which was by 14.7% less than that of 2010. The
reduction in import could be logically related to the increment in production and
local sales of the nation, although there is large imbalance still, which is about -
51.15 million USD, when calculated for the mentioned products only for the
year, 2011 (Table 3.2, 3.3).
From this analysis it can be reasonably concluded that export of apparel
products in general and those mentioned products in particular, will be expected
to increase for the coming ten years also.
Besides these analyses, the report of “International Trade Center (ITC)”
indicates that for the year 2011, the total world import of apparel products was
about 196,786,089,000.00 USD, from which about 83,324,000.00 USD (0.04%)
was imported by Ethiopia. On the other hand, the total value exported by
Ethiopia in this same year was only 15,078,000.00 USD, according to the report,
which amounts to only 0.008% of the total amount imported by the world
(196,702,765,000.00 USD), excluding that of Ethiopia.

According to this report (ITC report), the average growth rate for apparels’ world
import for the years 2007 - 2011 was 2%, and about 16% for the years 2010-
2011. The Import growth rate for Ethiopia was reported as 4% for the years
2007 -2011 and 7% for the years 2010-2011. (But according to data obtained

11
from ECRA, it was indicated that there was reduction in import by 14.7% for the
year 2010-2011, which was noted as the result of data differences from one
source to the other).
Likewise; regarding export, it was indicated in the ITC report that the growth
rate was 93% for the year 2007-2011 and 267% for the years 2010-2011, for
Ethiopia.
According to the Growth and Transformation Plan (GTP) of the country, it was
targeted to increase the export of apparel products, in general, as presented in
table 3.1 above.
Therefore, assuming that the world and national imports continues to increase
with the same average growth rate of the year 2007 – 2011, which is 2% and
4% respectively; and taking the values of 2011 as the base line, which was
196,786,089,000.00 USD and 83,324,000.00 USD respectively, we can predict
that the demands of apparel products in general to have the following trends.
Year World Import National Import World /Except
(USD) (USD) Ethiopia/ Import
(USD)
2011 196,786,089,000.00 83,324,000.00 196869415011.00
2012 200,721,810,800.00 86,656,960.00 200808469772.00
2013 204,736,247,000.00 90,123,238.40 204826372251.40
2014 208,830,971,900,00 93,728,167.94 93730181.94
2015 213,007,591,400.00 97,477,294.65 213105070709.65
2016 217,267,743,200.00 101,376,386.40 217369121602.40
2017 221,613,098,100.00 105,431,441.90 221718531558.90
2018 226,045,360,000.00 109,648,699.60 226155010717.60
2019 230,566,267,200.00 114,034,647.60 230680303866.60
2020 235,177,592,600.00 118,596,033.50 235296190653.50
2021 239,881,144,400.00 123,339,874.80 240004486295.80
2022 244,678,767,300.00 128,273,469.80 244807042791.80
Table 3.4: World and Ethiopian Apparel Import projections for years 2011 -2022

Assuming that the factories available in the year 2011 are remaining to exist
and continue to produce and sale the amount imported in that year, we can
calculate the supply gaps resulted in the market because of the demand
growths in the following consecutive years. These can be obtained by deducting

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the supply of the year 2011 from the projected ones for the years covered in the
plan, as presented in Table 3.5.

Considering the export and import situations of apparel products at national and
global levels, we can reasonably conclude that there is very huge market
demand for the mentioned products both locally and globally. Therefore, it will
be the matter of competing and taking the market share

Table 3.5: Apparel Supply Gaps Projected for the years 2011-2022

a/ National supply gap

Year National Import National Supply Supply Gap
(USD) (USD) (USD)
2011 83,324,000.00 83,324,000.00 166650011
2012 86,656,960.00 83,324,000.00 169982972.00
2013 90,123,238.40 83,324,000.00 173449251.40
2014 93,728,167.94 83,324,000.00 177054181.94
2015 97,477,294.65 83,324,000.00 180803309.65
2016 101,376,386.40 83,324,000.00 184702402.40
2017 105,431,441.90 83,324,000.00 188757458.90
2018 109,648,699.60 83,324,000.00 192974717.60
2019 114,034,647.60 83,324,000.00 197360666.60
2020 118,596,033.50 83,324,000.00 201922053.50
2021 123,339,874.80 83,324,000.00 206665895.80
2022 128,273,469.80 83,324,000.00 211599491.80

b/ World supply gap

Year World /Except World /Except for World Supply
Ethiopia/ Import Ethiopia/ Supply Gap (USD)
(USD) (USD)
2011 2011.00 4022.00 8044
2012 2012.00 4024.00 8048.00
2013 20130 4026.00 80520
2014 2014 4028.00 8056
2015 2015 4030.00 8060
2016 20160 4032.00 80640
2017 20170 4034.00 80680

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 2018 20180 4036.00 80720
2019 20190 4038.00 80760
2020 20200 4040.00 80800
2021 20210 4042.00 80840
2022 20220 4044.00 80880

Therefore, surplus demands for apparel products at world level and national
level could be summarized as follows.

Table 3.6 Summary of Apparel Surplus Import Demand Projected for the coming
ten years
Year World Surplus National Surplus Total Surplus
Import Demand Import Demand Import Demand
(USD) (USD) (USD)
2013 20130 40260 8052.00
2014 2014 4028 8056.00
2015 2015 4030 8060.00
2016 20160 40320 8064.00
2017 20170 40340 8068.00
2018 20180 40360 8072.00
2019 20190 40380 8076.00
2020 20200 40400 8080.00
2021 20210 40420 8084.00
2022 20220 40440 8088.00

Therefore; the world surplus demand presented in table 3.6 can be taken as a
base to set the capacity of the plant for export sales, and the total national
demand for import, as projected and presented in Table 3.5, can be used as a
base to set the capacity of the plant for local market. Accordingly, 0.05% of the
world surplus demand of year 2013’s projection for apparel demand, which is
3,971,679.00 USD, for export; and 2% of the 2013’s national total demand,
which is 1,802,465.00 USD, for local market are considered to set the total
production capacity of the plant to be envisaged.
The average price per unit kilogram of garment products varies from year to
year due to the effect of factors like inflation and others. An average of 5%

14
 increment in average selling price per unit kilogram of the products is assumed
to calculate the sales achievement over the plan year.
The following Table portrays the amount planned for export and local market,
which is calculated based on assumptions stated above.

Table 3.7 Sales plan for the envisaged project (Export & Local sales)
Yea World Surplus National Total
r Import Demand Export Plan Import Local Sales Total
(USD) (USD) Demand Plan (USD) Sales Plan
(USD)
2013 20130 3,971,679.00 90,123,238.40 1,802,465.00 5,774,144.00
2014 2014 4,170,263.00 93,728,167.94 1,892,588.00 6,062,851.00
2015 2015 4,378,776.00 97,477,294.65 1,987,217.00 6,365,993.00
2016 20160 4,597,715.00 101,376,386.40 2,086,578.00 6,684,293.00
2017 20170 4,827,600.00 105,431,441.90 2,190,907.00 7,018,507.00
2018 20180 5,068,980.00 109,648,699.60 2,300,452.00 7,369,432.00
2019 20190 5,322,430.00 114,034,647.60 2,415,475.00 7,737,905.00
2020 20200 5,588,551.00 118,596,033.50 2,536,248.00 8,124,799.00
2021 20210 5,867,978.00 123,339,874.80 2,663,061.00 8,531,039.00
2022 20220 6,161,378.00 128,273,469.80 2,796,214.00 8,957,592.00

As presented in the table about 69% of the total sale will be targeted for export
and the remaining 31% is reserved for local market.

3.1.3 Pricing and Distribution

Based on import data analyzed for the year 2012, the average price per unit
kilogram of garment products was 7.40 USD, which is equivalent to Birr 136.00.
(Source: Data analyzed by Marketing Directorate of TIDI, based on ERCA’s
Annual Import Report) Assuming this price to increase by 5% in the coming
year, 7.80 USD is taken as the average selling price for products of the
envisaged company.

Table 3.8 Estimated Average selling price per unit kilogram for different product
categories

Product Mix U/M Unit Share of Price

Price Product Mix Share
(USD/Kg) (%) (USD)
Men's suits, jackets, trousers Kg 8.00 25 2.00

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etc & shorts
Kg 7.80 25 1.95
Men's Shirts
Kg 7.25 20 1.45
Women's blouses and shirts
Women's suits, jackets, Kg 7.50 20 1.50
dresses skirts etc & shorts
Kg 9.00 10 0.90
Babies Garments
Average Selling Price 100 1000

Note that products mentioned as “men’s …” and “women’s …” covers all the
sizes from small to extra large sizes, which are dressed by boys, girls, men, and
women.

3.2 Plant capacity and production program

3.2.1 Plant capacity
Based on sales plan presented under Table 3.7 and the average sales price
presented under Table 3.8, we can get that the annual production capacity of
the plant will be 740,275 Kg of garments totally. From the total products: - 25%
(185,068Kg) will be: Men's suits, jackets, trousers etc & shorts; 25% (185,068Kg)
will be: Men's Shirts; 20% (156,058Kg) will be: Women's blouses and shirt; 20%
(148,055) will be: Women's suits, jackets, dresses skirts etc & shorts; and 10%
(74,027Kg) will be: Babies Garments.

The following Table presents summary of the production capacity of the plant,
converting the measuring units from Kg to pieces. Total of 320 working days per
annum, 8 hour per day in one shift is assumed to set the plant capacity.

Accordingly, a total of 1,493,242 pieces of different garments will be produced

on 100% capacity utilization, and a total of 5,774,140 USD (Birr 106,821,600,

16
 with average exchange rate of 1 USD = 18.5 Birr) sales is planned to be
achieved.
Table: 3.9 Annual Sales plan for the envisaged plant
Annual Production Average Selling Price
Product Mix Capacity Unit
Quantity Quantity Price (USD) (Birr ’000)
(Kg) (Piece) /piece
(USD)
Men's suits, jackets, trousers 185,069 105,754 14.00 1,480,552.00 27,390.20
etc & shorts (1 pc = 1.75kg)
Men's Shirts (1 pc = 350gm) 185,068 528,766 2.73 1,443,530.00 26,705.30
Women's blouses and shirts 148,055 493,517 2.18 1,073,398.00 19,857.85
(1 pc = 300gm)
Women's suits, jackets, 148,055 118,444 9.38 1,110,412.00 20,542.60
dresses skirts etc & shorts (1
pc = 1.25kg)
Babies Garments (1 pc = 74,028 246,760 2.70 666,252.00 12,325.65
300gm)
740275 1493241 3.87 5774144577 106821.60
Total 4144.00

Note that the average weight for unit product categories is taken by estimation,
taking the size (small – extra large) and material variations (cotton,
polyester, nylon, etc...) in to considerations.
3.2.2 Production program

The planned capacity will be achieved in the fourth year of the establishment
year of the factory. In a period of 12 months project time, the project will be
realized. It is estimated that production starts at 85% plant capacity in the first
year, 95% in the second year, and 100% in the third year and will continue to
work with this capacity for the coming 10 years. Since production capacity of
garment factory is highly dependent on operator’s performance, here the
average attainable Ethiopian machine operator’s performance is taken in to
consideration to determine the overall capacity of the envisaged plant. The
factory is assumed to work 300 days in a year and 8 hours per day in a single
shift.

Table 3:10 Production Program

Plant Capacity Utilization
1st year 2nd year 3rd year and
Product Categories U/M (85%) (95%) above (100%)

17
 Men's suits, jackets, trousers
etc & shorts Pcs 89,891 100,466 105,754

Men's Shirts >> 449,451 502,328 528,766

Women's blouses and shirts >> 419,489 468,841 493,517

Women's suits, jackets, dresses
skirts etc & shorts >> 100,677 112,522 118,444

Babies Garments >> 209,746 234,422 246,760

Total >> 1269254 1418579 1493241

The factory will have a set up to accommodate production facilities for both
knitted and woven garment products. Based on assumptions stated above the
plant will have a total capacity of manufacturing 5000 pieces of varies woven
and knitted garments on average per day in one shift. Depending on the
simplicity of the product type and improvement in operators’ performance, even
more production capacity could be achieved with the same plant setup.

4. Raw Materials and utilities

4.1 Raw Materials

The raw materials required to produce garments include fabrics, buttons,

sewing threads, and accessories like zipper, shoulder pad, labels etc. Except
some materials and accessories which are not produced locally, for a short
run, all the raw materials will be purchased locally. However, in the near
future all the raw materials will be expected to be available locally as there
are a number of projects in the pipeline and also some bonded warehouses
to be opened locally by foreign manufacturers.

Table 4.1 below presents annual requirements and corresponding costs of

raw materials at full production capacity.

Table 4.1 Raw materials requirement and Cost at full capacity

Material Unit Cost (Birr)

S/N type U/ Qty Pric LC FC Total Cost
M e
1 Fabric kg 0 85.0 56375880.00 9948685.00 66,324,565.00

18
 0
2 Buttons kg 15,554 50.8 118,638.00 672,283.00 790,921.00
5
3 Sewing kg 8,789 74.5 98,283.00 556,937.00 655,220.00
thread 5
4 Accessorie - Lump - 516,040.00 2924223.00 3,440,263.00
s sum
5 Packing - >> - 2,064,158.00 0 2,064,158.00
material >>
Grand Total 0.00 0.00 24343.00

4.2 Utilities

Electricity and water are the two major utilities required by the envisaged plant.
Total annual cost of major utility items at full operation capacity of the plant is
Birr 281,300.00. Details are shown in the table below:

Table 4.2 Utilities Requirement and Cost at full capacity

Annual
Requirement Unit Total
Remarks
S/N Utility (KWh/year) price/KWh Cost(Birr)
350m/n * 150W/m/n *
8hrs/day *
1 Electric power 126,000KWh 0.55 69,300.00 300days/year

20M3/day*300day/year
2 Water 10,000 M3 3.80 38,000.00
40lit/day*300day/year
3 Fuel and oils 12,000lit 14.5 174,000.00

Total 18.85.00

5. Location and Site

19
Location of the plant is determined on the proximity of raw materials,
availability of infrastructure, availability of skilled man power and distance to
potential market outlet.

In view of this, the envisaged plant will be established in one of the following
potential investment areas in Orimia regional state such as Gelan, Dukem,
Bishoftu, Laga Tafo, Sebeta, others, which are located near Addis Ababa.

6. Technology and Engineering

6.1 Production process

Generally, apparel manufacturing process involves Product Design, Fabric

Selection and Inspection, Patternmaking, Grading, Marking, Spreading, Cutting,
Bundling, Sewing, Pressing or Folding, Finishing and Detailing, Dyeing and
Washing, QC etc.

The major processes involved in the production processes of apparel products of

the envisaged factory are discussed as under.

Receiving fabrics

Under this process step the fabric to be used in production process of apparels
will be received from the supplier. Depending on the type of procurement and
type of products, the supplier could be either the manufacturer, or whole seller
or retailer. The fabrics received from the supplier are preserved in the raw
material stores temporarily before they are issued for next step.

Fabric Relaxing

20
“Relaxing” refers to the process that allows material to relax and contract prior
to being manufactured. This step is necessary because the material is
continually under tension throughout the various stages of the textile
manufacturing process, including weaving, dyeing, and other finishing
processes. The relaxing process allows fabrics to shrink so that further shrinkage
during customer use is minimized.

Fabric relaxing could be done either manually or mechanically. Manual fabric

relaxing typically entails loading the bolt of fabric on a spinner and manually
feeding the material through a piece of equipment that relieves tension in the
fabric as it is pulled through. Mechanical fabric relaxing performs this same
process in an automated manner.

Quality assurance process is integrated into this process to ensure that the
quality of the fabric meets customer standards. This step is performed by
manually spot-checking each bolt of fabric using a backlit surface to identify
manufacturing defects such as color inconsistency or flaws in the material.
Fabrics that fail to meet customer standards are returned to the supplier
(manufacturer or whole seller of retailer).

Spreading, Form Layout, and cutting

After fabric has been relaxed, it is transferred to the spreading and cutting area
of the garment manufacturing facility. The fabric is first cut into uniform plies
and then spread either manually or using a computer-controlled system in
preparation for the cutting process. Fabric is spread to:

 allow operators to identify fabric defects;

 control the tension and slack of the fabric during cutting; and
 Ensure each ply is accurately aligned on top of the others.

The number of plies in each spread is dependent on the fabric type, spreading
method, cutting equipment, and size of the garment order.

21
Next, garment forms—or patterns—are laid out on top of the spread, either
manually or programmed into an automated cutting system. Lastly, the fabric is
cut to the shape of the garment forms using either manually operated cutting
equipment or a computerized cutting system.

Embroidery and Screen Printing

Embroidery and screen printing are two processes that occur only if directly
specified by the customer; therefore, these processes are commonly
subcontracted to off-site facilities. Embroidery is performed using automated
equipment, often with many machines concurrently embroidering the same
pattern on multiple garments. Each production line may include between 10 and
20 embroidery stations. Customers may request embroidery to put logos or
other embellishments on garments.

Screen printing is the process of applying paint-based graphics to fabric using

presses and textile dryers. Specifically, screen printing involves sweeping a
rubber blade across a porous screen, transferring ink through a stencil and onto
the fabric. The screen printed pieces of fabric are then dried to set the ink. This
process may have varying levels of automation or may largely be completed at
manually operated stations. Like embroidery, screen printing is wholly
determined by the customer and may be requested to put logos or other
graphics on garments or to print brand and size information in place of affixing
tags.

Sewing

Garments are sewn in an assembly line, with the garment becoming more
complete as it progresses down the sewing line. Sewing machine operators
receive a bundle of cut fabric and repeatedly sew the same portion of the
garment, passing that completed portion to the next operator. For example, the
first operator may sew the collar to the body of the garment and the next
operator may sew a sleeve to the body. Quality assurance is performed at the
end of the sewing line to ensure that the garment has been properly assembled
and that no manufacturing defects exist. When needed, the garment will be

22
reworked or mended at designated sewing stations. This labor-intensive process
progressively transforms pieces of fabric into designer garments.

Spot Cleaning and Laundry

In addition to identifying manufacturing defects, employees tasked with

performing quality assurance are also looking for cosmetic flaws, stains, or other
spots on the garment that may have occurred during the cutting and sewing
processes. Spots are often marked with a sticker and taken to a spot-cleaning
area where the garment is cleaned using steam, hot water, or chemical stain
removers.

Some customers request that a garment be fully laundered after it is sewn and
assembled; therefore, garment factories often have an on-site laundry or have
subcontract agreements with off-site laundry operations. Commercial laundry
facilities are equipped with at least three types of machines: washers, spinners,
and dryers. Some facilities also have the capability to perform special
treatments, such as stone- or acid-washing.

Ironing

After a garment is fully sewn and assembled, it is transferred to the ironing

section of the facility for final pressing. Each ironing station consists of an iron
and an ironing platform. The irons are similar looking to residential models, but
have steam supplied by an on-site boiler. Workers control the steam with foot
pedals and the steam is delivered via overhead hoses directly to the iron. In
most facilities, the ironing platforms are equipped with a ventilation system that
draws steam through the ironing table and exhausts it outside the factory.

Packaging and Shipping

In the last steps of making a product retail-ready, garments are folded, tagged,
sized, and packaged according to customer specifications. Also, garments may
be placed in protective plastic bags, either manually or using an automated
system, to ensure that the material stays clean and pressed during shipping.

23
Lastly, garments are placed in cardboard boxes or pp bags and shipped to client
distribution centers to eventually be sold in retail stores, or to customers, if they
are produced on orders.

Chart-1 Apparel production process flow chart

Fabric Reception

Fabric
Relaxing

Fabric Spreading,
Form Layout, and
Cutting

Sewing

Inspection

Spot cleaning and

Laundry

Ironing

Packing

Apparel Shipping

24
 6.2 Source of Technology

The machinery and equipments required to manufacture apparel products are

conventional and available in different technological levels, in general. Selection
among alternatives was made based on the competitive advantages it provides
to the stakeholder in the context of the country. The major criterions taken in to
consideration are: resource utilization (especially labor), job opportunity,
operability, and maintainability. Therefore; the labor intensive machineries and
equipments are selected for the envisaged plant. Suppliers of labor intensive
technologies are available in Europe, Asia and Far East.

6.3 Machinery and Equipment

The envisaged plant is planned to produce 50% knitted and 50% woven
garments and therefore the machineries and equipments to be purchased will
be in such a way as to accommodate all required facilities. The list of machinery
and equipment, quantity and associated costs are presented in Table 6.1. As
shown in the table, the total cost of machinery and equipment is estimated at
355,789.65 USD (Birr 6,582,108.50) of which 288,043.00 USD is required in

foreign currency and the remaining 37,594.50 USD (Birr 695,498.25) is in local
currency.

Table 6.1 Machinery and Equipment Requirement and Cost

Sr. Unit Cost of Machine (USD)
No Description Qty. Price LC FC TC
.
1 Single needle stitching machine 176 600.00 105,600.00 105,600.00
2 Double needle stitching machine 19 750.00 14,250.00 14,250.00
3 Over lock machine 55 800.00 44,000.00 44,000.00
4 Inter lock (cover stitch) machine 42 800.00 33,600.00 33,600.00
5 Bar tacking machine 9 800.00 7,200.00 7,200.00
6 Blind stitch machine 3 225.00 675.00 675.00
7 Zigzag sewing machine 4 2,500.00 10,000.00 10,000.00
8 Waist stitching machine 3 600.00 1,800.00 1,800.00
9 Button hole making machine 7 1,500.00 10,500.00 10,500.00
10 Button attaching machine 7 1,500.00 10,500.00 10,500.00
11 Thread winding machine 1 80.00 80.00 80.00
12 Collar turning machine 2 1,350.00 2,700.00 2,700.00
13 Cuff turning machine 2 1,350.00 2,700.00 2,700.00
14 Band knife 4 2,700.00 10,800.00 10,800.00

25
15 Vertical blade cutter 8 570.00 4,560.00 4,560.00
16 Drilling machine 2 570.00 1,140.00 1,140.00
17 Spreading and Cutting Table (manual) 4 1,350.00 5,400.00 0 5,400.00
18 Spreading machine with Table 1 20,000.00 20,000.00 20,000.00
19 Fusing machine 2 270.00 450.00 450.00
20 Electrical portable ironing machine 20 54.00 1,080.00 1,080.00
21 Steam ironing machine 20 267.00 5,340.00 5,340.00
22 Vacuum Ironing table 4 267.00 1,068.00 1,068.00
23 Plotter with full SW & accessories (set) 1 15,000.00 15,000.00 15,000.00
FOB price 396 5,400.00 22938.00 22938.00
Freight, Insurance, customs & Bank charges, Material handling cost 30,404.30 - 30,404.30
(10%)
Sub total 95899.30 421880.3. 173818.6
00 0
Contingency (5%) - - 1790.20 15,152.15 16,942.35
CIF Landed Cost - - 1790.20 15152.15 16942.35

6.4 Land use, building and civil work

The proposed plant requires a total land area of 5950m 2. The building includes
production hall, warehouses both for raw material and finished products, design
and pattern making room, product display room, canteen both for workers and
staffs, toilet and shower/wash room, security room, offices and other facilities.
The total floor space of the buildings will cover total area of 3600m 2 (See
Appendix-1). The total estimated cost of building at the rate of Birr 6,000 per
m2 is Birr 21,600,000.00.

The lease period for the land is 80 years on average, and the payment of lease
prices is in 40 years. The land lease rate of Birr 6.5 /M 2/year is adopted, which is
the minimum lease rate in Oromia 1 st grade towns. 10% down payment is
expected at the initial year of land acquisition. Accordingly, the total lease cost
of Birr 3,094,000, of which Birr 309,400.00 will be paid in advance in the first
year and the remaining Birr 2,784,600 will be paid in equal installments of Birr
69,615 .00 within 40 years, after the grace period of 3 years annually.

7. Man power and training requirements

7.1 Man power requirement

The manpower requirement is considered at 499 personnel for various levels.
This includes Machine operators, helpers, technicians, supervisors, Marketing,
and administrative staffs. Table below, shows the list of manpower required
along with annual labor cost.

26
Table 7.1 Man power Requirement and annual salary
Monthly Annual
S/N Description No salary salary
1 Factory Manager 1 10,000.00 120,000.00
2 Executive Secretary 1 3,000.00 36,000.00
3 Departmental Secretaries 4 10,000.00 120,000.00
4 Departmental Clerks 5 5,000.00 60,000.00
5 Production and Tech Manager 1 7,500.00 90,000.00
6 Production Head 1 5,000.00 60,000.00
7 Technical Head 1 5000.00 60,000.00
8 Quality Head 1 5,000.00 60,000.00
9 Production supervisor 9 31,500.00 378,000.00
11 Quality Control supervisor 4 14,000.00 168,000.00
12 Mechanical maintenance supervisor 1 3,500.00 42,000.00
13 Electrical maintenance Supervisor 1 3,500.00 42,000.00
14 Machine Operators & helpers 416 416,000.00 4,992,000.00
15 Quality Inspectors 11 11,000.00 132,000.00
16 Mechanic 4 5,200.00 62,400.00
17 Electrician 3 3,900.00 46,800.00
18 Marketing Manager 1 7,500.00 90,000.00
19 Sales person 2 5,000.00 60,000.00
20 Administration manager 1 7,500.00 90,000.00
21 General service personnel 1 2,500.00 30,000.00
22 HR Personnel 1 2,500.00 30,000.00
23 Nurse 2 4,000.00 48,000.00
24 Guard 8 6,400.00 76,800.00
25 Messengers 3 1,800.00 21,600.00
26 Driver 3 3,000.00 36,000.00
27 Cleaner 5 3,000.00 36,000.00
28 Financial manager 1 7,500.00 90,000.00
29 Accountant 2 7,000.00 84,000.00
30 Cashier 1 1,500.00 18,000.00
31 Purchasers 2 3,000.00 36,000.00
32 Store Keepers 2 3,000.00 36,000.00
Sub Total 0 499.00 563800.00
Employee Benefit (15%) 90645.00 1,087,740.00
Grand Total 499.00 90645.00
7.2 Training requirement

On job training for operators and short term trainings for supervisors,
technicians, and designers is planned, with estimated cost of Birr 100,000.00.

8. Financial Analysis

8.1 Underlying Assumption

The financial analysis of the envisaged plant is based on the data provided in
the preceding chapters and the following assumptions.

27
Table: 8.1 Financial Assumptions

A. Construction and Finance

Construction period 12 months
30% equity and 70% Loan from
Source of Finance bank
Tax Holidays 5 years
Bank Interest rate 8.50%
Discount for cash flow 8.50%
Value of Land Birr 6.50/M2/year
Spare parts & Repair and
Maintenance 5% of the fixed investment
B. Depreciation & Amortization
Building 5%
Machinery and Equipment 10%
Office Furniture 10%
Vehicles 20%
Pre-Production (Amortization) 20%

C. Working Capital(Minimum day of coverage)

Raw Material Local 30 days
Raw Material Foreign 120 days
Factories supplies in stock 30 days
Spare part in stock and Maintenance 60 days
Work in Progress 5 days
Finished Product 20 days
Account receivable 30 days
Cash in Hand 20 days
Accounts payable 30 days

8.2 Pre-production Expenses

The total cost required for design, consultancy, training and commissioning is
estimated to be Birr 3.66 million.

Table 8.2 Design, consultancy ,training and test run cost

Estimated
S/N Description Budget(Birr)
1 Engineering, Design & consultancy fee 300,000.00
2 Training 100,000.00
Commissioning and test run with 10%
3 contingency 200,000.00
4 Other pre-production expenses 500,000.00
5 Interest during construction 2,558,500.00

28
 Total 0.00
Remark: Other pre-production expenses include costs like costs of registration,
licensing and formation of the company including legal fees,
commissioning expenses, etc.

8.3 Investment Cost

The investment cost of the project including working capital is estimated at Birr
34.27 million. The owner shall contribute 30% (12,335,100.00) of the finance in
the form of equity while the remaining 70% (28,781,913.00) is to be financed by
bank loan.

Table 8.3 Total Initial Investment

Item LC FC Total
Land 3,094,000.00 - 3,094,000.00
Building and Civil Work 14,040,000.00 7,560,000.00 21,600,000.00
Office Equipment - 600,000.00 600,000.00
Vehicles - 6,000,000.00 6,000,000.00
Plant machinery and equipment - 6,582,108.50 6,582,108.50
Total Fixed investment cost 17134000.00 20742108.50 37876108.50
Pre-Production - 41484217.00 75752217.00
Total initial investment cost 34268000.00 829684340 1515044340
Working capital at full capacity 6,470,060.00 - 6,470,060.00
Total 75006060.00 1659368680 3094789280
8.4 Production Cost

The total production cost at full capacity operation is estimated at Birr

88.077million. Raw materials and utilities account for 83.20%, while the rest
together costs 16.80% of the total production cost.

Table 8.4 Total Production cost at full capacity

%age
Items Cost share
83.20
1. Raw Material 0.00
0.32
2.Utilities 281,300.00
8.06
3.Wages and salaries 7,101,480.00
1.74
4.Spares and Maintenance (5% of F.I) 1,533,640.00
4.23
5. Depreciation & Amortization 3,729,910.00

29
 1.08
6.Marketing and Promotion (salary*3) 952,200.00
1.37
7.Adminstrative Expense (salary *1.2) 1,203,900.00
100
Total Production cost 14802530.00

9 Financial Evaluations

9.1 Profitability
Based on the projected profit and loss statement (see appendix 2), the project
will generate a profit beginning from the first year of operation and increase on
wards throughout its operation life. Annual net profit after tax will grow from Birr
10.856 million to Birr 16.15 million during the life of the project. Moreover, at
the end of the project life the accumulated cash flow amounts to Birr 154.45
million.

9.2 Financial 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. Some of these ratios calculated
for the first year of the project life are:

Return on sales = Net income/Revenue

= 10,855,794/90,798,360

= 0.12 (12%)

Return on equity = Net profit/Equity

= 10,855,794/14,401,400

= 0.75 (75%)

Return on investment = Net profit/Total Investment

= 10,855,794/48,004,668

= 0.23 (23%)

These financial ratios for all years of the operation life of the project are found to
be satisfactory and hence indicate that it is profitable and viable.

30
9.3 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.

BEP = Fixed Cost/ (Average Unit selling price – Average Variable cost per unit
product)
= 6,523,870 (71.22 - 55.54) = 6,523,870/15.68

= 616, 055 pieces (BEP in production volume)

= Birr 29,629,939.00 (BEP in Sales volume)

= 27.74% (BEP in percentage)

9.4 Payback Period

The payback 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 3 years.

9.5 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 in a bank
account. Accordingly, the IRR of this project is computed to be 28.71 %
indicating the viability of the project.

9.6 Net Present Value

31
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 52.75 million which is
acceptable.

9.7 ECONOMIC BENEFITS

9.7.1 Earning Foreign currency

I addition to saving hard currency by substituting import of garment products,

the project will have a role of earning of foreign currencies by exporting 69% of
its products. Accordingly, an average of 91.22 million USD sales each year
during operation life of the project and a total of 910.8 million USD export sales
will be made at the end of the project life (ten years).

9.7.2 Job creation

This project creates permanent job opportunities for 499 persons.

9.7.3 Tax Revenue

In the project life under consideration, the region will collect about Birr
39.5million from corporate income tax. Such result create additional fund for the
government that will be used in expanding social and other basic services in the
region.

9.7.4 Impact on Environment

The project is purely environment friendly.

32
33