1.

EXECUTIVE SUMMARY
Michael Mitku Dry Coffee Processing Industry project is established with the objective of

producing integrated & high quality agricultural coffee products in specifically at Bule Hora

town Ejersa Fora kebele, western Gujii zone of Oromia region. The firm established by Mr.

Michael Mitku who has good experience on running private business. The project by

introducing modern production technologies and management will produce of coffee

products for domestic and international market on an integrated manner.

The initial investment cost of the project is estimated to be ETB 87,200,000 of which will be

covered from owners contribution and the remaining balance (65,000,000) is expected to be

covered from bank loan. The feasibility analysis made for the project revealed that it has net

present value (NPV) of ETB 74,252,879, and internal rate of return (IRR) 67% which is by

far greater than the borrowing rate currently prevailed in the market (9.50%).

The project will recover its investment cost at the 3rd year of the estimated project life (7 Years).

Thus, the payback period for the project is found to be 3 years. To make the project

environment friendly, 0.001457 hectares of land is allocated for afforestation and protection of

the environment. The project will generate employment opportunities to 95 employees in

addition to its extension role to demonstrate modern production and management practices.

2. INTRODUCTION

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In Ethiopia, more than 85% of the population depends on agriculture for their lively hood, and
it indicate the major source of food, industrial, raw material and exportable items are as whole
obtained from it. Generally, agriculture account for 70% of total national economy and over
90% of the country’s export. So, raising the activities of production and processing and
exportable agriculture commodity has a vital role for economic development of the country.
From the agricultural products, coffee is the major important commodity crop that determine
the Ethiopian export and foreign exchange earnings which contribute 52% of the national
foreign exchange earning, 30% government revenue and 25% of the population lively hood
depends on the coffee processing industry.

Ethiopia is the only country where Arabica coffee found as a wild forest species and primary
center/origin/of this species because of its diversification and high genetic variability which is
found mostly in western and southern regions.
Even though our country is the primary origin of coffee Arabica, the amount earned by
country as foreign exchange from this sector is very low due to less productivity per hectare
and poor quality of the product.
The current Ethiopian economic policy, which precisely applied by the government that
stimulate the role of private sectors has been advocated rapidly at different level and took
necessary measure to improve the situation of any investment. One of the significant
economic policies which is very attractive for investment i.e. new proclamation for the
promotion and expansion of investment attract businessmen and there have been initiated to
invest on various sectors in the country. Coffee is the leading export commodity of Ethiopian
economy, which is natural endowed with good climate, geographic factor and topography
for growth, and development of tropical crop particularly coffee.

The contribution of coffee to Ethiopian economy is highly significant. About 65% of the
country’s foreign exchange earnings are from coffee and 25% of the population is depending
on it for its live hood through production, processing and marketing of coffee. Because of its
superior quality, Ethiopian coffee has enough customers. As a whole, poor quality coffee is
sometimes undesired in the world market of today. Only high price is paid for best quality

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coffee which determines price structure, the demand and survival of coffee industries to
produce high quality coffee.
Coffee, one of the most consumed beverages in the world, is cultivated in over 70 countries
primarily in Africa, Southeast Asia and Latin America. Ethiopia, the acclaimed birth place of
Coffee Arabica by many scholars, is among the top five producers and one of the leading
exporting countries in the world. As an important export commodity, coffee plays a vital role
in cultural and socio-economic life of the country as it contributes more than 60 per cent of the
country's foreign exchange earnings and influences the livelihood of nearly a quarter of the
population, forcing the government to embark on far reaching economic reform in coffee sub
sector resulting in unprecedented leap frog in the economy. As a matter of fact, coffee to play
a vital role in one’s economy has to go through various steps right from cultivation via
processing, packaging, transporting to consumption. Processing itself, deemed the crucial step
in the life cycle of coffee, involves dry and dry processing. Of these, dry coffee process, also
known as washed or natural coffee, is the oldest method of processing coffee and is used for
about 95% of the coffees produced in Ethiopia becoming the potential area for investment.
The entire red cherry after harvest is first cleaned and then placed in the sun to dry on tables or
in thin layers on patios. The red cherries then stored in bulk in special soils until they are sent
to the mill where hulling, sorting, grading and bagging take place. Hulling, the first step in dry
milling, necessitate the establishment of red cherry coffee processing machines that require
sizable investment. It is this stage of coffee life cycle that interested Michael Mitku Dry Coffee
Processing Industry to invest with the objective of contributing to the final quality of green
coffee which would increase foreign exchange earnings by increasing export product in the
first place and given its tremendous demand of labor to create job opportunity on top of the
income it earn the owner. With this general notion, Michael Mitku Dry Coffee Processing
Industry, conducted a pre proposal survey and figured out Bule Hora town of western Guji
zone Oromia region to be an ideal place to achieve all the objectives mentioned above. Bule
Hora, one of the ten coffee producing districts among 12 in western Guji zone, is located 465
kilometers from the capital city, Addis Ababa. To materialize the proposed project two aspects
were looked thoroughly in to viz. suitability of project area and environmental impact of the
project. As stated, being a major coffee producing district, lacking adequate dry coffee

3
processing industry that match up the production, having causal man power, infrastructures,
and appeasing investment protection scheme, Bule Hora town according to the pre survey
conducted undoubtly is suitable

2.1 Title: Michael Mitku Dry Coffee Processing Industry.

2.2 Promoter Profile: -

Name: - Michael Mitku Toma
Address: - Oromia, western Guji zone, Bule Hora town, Ejersa For a Kebele
Contact Person: - Ato Michael Mitku Toma
Type of the Project: - Sole Proprietorship
Status: - Old

2.3 Location of Project: Ejersa Fora kebele, Bule Horatown, western Guji zone,
Oromia regional state.

2.4 Estimated Costs:

Capital requirements are 87,200,000 Birr. (22,160,000 Birr) of the capital funds will be provided
by owner whilst the remaining (65,000,000 Birr) is to come from a loan from the financing
institution. The project intends to make extensive use of technology in the form of machinery,
equipment and improved vehicle. Machinery will be sourced from Ethiopian company,
suppliers of computers, printers and other equipment’s. The Ethiopian company will also be
responsible for training operators in the use of new machinery.

2.5 Project Component:

Area: 0.54 hectare
Type of investment: Manufacturing

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2.6 Expected Beneficiaries:
Permanent:
 National economy through increased production for export.
 Local and regional areas through increased food production for domestic
consumption.
 Farm owners through annual farm revenue.
 Full time employees taken from the local and regional areas including farm manager,
irrigation expert, tractor operator.
 Local community through the provision of improved road access, work opportunities
and exposure to modern agricultural practices.
Temporary
 Transport companies during the supplying of coffee to central market
 Vehicle owner, operator and manual laborers during land clearance phase
 Construction workers during construction of site buildings
 Trading companies through the purchase of equipment such as diesel generators,
construction materials and office equipment.
2.7 Economy
The current economy of Bule Hora town is dominated by the agricultural sector as much of
Ethiopia is. There is a high concentration of mineral production in districts for trade. Key crops
include coffee, inset, maize, barley and teff. In more recent times government policy
encouraged domestic and foreign investment in the area as can be seen from the numbers of
new coffee processing companies entering.

2.8 Beneficiaries:
 National economy through increased production for export.

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  Local and regional areas through increased food production for domestic
consumption.
 Site owners through annual mill revenue.
 Full time employees taken from the local and regional areas including skilled and
unskilled employees.
 Local community through the provision of improved road access, work opportunities
and exposure to modern agricultural practices.

2.9 Policy
The project is part of the National Government of Ethiopia’s policy to encourage domestic and
foreign investment in agriculture in Ethiopia. Increased food production for domestic and
export markets will help ensure long term food security, export revenue and employment
opportunities.

2.10 Capital Requirements

The project has the support of the local, regional and national investment and agricultural
agencies. Initial capital will be provided by the owners own capital supplemented by a load
from the Commercial Bank in Ethiopia.

2.11 Goals:
To establish a self-sustaining and profitable business for the mutual benefit of all stakeholders
whilst ensuring minimal negative impact on the environment and local society.

3. BACKGROUND
Western Guji zone is in the southern part of Oromiya regional state. It is one of the 21 th zones
of the region. Western Guji zone has 12 districts, and among these 12 districts; ten of them are
coffee producing districts. One of the 12th districts, Bule Hora; has a suitable environment for
growing coffee and other agricultural products. It is well known districts by producing coffee
and often a larger area of the district (more than 85%) is covered by coffee, wild life, minerals
and bigger rivers are found in the district.

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This area is also known by its organic coffee. Agro forestry is the main activity in producing
coffee in the area. Large numbers of the peasant associations are producing coffee, so; there is
a large amount of coffee production for processing activities of coffee. Sustainability of the
economic policy and the favorability of the location for a large amount of coffee production
invited Michael Mitku Dry Coffee Processing Industry, the investor to invest in the area.
Michael Mitku Dry Coffee Processing Industry is planned to be established and become
operation in Bule Hora town, Ejersa Fora kebele.

3.1. Brief Description of Coffee Industry

The indigenous coffee trees (which some exports say, are the only native coffee trees in the
world) first grew in Ethiopia. The tree blossomed inane area called kafa and the trees were
called kafa, which may as well be the root word for coffee.

Currently coffee is produced almost all over the country and the major coffee growing regions
in order of the production importance are Oromia, South Region, Gambela and Benshangul-
Gumuz. Cultivation of coffee is almost performed by smallholders working either coffee farm
or else picking semi-wild or wild coffee. The land area under coffee plantation and volume of
annual production is difficult to determine because peasant coffee plots are fragmented and
intercropped with other crops. It is estimated, however, that Ethiopia has over 605,600
hectares of coffee plantation and the annual production ranges from 300,000 to 350,000
metrical tone (about 600kg/ha) depending on weather condition (MoARD of the total
estimated 605,600 hectares of land cropped with coffee today:
 Approximately 350,000 (58%) hectare of coffee cultivation is on semi-forest/forest, or
semi-wild/wild land; found in south and southwestern Ethiopia (Bale, West Wolega,
Bench-Maji, Keficho-Shekicho, Metu and Jimma).

 An estimated 235,600 (39%) hectare is under smallholder is cultivation, called ’garden’

or ‘cottage’. Garden coffee is found in all regions, but especially in the south and
eastern parts of Ethiopia (Guji, Western Guji, Sidamo, Gedeo, South and North Omo,
Hararghe, Wolega and Gurage Zones) and it is generally inter-cropped with food
staples.

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  There is also about 2,000 (3%) hectare of coffee plantation under the state farms. In this
production system, recommended agronomic practices like improved seedlings,
spacing, proper mulching, manuring, weeding, shade regulation and pruning are
practiced.

It is difficult to accurately estimate the annual coffee production since part of the harvest is
gathered from semi- wild/wild forests and, unlike in most other coffee-producing countries, a
good proportion of output is consumed near its origin. For garden-grown coffee it is also
difficult to know the exact annual production, but estimated on average 0.6 tons per hectare of
clean coffee each year. For forest/semi-forest coffee and commercial farms an estimated
average yield of 0.3 to 0.5 tons and 0.80 tons per hectare is harvested each year. Totally about
650,600 hectare from which 332,360 tons of clean coffee is harvested. As indicated in table
blow.

Table1:- Cultivated Area Production and Productivities

Yield Total production

Plantation type Cultivated Area (t/ha)
(HA) % (Tones) %
Forest/semi-forest 350,000.00 58% 0.5 175,000.00 53%

Garden/ cottage 235,600.00 39% 0.6 141,360.00 43%

Commercial farms 20,000.00 3% 0.8 16,000.00 5%

Total 605,600.00 100% 0.63 332,360.00 100%

Ethiopia is famous as the origin of coffee and is the largest producer in Africa and the sixth
largest Arabica coffee producer in the world. Coffee is Ethiopia’s most important industrial
and export commodity and accounts for about 25% of the GDP, 35-40% of the total export
earning, 10% of the total government revenue and absorbs both the rural and urban dwellers
directly or indirectly or depend on coffee for this living.

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Export tax on coffee has been important source government revenue, and local taxes on
processors are becoming increasingly important in financing local governments. The transport
industry is largely Benefited from coffee, involved in moving it from producers/ processors to
auction for marketing, and from auction to for port for export. In terms of its importance to the
total population, over a million coffee farming households and more than 20% of the total
population, are dependent on coffee production, processing, distribution and export.

3.2 Mission
To produce, supply and distribute high quality, varieties of economically valuable agricultural
seedlings throughout the districts and zone to meet the growing demand.

3.3 Goal
To produce, supply and distribute special quality farm products.

3.4 Vision
Michael Mitku Dry Coffee Processing Industry vision is to be a renowned brand name in the
hearts of coffee production users in Bule Hora town. Being renowned means providing
unparalleled quality, cleanliness, service and value which satisfies each customer.

3.5 Market Prospect:

The market for coffee is dictated by quality of final product. Attention to maintenance of
quality during the primary production and processing operations is critical and the quality of
the coffee bean is closely related to the processing technique employed.
The coffee roasters have a wide choice (acidity, beans size and shape, and balanced flavor
coffee) when buying Ethiopian coffees. This diversity of flavors makes Ethiopian coffee
unique and it is one of the best coffees in world. The global specialty coffee market is growing
rapidly with an average annual growth rate of 7.5%. Endowed with tremendous indigenous
coffee varieties, Ethiopia can significantly benefit the growing global demand for specialty
coffee.
Ethiopians have various special cultural ceremonies related to coffee and it is traditionally
prepared and drunk two to three times a day and annual per-capita is estimated to about 2.5
kilograms. This culture/ per-capita consumption represents a strong heritage for the country’s

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sustainable coffee production, currently consumed more than 40% of the domestic product.
This is comparable to the consumption level of the leading coffee consuming countries hence;
coffee in Ethiopian is not produced for export purpose only, but also to full filling the domestic
huge demand.

3.6 Organization and Management:

The project creates job opportunities for 16 permanent employees (of which 10(62.50%)
employees are management and service workers and the remaining 6(37.50%) professional
and technical workers. On-the –job training will be given to all production and service
workers in order to familiarize them with production and processing techniques to maximize
the volume and quality of the envisaged product/products. There is also an opportunity to
employee more than 80 daily laborers per annum.

3.7 Socio-Economic Justifications:

The employment opportunity generated for all categories of workers (professionals,
accountants, management staffs, and daily laborers) significantly contribute for the national
development. The total annual salaries and wages paid for the above mention permanently
employed personnel increased from birr 1.1084 million in the first year operation and
increase to 1.484 million in the seventh year and thereafter.
The annual payable tax (30% profit tax) for the government starts ETB 0.284 million in the
1st year of the project and increased to ETB 7.774 million when the project operates all full
capacity. Thus the envisaged coffee processing and marketing project is believed to generate
substantial employment opportunity and incomes both to the local and national economy.
The project contributes to the overall economic growth and foreign exchange earnings and
also improves the livelihoods of town dwellers in particular and the community at large

4. GENERAL DESCRIPTION OF PROJECT AREA

4.1 Location

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Bule Hora town is one of the known woreda and the major woreda from western Guji zonal
administration area by its production of coffee and more selective for such coffee processing
finessing factory at an easily accessible distance for collection of dry cherry coffee growers.
With adequate confrontation of the source of coffee the assumed project is planned to be
located in Oromiya regional state, in western Guji zonal administration, in, Bule Hora town,
Ejersa For a kebele.

The site is in Bule Hora town, and around 465 km from Addis Ababa.

4.2 Topography
Bule Hora is located in the eastern part of western Guji zone and southern part of Oromia and
is bounded by Dugda Dawa district to the south, Melka Soda district to the east, South Region
(Gedeo zone) to the north, and Suro Barguda district to the west. The site is occupying an
estimated area 0.540 hectare. It is 465 km south of Addis Ababa along the Moyalle
international road.
The topography of the project site is varied including mountains, undulating and flat plains.
The altitudinal range is between 1825 to 1845 meters above sea level with the central elevation
being 1835 MASL.
The rainfall pattern in Bule Hora town is bi-modal in character, where there are two rainy
seasons in one year. Approximately 60% of the total annual rainfall is in the long rainy season
from March to October. Average annual rainfall ranges from 1,500mm to 2,000mm with a
wide variation in area and time.

4.3 Soil type

Soil is very important factors for plants growth because the composition of the soil and its type
can determine the verification of plants & constriction activities. The soil composition of the
area is classified under suitable for coffee production.
The coffee tree growth just as well in sandy, clay, forest land with a good organic matter
contents as in clay-sand soil of volcanic or alluvial origin containing sufficient nutrients. In
effect, the soil type of the project area matches the above requirements and hence suitable for
coffee growth which is the main supply of the envisaged project.

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4.4 Economic Activities
The current economy of Bule Hora townis dominated by the agricultural sector and minerals
as much of Ethiopia is. Key crops include coffee, enset, maize, teff, oil seed and some fruits; all
types of minerals like gold, tantalum, iron, granite etc are found in the districts. Historically
there has been minimal investment in the area as can be seen by the lack of asphalt road from
Dilla. In more recent times government policy encouraged domestic and foreign investment
in the area as can be seen from the numbers of new farms entering production.

5. THE PROJECT
5.1. PROJECT DESCRIPTION
5.1.1 Sustainability of the project area
The regions existing investment environment encourage the investors on export related
products and the growing needs of Arabica coffee made the region to be selected for inviting
large number of investors.

The number of dry coffee processing industry is less respect to large amount of coffee product
in the area created for this project.

Availability of casual laborers, infrastructures, good look and interest of the people around the
project area was the project to be suitable

5.1.2 Water Resource

Water is one of the main component of the project for employees in the dry coffee processing
industry so as to this fact the project area is available on water by the small river of sank are
which is found with the given area and cannot dry throughout the year.

5.1.3 Labor Supply

Both skilled and unskilled labor supply are available in the proposed project. The detailed job
description with its qualification is described in the man power and organizational area.

5.1.4 Technical Study of the Project

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Guji zone in general and the project area in particular are the most ideal places for planting dry
coffee processing industry.
The average annual temperature of 25 degree centigrade and sufficient annual rainfall with
fair distribution over months and dry period created favorable condition for coffee
production. Furthermore, altitude of about 1,500m-2,000m above sea level, the type and
quality of soil, suitability the area for construction, the availability of suitable shade trees and
the permanent rivers crossing the area justifies the suitability of skilled and unskilled man
power made the area unbelievable suitable to implement this project.
On the other hand, concerned government line offices have long ago advertised the area as
one of the places where private investors could invest and participate in the development
endeavors already underway in the country. Agreement has also been obtained from
concerned bodies at various levels to implement the intended project.
Coffee is the main crop produced and planting the hulling coffee in the vicinity and the people
in the area have good experience in handling and managing the crop. This would facilitate the
possibility of getting experienced human labor for the effective implementation of the project.

5.1.5 Construction
The project goes through activities like construction of store, factory house, office, guard and
latrine house as well as others.

5.1.6 Machinery and Equipment

The project is expected to include the pulping machine with its components, generators, and
equipment’s like weighing scale, office equipment, and others.
These equipment’s are easily available in the project area and in the near towns.

5.2 OBJECTIVE OF THE PROJECT

The main objective of the project is to establish modern dry coffee processing factory that
would supply best quality of exportable clean coffee to central market.

The specific objectives of the project:-

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1. To contribute the supply of the best quality coffee that can be exported to the world
market.
2. To benefit the country by raising its foreign exchange earnings.
3. To create source of income for the owner of the project
4. To create additional source of revenue for the government by paying tax
5. To create employment opportunity for skilled and unskilled labor of the surrounding area
of project.

Keys to Success
The keys to success for the company are:-
 Establish and maintain good working relationships and loan agreements with local
commercial banks and other financial institutions
 Bring the company`s owner coffee dry coffee mills to maximum production within three
years of operation
 Increase our profit margin with the use of good and improved practices or technologies in
all company`s facilities
 Supplying consistent quality coffee, assess and study customer tastes to expand market
share and work at the level of client’s interest.

5.3 TECHNOLOGY USED

The proposed project shall be going into action with the aid of locally produced modern coffee
pulping machinery. This could be helpful in two ways. For one thing, using locally produced
machinery for the implementation of the project could reduce unemployment by attracting
different workforce which would be of great importance in reducing the already rampant and
vast unemployment rate of the nation. For the other, it saves the money that could have been
going out of the country if the machinery is to be imported from overseas. Moreover, it
encourages local entrepreneurship and localizing technology and knowledge transferring.

5.4 PRODUCTION CAPACITY

The proposed project has an installed capacity of pulping 2,000 killo grams of cleaned coffee of
red cherry per day; however for the purpose of this study a capacity of 90% as assumed for

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the initial year and then after respectively. It is assumed that the ration of red cherry to clean
coffee 5:1 totally the envisaged factory has a capacity to processing 210-282 tones red cherry at
production season with 90-120 days.

6. MARKET PROSPECTS
The marketing strategy that will be employed under this project proposal could be, to increase
the production of the quality coffee that is supplied to central market (Ethiopian Commodity
Exchange ECX) and thereby facilitating for the exporters so that they could easily be exporting
the quality coffee to the world market.

7. LAND USED PLAN

The land that is going to be used for the construction of the diversified dry coffee processing
industry and coffee storage will be given from the Oromiya state government bureau. The
plan is to have 5,400 sq. m out of which the coffee processing industry with complete services
will cover 4,668 sq. m is for construction of the coffee factory with coffee pulping machine
house, coffee drying beds (Awudima), coffee storage, offices, employees living rooms, and
other related services. The following table summarizes land requirement of the project.

Table 2, Action Plan

Activities Area covered in m2

Machine House 908m2
Coffee Storage and Warehouse 780m2
Office (Qty2) 80m2
Employee Living Room 140m2

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 Guard House (Qty2) 160m2
Coffee Drying Bed 2,600m2

Wastage Material area 215m2

Un allotted area 517m2
Total 5,400m2

8. ACTION PLAN
The construction of the project will be held in two phases as indicated earlier; the second phase
is constructing of the general warehouse, raw material warehouse, finished goods warehouse,
and employee living rooms to be completed in six months after receiving of the investment
area from the Oromiya State Government Bureau. The first phase which is the construction of
coffee machine industry, coffee drying bed, guard house, offices, and other construction will
be followed and the overall project will be completed with a total of 6 months as shown the
action plan below.

Table 3:- Action plan

Target Month
Description
Jul Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun
Approval
Investment

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 clearance
Land
Industry
Constructing
equipment’s
of
and installing
Purchasing
Dry cherry
Purchasing
and Storage
Preparation
market
to
Supply Evaluation

9. ORGANIZATION AND MANAGEMENT

The organization structure of the organization is arranged in such a way to address business
cooperative principle and practice. To this end the organizational structure needs to have a
general manager, auditor team and a technical department to perform production and
marketing roles (see also above possible structure for market link or chain).

17
To carry out the day to day activities of the business, however, there will be a separate office
management by a general manager which may consist of technical and administrative staffs
under the operational structure. Although, size of the organization is going to be depend on
size of the business and hence the business cooperative do have a clear organizational
structure in order to properly run and control (manage) the business as depicted here under

The number and quality of staff members to be recruited will depend on the volume of work
for production and marketing. Under the overall guidance of the board of directors, the
general manager will have full authority to run the business and recruit relevant staff as per
the required standard, demand of production and marketing strategies of the firm. Though
the market assessment made shows that the demand for the product is showing an increasing
trend, it is wise also to promote and create contract farming arrangements so as to make the
market more sustainable. For this end, the farm will introduce quality management systems
to continually improve, production outputs, strange and the marketing process.

9.1 ORGANIZATIONAL STRUCTURE

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 General
Manager

Production Logistics
Finance
Manager and HR
Manager
Manager

Quality
Inspection Machine Casual
Accountant Cashier
Operator Guards Laborers

 Management Team: Ato Michael Mitku - responsible for overseeing the project,
purchase of equipment and resources, motivation and performance monitoring

 Site Manager: TBA – responsible for day to day operations, guidance on best
practice with regards customer service.

 Sales Agent: TBA – responsible for identifying markets and negotiation with
sales clients.

 Machine Operator: TBA – responsible for proper operation and maintenance of

coffee and tea machinery.

 Insurance agent: TBA

 Banker: Bank of Abyssinia S.C., Commercial Bank of Ethiopia and Awash

International Bank

 Mentors and key advisors: TAB – responsible for guidance in the business
environment.

9.2 Man power requirement with qualifications

Table 4, Manpower requirements

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 Monthly Annual
Salary Salary
POSITION EXPECTED QUALIFICATION No
Site Manager BA in Management 1 15,000.00 180,000.00
Cashier Diploma in Accounting 1 6,000.00 72,000.00
Accountant BA Degree in Accounting 1 6,000.00 72,000.00
Sales Person Diploma in Sales 1 4,000.00 48,000.00
Machine Operator Diploma in Auto Mechanic 2 7,000.00 84,000.00
Store Keeper 12th Grade Complete 1 5,000.00 60,000.00
Purchaser 6th Grade Complete 2 4,000.00 48,000.00
Drivers 4th Grade License 1 4,000.00 48,000.00
Assistance driver 8th Grade Complete 1 3,000.00 36,000.00
Guard 6th Grade complete 4 3,000.00 36,000.00
57,000.00 720,000.00

Table 5, Temporary manpower requirement

Monthly Salary Annual Salary
Position Qualification No Sex
Casual employees Unskilled 32 M 80,000 960,000.00
Casual employees Unskilled 48 F 96,000 1,1520,000.00
Total 176,000.00 2,112,000.00

The project creates job opportunities for 7 permanent skilled employees of which 4(57%)
employees are females and 3(43%) are males. The project creates for 9 permanent unskilled
employees of which 3(33%) employees are female workers and the remaining 6(67%) are
males. The project also creates job opportunities for 80 temporary employees of which 48(60%)
employees are females and the remaining 32(40%) are males.

10. FINANCIAL STUDY

10.1 Project Capital and Financing Sources
Planned investment of the pulpier plants is estimated to have a total investment cost ETB
87,200,000. Out of the given total, ETB 6,643,117.80 is allotted for fixed cost whereas the
remaining balance ETB 80,556,882.20 serves the purpose of operational activities of the
project. With regards to the source of financing, the investor contributes 30% of the project
cost while the remaining 70% is covered by bank loan.

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10.2 FIXED COSTS
10.2.1. Cost of Construction
Table 6, Construction Cost
No Description Cost in Birr
1 Factory Building 2,989,000
2 Office 668,950
3 Finished goods and raw material storage 562,800
4 Employees Living Room 541,070
5 Latrine 106,450
6 Wastage Removal Area 207,560
7 Coffee Drying Bed 787,085
8 Guard House 176,283
Sub Total 6,039,198
Contingency 10% 603,9.2
Grand total 6,643,117.80

10.2.2 Machinery & Equipment Cost

Table 7, Cost of Machinery & Equipment

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No Description Quantity Unit Price Total Price
1 Coffee Pulping Machine 1 2,270,000 2,270,000
2 Diesel Generator 1 390,000 390,000
3 Drive Engine 1 160,000 160,000
4 Three face 2 127,500 255,000
5 Weight Scale 5 15,000 75,000
6 Other equipment’s Bulk 75,800
Sub Total 3,225,800
Contingency (10%) 322,580
Grand Total 3,548,380

10.2.3 Vehicles

Table 8:- Vehicles

No Description Quantity Unit Price Total Price

1 Isuzu 1 3,300,000 3,300,000
Sub Total 3,300,000
Contingency (10%) 330,000
Grand Total 3,630,000

10.2.4. Cost of Office Furniture

Table 9:- Office Furniture

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 No Description Quantity Unit cost Total cost
1 Managerial tables 5 5,000 25,000
2 Managerial chairs 5 3,000 15,000
3 Shelves 2 5,000 10,000
4 Guest chairs 6 750 4,500
Total 54,500
Contingency (10%) 5,450
Grand Total 59,950

10.2.5. Office Equipment

Table 10:- Computer and Data Storage

No Description Quantity Unit cost Total cost

1 Computer 1 10,000 10,000
2 Printer 1 7,000 7,000
3 Cash Machine 1 12,000 12,000
4 Fax Machine 1 4,500 4,500
5 Copy Machine 1 24,500 24,500
Total 58,000
Contingency (10%) 5,800
Grand Total 63,800

10.2.6 Pre - Operating Cost

Table 11:- Pre – Operating Cost

S. No Description Amount

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 1 Bill of Quantity 16,000
2 Feasibility Study 20,000
3 Environmental Impact Assessment 25,000
4 Other expenses 17,920
Grand Total 78,920

10.2.7. Cost Summery of the Project

Table 12:- Cost summery
Description Unit Amount
Fixed Cost Birr
Building and Civil Works “ 6,643,117.80
Machinery & Equipment “ 3,548,380
Vehicles “ 3,630,000
Office Furniture “ 59,950
Office equipment “ 63,800
Sub total “ 5,850,998
Pre - Operating Expenditure “ 78,920
Pre – Operating Interest “ 0
Initial Working Capital “
Total “ 22,075,165.80

10.2.8 Financing Structure

Table 13:- Financing Structure

Description Equity Share

Total Cost % Birr % Birr

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Building & Civil Works 6,643,117.80 30% 1,992,935 70% 4,650,182
Machinery 3,548,380 30% 1,064,514 70% 2,483,866
Vehicles 3,630,000 30% 1,089,000 70% 2,541,000
Office Furniture 59,950 30% 17,985 70% 41,965
Office Equipment 63,800 30% 19,140 70% 44,660
Sub – Total 13,945,248 4,183,574 9,761,673
Pre-Operating Exp. 78,920 30% 23,676 70% 55,244

Pre- Operating Interest 0 100% 0 0% 0

Initial Working Capital 1,300,082 30% 390,025 70% 910,057
15,324,250 4,597,275 10,726,975
Percentage 100% 30% 70%

10.3 Depreciation
Table 14:- Depreciation Expense

Fixed Assets Estimated Costs Rate Depreciation Expense

Building and Civil Works 6,643,117.80 5% 332,155.89
Machinery and Equipment 3,548,380 20% 709,676.00
Vehicles 3,630,000 20% 726,000.00
Office Furniture 59,950 20% 11,990.00
Office Equipment 63,800 25% 15,950.00
Total 13,945,248 1,795,771.89
 Depreciation is calculated on straight line method

10.4 Working Capital Determination

Table 15:- Working Capital

Cost Item/Year MDOC Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
1,102,941 1,158,088 1,215,993 1,276,792 1,340,632 1,407,664 1,478,047

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 Cost of Coffee 15 days
Operating
104,841 110,083 115,588 121,367 127,435 133,807 140,497
Expenses 30 days

233,000.00
96,915 101,761 106,849 112,191 117,801 123,691
Labor Cost 30 days

1,300,082 1,365,086 1,433,342 1,505,008 1,580,258 1,659,272 1,742,235

Total Working Capital

65,004 68,256 71,667 75,250 79,014 82,963

Incremental Working Capital

10.5 Production Schedule:

Table 16:- Operating Cost

Description Years

Unit 1 2 3 4 5 6 7
Dry coffee Purchase
4,000 10,500 11,025 11,576 12,155 12,763 13,401
Quintals

0.45 0.45 0.45 0.45 0.45 0.45 0.45

Yield/Quintal Quintals
Total
1,462 4,725 4,961 5,209 5,470 5,743 6,030
Output/quintals Quintals

10.6 Sales Schedule

Table 17:- Operating Income

Description Years

1 2 3 4 5 6 7

Clean Coffee per Feresulla

26,471 27,794 29,184 30,642 32,175 33,784 35,473

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Total
26,471 27,794 29,184 30,642 32,175 33,784 35,473
Unit Price

Clean Coffee per Feresulla

1,400 1,540 1,694 1,863 2,050 2,255 2,480

Total Sales

37,059,400 42,802,760 49,437,696 57,098,303 65,950,385 76,173,258 87,979,617

Clean Coffee

37,059,400 42,802,760 49,437,696 57,098,303 65,950,385 76,173,258 87,979,617

Total

10.7 Production Cost

Table 18:- Production Cost

Quantity in Years
Cost Item QL
1 2 3 4 5 6 7
Dry Cherry
10,000 31,765,200 35,020,440 38,610,432 42,566,334 46,930,696 51,741,476 57,044,655
Purchase

31,765,200 35,020,440 38,610,432 42,566,334 46,930,696 51,741,476 57,044,655

Total Cost of Production
Production of Coffee in
feresulla
26,471 27,794 29,184 30,642 32,175 33,784 35,473
Production Cost of Coffee
per feresulla
1,200 1,260 1,323 1,389 1,459 1,532 1,608

10.8 Total Operating Cost Schedule

Table 19:- Operating Cost

Years
Description
1
2 3 4 5 6 7

31,765,200 35,020,440 38,610,432 42,566,334 46,930,696 51,741,476 57,044,655

Dry Cherry Purchase
1,107,600 1,162,980 1,221,129 1,282,185 1,346,295 1,413,609 1,484,290

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Wages and Salaries

Administrative 587,450 616,823 647,664 680,047 714,049 749,752 787,239

Expense

Selling and 756,088 793,892 833,587 875,266 919,030 964,981 1,013,230

distribution

140,650 147,683 155,067 162,820 170,961 179,509 188,484

Fuel and lubricants

98,822 103,763 108,951 114,399 120,118 126,124 132,431

Insurances

Repair and 549,010 576,460 605,283 635,547 667,325 700,691 735,726

Maintenance

67,807 71,197 74,757 78,495 82,420 86,541 90,868

Other Expense

Total Operating Cost 35,072,627 38,493,238 42,256,870 46,395,093 50,950,894 55,962,682 61,476,924

10.9 LOAN REPAYMENT SCHEDULE

Table 20:- Loan repayment schedule

Loan Values Loan Summary

Loan amount ANNUAL payment

60,000,000.00 20,552,503.58
Annual interest rate 16.50% Number of payments
3.00
Loan period in years 3 Total interest
1,657,510.75
Start date of loan 12/4/2023 Total cost of loan
61,657,510.75

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Pmt Beginning
Payment Date Payment Principal Interest Ending Balance
No. Balance
1 1/4/2024 60,000,000.00 20,552,503.58 19,727,503.58 825,000.00 40,272,496.42
2 2/4/2024 40,272,496.42 20,552,503.58 19,998,756.76 553,746.83 20,273,739.66
3 3/4/2024 20,273,739.66 20,552,503.58 20,273,739.66 278,763.92 0.00

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 10.10 Projected Profit and Loss Statement

Table 21:- Profit and Loss Statement

Descriptions 1 2 3 4 5 6 7
Gross 57,059,400 62,802,760 69,437,696 77,098,303 85,950,385 96,173,258 97,979,617
Revenue
Less: 31,765,200 35,020,440 38,610,432 42,566,334 46,930,696 51,741,476 57,044,655
Operating
costs
Gross Profit 25,294,200.00 27,782,320.00 30,827,264.00 34,531,969.00 39,019,689.00 44,431,782.00 40,934,962.00
Less: 1,795,771.89 1,795,772.89 1,795,773.89 1,795,774.89 1,795,775.89 1,795,776.89 1,795,777.89
Depreciation
Less: 825,000.00 553,746.83 278,763.92 -
Interest
Profit before 22,673,428.11 25,432,800.28 28,752,726.19 32,736,194.11 37,223,913.11 42,636,005.11 39,139,184.11
tax
Profit tax @ 7,935,699.84 8,901,480.10 10,063,454.17 11,457,667.94 13,028,369.59 14,922,601.79 13,698,714.44
35%
Net Profit 14,737,728.27 16,531,320.18 18,689,272.02 21,278,526.17 24,195,543.52 27,713,403.32 25,440,469.67

Descriptions Year - 0 1 2 3 4 5 6 7

22,673,428.1 25,432,800.28 28,752,726.1 32,736,194 37,223,913.1 42,636,005.1 39,139,184.11

Net Income
1 9 .11 1 1
Depreciation
589,422 589,422 589,422 589,422 589,422 589,422 589,422
Expense

Equity 2,160,000

Bank Loan 65,000,000

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Working Capital
1,300,082
Recovery

Salvage Value

Total Cash 65,000,000

1,251,028 2,932,812 4,998,585 7,520,113 10,583,370 14,286,989 20,028,794
Inflow
Initial Investment
Cost 65,000,000

Principal
20552503.58 20552503.58 20552503.58 0
Repayment
Incremental
65,004 68,256 71,667 75,250 79,014 82,963
working Capital

Total Cash 65,200,000

840,000 905,004 908,256 911,667 915,250 919,014 82,963
Outflow

Net Cash Flow 0 411,028 2,027,808 4,090,329 6,608,446 9,668,120 13,367,975 19,945,831

Cumulative Cash
411,028 2,438,836 6,529,165 13,137,611 22,805,731 36,173,706 56,119,537
Inflow

10.11 Cash Flow Statement for Financing Planning

Table 22:- Cash flow statement

11.Financial Analysis
The promoter has planned to cover about 30% of the investment capital for the envisaged
project. It is assumed to get loan from local bank. The loan would be used for the partial
purchase of machinery and for the working capital requirement.

11.1 Financial Results

31
In order to see the financial viability of the project, the production costs, projected income
statement and the projected cash flow tables are prepared. Based on these projections, the
internal rate of return (IRR) and net present value (NPV) of the project are computed.

11.2 Profitability
The financial statement, which is prepared based on the projected financial statements reveals
that the project would generate a net profit throughout its project life ranging from ETB
0.662 million in the first year to ETB 18.139 million at the end of the project life. The net cash
flow is also positive throughout the project life. Therefore, we can conclude that the project will
not face any cash shortages throughout its year.

11.3 Cash Flow Statement for Financial Planning

The financial performance of the project shows financial capacity and positive cash balance.
The net cumulative cash flow of the project life increases from ETB 0.411 in the first year to
ETB 56.120 million by the end of the project life. The project is liquid from the second year to
throughout its life and it can meet its debt obligation from the profit it generates.

11.4 Net Present Value

The net present value of a project is the sum of the present value of all the cash flows (+)
positive as well as negative (-) that are expected to occur over the life time of the project. Our
project being a manufacturing project, life time for the first phase is estimated to be 5 years.
The Net present value (NPV) of the project is estimated to be ETB 74,252,879 taking 9.50%
borrowing rate. See table below for details.

As you can see from the table, the cumulative net benefits of the project started to be positive
from the third year. This means the project can cover its investment cost at the beginning of the
3rd year. The project is very much feasible in view of manufacturing projects which normally
took longer time to recover the invested capital.

11.5 Payback Period

The payback period is the length of time required to recover the initial cash outlay on the
project. The feasibility analysis carried out for Michael Mitku Dry Coffee Processing Industry

32
 project shows that the project will recover its initial investment at the beginning of the 3 rd year.
(See table above for detail information).

11.6 Financial Internal Rate of Return (FIRR)

The projected cash flow discounted at 9.50% bank borrowing rate and the financial internal
rate of return before tax is 54% and the financial internal rate of return after tax is 67%; which is
greater than 9.50% bank borrowing rate.

Table 24:- Financial rate of return

Projection Years
Description - 1 2 3 4 5 6 7

Benefits
Revenue - 57,059,400 62,802,760 69,437,696 77,098,303 85,950,385 96,173,258 97,979,617
S. value of Invest. -
Recovery Of W.
- - - - - - 2,403,024
Capital
Total Benefits 0 57,059,400 62,802,760 69,437,696 77,098,303 85,950,385 96,173,258 97,979,617

Costs
Invest. in F/Assets 5,850,998 -

Increase in W. Capital 1,300,082 0 65,004 68,256 71,667 75,250 79,014 82,963

Land Development 0
Pre-operating cost 48,920
Loan repayment 0 840,000 840,000 840,000 840,000 840,000 840,000 0

- 35,072,627 38,493,238 42,256,870 46,395,093 50,950,894 55,962,682 61,476,924

Operating Costs
Profit tax - 283,545 1,004,310 1,889,641 2,970,296 4,283,121 5,870,386 7,773,981

36,196,172 40,402,552 45,054,767 50,277,056 56,149,265 62,752,082 69,333,868

Total Costs 7,200,000
863,228 2,400,208 4,382,929 6,821,247 9,801,120 13,421,176 21,048,772
Net Benefit After tax -7,200,000
1,146,773 3,404,518 6,272,570 9,791,543 14,084,241 19,291,562 28,822,754
Net Benefit Before tax -7,200,000
FIRR After tax 54%
FIRR Before tax 67%

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12. Project Monitoring and Evaluation
The successful implementation of the project lies on the proper monitoring and evaluation
mechanisms. Record keeping is the most important part of the process. Records must be kept
for all aspects of the project. The records will be important sources of data /information for
performance appraisal and adjustments based on monitoring results and evaluation will be
made quarterly. To this end the project will allocate enough budgets.

13. Conclusion and Recommendation

The projected income statement indicates that the project is profitable throughout its life. The
projected financial performance of the project also shows excellent financial capacity and
positive cash balance. Besides, the discounted cash flow shows cash surplus throughout the
project life and the financial internal rate of the project is higher than the cost of capital (10%).

The initial investment cost of the project is estimated to be birr 87,200,000 of which (30%)
will be covered from owners contribution and the remaining balance 70% (25,040,000) is
expected to be covered from bank loan. The feasibility analysis made for the project
revealed that it has net present value (NPV) of ETB 74,252,879 and internal rate of return
(IRR) 67% which is by far greater than the borrowing rate currently prevailed in the
market (9.50%).
The project will recover its investment cost at the 3rd year of the estimated project life (7
Years). Thus, the payback period for the project is found to be 3 years. To make the project
environmental friendly, 0.001457 hectares of land is allocated for afforestation and
protection of the environment. The project will generate employment opportunities to 15
permanent employees and 80 temporary employees in addition to its extension role to
demonstrate modern production and management practices.

The project gauged against various parameters was assessed by varying the most
significant parameters and the result shows that the project can accommodate any price or
cost variations without significant implication on the profitability of the project.

34
Therefore based on the forecasted overall financial analysis, we can deduce that the Elias
Michael Mitku Coffee Processing Industry that shall results improvement of the
development sector is supported and viable and worthwhile for implementation.

35