Addis Ababa University

Collage of Business and Economics

Department of Accounting and Finance
MSc in Accounting and Finance

Course Title: Investment Management

Course Code: ACFN 721
Collaborative Assignment: leather industry and fundamental analysis

No Name ID No
1 Worku Belachw GSR//08

2 Minyichel Baye GSR /2705/08

3 Yodit G/yesus GSR/3267/08

4 Samuel Meressa GSR/2803/08

5 Lidya G/girogis GSR/2710/08

Submitted to Instructor:

Venkati Ponnala (PhD)

Submitted date MAY, 2016

Table of Contents Pages

II. Abstract

1. Introduction and background

1.1 Fundamental
Analysis………………………………………………………………………
1.2 Important of fundamental analysis……………………………………..
Components of fundamental analysis…………………………………….
Approaches of fundamental analysis (EIC or CIE)…………………….
2. Objective of the term paper ( the main objective is to assess the economy,..
industry, companies to suggest or to make an investment decision)
3. Economic/Market Analysis:………………………………………………………………
3.1 Macroeconomic analysis………………………………………………………….
3.1.1 Overview of Ethiopian Economy ……………………………………………
A. GDP ( Sector wise contribution in GDP)………………………………………..
B. GDP Growth rates in past 5 to 10 years………………………………………….
C. Inflation
ates………………………………………………………………………………
D. Interest rates……………………………………………………………………………
E Employment and unemployment rate………………………………………..
F. Taxation rates…………………………………………………………………………….
G. Exchange rates ( take year closing figures)…………………………………..
H. Infrastructure and its status ( banking, tele, transport, power etc)…
I. Cultural/ religious practices………………………………………………………………
J. Political, legal, economical, social, ecological, technological
changes in past 5 years ( PESTEL Analysis)……………………………………………..
4. Industry Analysis:
A. Description about selected industry
B. Contribution of this industry to economy
C. Government view about industry
D. Major players in the industry
E. Industry life cycle stage
F. Competition status in the industry (Use porter’s 5 factors model)
G. Conclusions about industry and its future prospects
5. Company Analysis:
A. Brief introduction about the company……………………………………………….
B. Details about promoters and major share holders……………………………..
C. Progression of the company (historical milestones/ achievements)………
D. Products and services offered by the company (Analyze products
based on their life cycle stages)…………………………………………………………………
E. Operational conditions in the firm/ factory…………………………………………
F. Financial analysis (use financial indicators like ratios)………………………..
G. Non financial analysis……………………….....................................................
H. SWOT Analysis about present position…………………………………………………….
I. Conclusion about the company analysis……………………………………………………
6. Conclusions and
Findings…………………………………………………………………………...
7. Recommendations ( to be clear can be invested or Not)………………………………
8. References………………………
Acronyms
ADLI Development Led Industrialization
ADP Accelerated Development Programme
ASSC Anbessa shoe Share Company
CR Concentration Ratio
CRS Constant Returns to Scale
CSA Central Statistical Agency
DRMFS Disaster Risk Management and Food Security
ECX Ethiopian Commodity Exchange
ECA Ethiopian Customs Authority
EEA Ethiopian Economic Association
ELIA Ethiopian Leather Industries Association
ELICO Ethio Leather Industry Private Limited Company
FDRE Federal Democracy Republics of Ethiopia
GDP Gross Domestic Product
GOE Government of Ethiopia
GTP Growth and Transformation
HHI Her findahel Hirschman Index
IRR Internal Rate of Return
ICAO International Civil Aviation Organization
IRS Increasing Returns to Scale
ILO International Labour Organization
LI Lerner Index
LIDI Leather Industry Development Institute
LLPI Leather and Leather Products Institute
LLPTI Leather and Leather Products Technology Institute
ILT Internal rate of return
MC Marginal Cost
MOFED Ministry of Finance and Economic Development
MR Marginal Revenue
PLC Private Limited Company
RSDP Road Sector Development Program
SC Share Company
SCP Structure Conduct Performance
SIC Standard Industrial Classification
SITC Standard International Trade Classification
SWOT Strength, Weakness and opportunity theatre
UN United Nations
US United States
USAID United States Agency for International Development
 1. Introduction and background

Ethiopia has undertaken a far-reaching program of economic reforms over the last 20 years
which have delivered strong economic growth. Measures of human development have
improved but remain unacceptably low. Poverty and food insecurity are concentrated in rural
areas, and the poorest sub-sector of rural households are chronically reliant on social safety
net plan and food aid. The agricultural sector, critically important to both overall economic
performance and poverty alleviation, has performed strongly over most of the last decade, but
there is still substantial scope to sustainably improve productivity, production and market
linkages.

Government has demonstrated strong commitment to the sector through allocation of more
than 15% of the total budget, although a significant portion of this is spent on the Disaster
Risk Management and Food Security (DRMFS) program. The sector remains dominated by a
subsistence, low input low output rain fed farming system in which droughts periodically
reverse performance gains with devastating effects on household food security and poverty
levels. However, With 75 million heads of livestock; Ethiopia has the largest concentration of
livestock on the African continent.

According to the Country Commercial Guide 2000, however, it is difficult to calculate the
cattle sector's exact value, since a substantial amount of meat and dairy production is for
subsistence consumption. In certain regions, such as the highlands, livestock is utilized only
to support farming. Still, hides and leather products are Ethiopia's second most important
export, though the Commercial Guide states that the sector's huge potential remains largely
untapped, as a result of weather conditions (drought), diseases, and the lack of a coherent
government plan for the development of the sector. In 1996, Ethiopia produced 8,500 metric
tons of leather and leather products for exportation, thereby earning a total of US$6.5 million.

Ethiopia’s leather industry is in the forefront of the leather sector development within the
Eastern and Southern African region. As a predominantly agricultural economy with the
largest cattle population in Africa, Ethiopia has a strong base for semi-processed leather,
finished leather and leather products. It is no surprise, therefore, that the recent export
development strategy introduced by the Government recently has singled out this sector as a
priority area and incentive schemes have been designed accordingly However, the challenge
is how to make best use of the country’s revealed comparative advantage to build a dynamic
and competitive sector that contributes to Ethiopia's economic growth and the efforts to
promote technological capability building through increased investment.

Ethiopia has great potential for rapid development of its leather sector and has focussed its
short-term strategy on moving all leather production from the wet-blue stage to crust and
eventually to finished leather. The strategy for the long-term is to gradually convert all
available hides and skins to finished leather products shoe uppers, shoes, jackets, bags, etc.

The rapid development of any sector depends on similar growth in all related sub-sectors and
the infrastructure necessary in order to sustain the momentum of expansion. The recent
development in Ethiopia, both in terms of political and policy environment is conducive to
the development of the sector. However, its success depends on the ability of sector
enterprises to have access to good quality raw hides and skins and to favourable export
market conditions. This is especially important in light of the radical changes in the political
and market environment in Eastern Europe, which was traditionally the main source of
demand for Ethiopian leather products. The success of the sector also depends, to a certain
degree, on the strength and competitive position of the leather and leather products sector in
other African countries, which are also endowed with the resources necessary to build a
dynamic leather-based industry. Some Eastern and Southern African countries have the
potential to emerge as major suppliers of semi-processed leather to export markets, and to
produce finished leather products for domestic and gradually export markets.

Therefore, in designing policies to promote the leather sector, policy-makers in Ethiopia

should take full account of the various factors that affect the competitiveness of products in
the sector, including competition from other countries in the region. Markets for leather
goods have increasingly become more fragmented because of more variety and unique
lifestyle-related products which are in demand. Each product, such as various sports, leisure
and safety products, requires design skills, knowledge and technology and special distribution
channels. In fact, increasingly flexible specialization modes of production are necessary to
cope with rapidly changing market requirements. The fashion and business cycle in most
market segments is now shorter. Greater use of leather substitutes is also becoming common.

In addition, tighter delivery schedules and shorter production runs are the order of the day,
because of the need to reduce costs and risks of maintaining inventory. These mentioned
factors should be reflected in the strategy for building a dynamic leather sector. Ethiopian
Leather Industry: The Overview With an annual off-take rate of nearly 10% for cattle, 33%
for sheep and 38% for goats, the country is endowed with enormous potential for cheap
supply of skin and hide. There is a clear recognition of this potential by policy makers in
Ethiopia as indicated by the Growth and Transformation Plan (GTP) and several other
national plans that preceded it. In the country GTP document, the leather and leather products
industry is one of the priority industries that are expected to contribute considerably to export
diversification and foreign exchange earnings through greater value addition and productivity
improvement (FDRE, 2010).

According to MEDaC (1999), the livestock population of the country has risen to 34.1, 30.54,
and 21.11 million head of cattle, sheep and goats, respectively, in the year 1998/99, up from
the 1993/94 figures of 31.45, 27.5 and 19.76 million head of cattle, sheep and goats,
respectively. The annual average growth rate was 1.2, 1.4 and 0.5 %, respectively (MEDaC,
1999). Ethiopia has a long history of handcrafting and blacksmithing. The leather soaking
and tanning industry emerged with the establishment of the ASCO tannery (the current Addis
Ababa Tannery) in 1918 and Darmar/Awash (currently ELICO) tannery by Armenian traders
in 1927. In the subsequent years, several local tanneries, such as

Dire, Mojo and Kombolcha were set up. The emergency of the modern leather processing
industry also dates back to the 1930s, a period associated with the establishments of two shoe
factories, Tikure Abbay and Anbessa, by Armenian merchants. In the 1950s and the 1960s,
for example, leather and leather goods production were small in volume and largely targeted
the local market. In the 1974, all private tanneries were nationalized. The government
subsequently established the National Leather and Shoe Corporation, which assumed the
responsibility of managing eight tanneries and six shoe factories.

In 1986, the socialist regime banned the export of raw hides and skin in an attempt to
encourage the domestic production of semi-processed leather articles. This ban radically
altered the marketing structure of hides and skins by restricting exports to at least the wet-
blue level. While the ban might have forced hide and skin traders to sell directly to tanneries
for processing, it has also encouraged illegal cross-border trade in both live animals and hides
and skins. It is by now evident that the ban had a limited impact in improving the local
leather tanning and leather goods manufacturing capacity.
The Ethiopian leather sector is composed of raw hides and skins traders, leather tanneries,
which source their supply mostly from the local market, and footwear producers, who use
both local and international markets for raw material supply. The most important source of
raw material for leather tanneries are hides and skins that are procured from skin collectors
and traders. Larger tanneries that are fitted with machines and equipment to produce leather
products higher up in the leather value chain buy semi-processed leather products from other
tanneries. The industry produces a variety of types of finished leather, both for domestic use
and for export, and leather products, amongst which the most prominent is footwear.

Investment can be affected by many different factors that are internal as well as external to
the host company. Among the things that can affect the investment: economic, market,
industry and competitive forces are some of them that we going to discuss in our industry
analysis of the selected company Ethio-Leather Industry. Company was analyzed based
economic, market, industry and competitive issues. Data sources include secondary data
collected from the Ethiopia trade and industry ministry website, the Ethiopian Investment
Agency, from different research articles, the website Ministry of Finance and Economic
Development (MOFED) and Ethio-Leather Industry PLC (ASSC) Company.

1.1 Fundamental Analysis

A fundamental analysis is all about getting an understanding of a company, the health of its
business and its future prospects. It includes reading and analysing annual reports and
financial statements to get an understanding of the company's comparative advantages,
competitors and its market environment. Fundamental analysis is built on the idea that the
stock market may price a company wrong from time to time. Profits can be made by finding
under-priced stocks and waiting for the market to adjust the valuation of the company. By
analysing the financial reports from companies you will get an understanding of the value of
different companies and understand the pricing in the stock market.

After analysing these factors you have a better understanding of whether the price of the
stock is undervalued or overvalued at the current market price. Fundamental analysis can also
be performed on a sectors basis and in the economy as a whole.
1.2 Important of fundamental analysis

The main objective of conducting a study of economic analysis is to help not only assess the
sustainability of investment projects but also to inform the design and select projects that can
contribute to a sustainable improvement in the welfare of project beneficiaries, and the
country as a whole. Economic analysis is a means to help bring about a better allocation of
resources that can lead to enhanced incomes for investment or consumption purposes.
Therefore, it is best undertaken at the early stages of the project cycle to enable decision
makers to make an informed decision on whether to undertake a particular investment given
various alternatives and their corresponding costs.

The tools of economic analysis can help answer various questions about the project’s overall
effect on society, on various stakeholders/beneficiaries, its fiscal aspects and about the
project’s risks and sustainability. For example, economic analysis can help determine
whether the rationale for public sector intervention is justified. It can help in estimating the
project’s fiscal impact and inform government/implementing agency accordingly; it can also
determine whether there is scope for cost recovery and that arrangements are efficient and
equitable. In addition, it can help in assessing the project’s potential environmental impact
and contribution to poverty reduction.

Industry Analysis covers the structure and state of competition in the industry, nature and
prospects of demand for products and services of the industry, cost conditions and
profitability, technology and research requirements, the immediate and long term outlook for
sales and profit.

1.3 Components of fundamental analysis

It is the practice of Fundamental Analysis that gives rise to two sub types namely Macro-
Fundamental Analysis and Micro-Fundamental Analysis.

 Macro-Fundamental Analysis: The Top down Approach

Macro-Fundamental Analysis focuses on broad economic factors that affect the stock market
as a whole or industry groups of securities. This approach is known as the Top down
Approach of Macro-Fundamental Analysis. The practice of Macro-Fundamental Analysis
starts at the overall performance of the economy, its impact on industry groups and finally
down to specific companies in the industry groups.

It is noteworthy that Macro-Fundamental Analysis has a more formal and structured approach
and as such this approach is much favoured by research departments of investment
management companies and brokerage houses.

Micro- Fundamental Analysis: The Bottom up Approach

Micro-Fundamental Analysis starts by considering the current price of a stock and compares
it to measures of value. Hence the current price of a stock is compared to its dividend, its
earnings, and to its assets resulting in valuation ratios such as its dividend yield, price to
earnings ratio and its price to asset ratio. The resultant valuations enable comparisons to be
made amongst stocks in the same industry groups and undervalued and overvalued stocks are
identified by comparisons to the industrial norm. After this phase of analysis, the Micro-
Fundamental Analysis attempts to predict industry and economic developments that may
positively or negatively impact the stock’s current price.

1.4 Approaches of fundamental analysis (EIC or CIE)

There are various approaches to fundamental analysis of an individual company.

Bottom Up approach to fundamental analysis

Investors focus directly on companies basic or the fundamentals. Analysis of such

information as the company’s product, its competitive position and its financial status and
performance leads to an estimate of the company’s earnings potential and ultimately its value
in the market and future outlook about it.

Top down approach to Fundamental Analysis

This is exactly opposite to the bottom up approach. Investors begin with the economy and the
overall market sentiment. All other factors such as interest rates and inflation, deflation,
demand and supply are taken into consideration.
 2. General objective
The general objective of the study is to assess the economy, industry, marketing practices and
organizational competitiveness of Ethiopian leather industry analysis.
The study will specifically address the following objectives:

 To pinpoint and analyse the strategies adopted by Ethio-Leather Industry PLC (ASSC) to
increase its market share and level of competitiveness.
 To examine the factors that allow Ethio-Leather Industry PLC (ASSC) to compete in the
market (domestic and /or international)
 To identify major opportunities for Ethio- leather industry and its strengths and
weaknesses for securing these opportunities.
 Examine important issues and trends in the Ethio-Leather Industry PLC products market;

3. Economy/Market Analysis:

The performance of a company depends much on the performance of the economy if the
economy is BOOM, the industries and companies in general said to be prosperous. On the
other hand, if the economy is in RECESSION, the performance of companies will be
generally poor. Investors are interested in studying those economic varieties, which affect the
performance of the company in which they proposed to invest. An analysed of those
economic variables would give an idea about future corporate earnings and the payment of
dividends and interest to investors. Ethiopia's economy is based on agriculture but the
government is pushing to diversify into manufacturing, textiles, and energy generation..
Coffee is a major export crop.

The agricultural sector suffers from poor cultivation practices and frequent drought, but
recent joint efforts by the Government of Ethiopia and donors have strengthened Ethiopia's
agricultural resilience, contributing to a reduction in the number of Ethiopians threatened
with starvation. The banking, insurance, telecommunications, and micro-credit industries are
restricted to domestic investors, but Ethiopia has attracted significant foreign investment in
textiles, leather, commercial agriculture and manufacturing. Under Ethiopia's constitution, the
state owns all land and provides long-term leases to the tenants; land use certificates are now
being issued in some areas so that tenants have more recognizable rights to continued
occupancy and hence make more concerted efforts to improve their leaseholds. While GDP
growth has remained high, per capita income is among the lowest in the world. Ethiopia's
economy continues on its state-led Growth and Transformation Plan under the new collective
leadership that followed Prime Minister MELES’s death. The five-year economic plan has
achieved high single-digit growth rates through government-led infrastructure expansion and
commercial agriculture development. Ethiopia in 2014 will continue construction of its Grand
Renaissance Dam on the Nile a controversial five billion dollar effort to develop electricity
for domestic consumption and export. Ethiopia is Africa’s second most populous country and
has one of its fastest growing economies. Economic expansion of around 10 percent over the
past five years has been facilitated by improved infrastructure and more effective mining and
farming techniques, but growth remains highly vulnerable to external shocks.

3.1 Macroeconomic analysis

3.1.1 Overview of Ethiopian Economy

Ethiopia has been one of the fastest-growing countries worldwide since 2003. Based on
official statistics; excluding oil and gas exporters, only China has grown faster in the last
eight years. The Ethiopian economy is dominated by the agriculture and services sectors-with
each accounting for about 45 percent of gross domestic product (GDP), leaving only about 10
percent for industry, of which manufacturing accounts for about 6–7 percent. Exports are
highly concentrated, with coffee alone accounting for more than 60 percent of the total.
Moreover, Ethiopia could hardly be located in the international market for manufacturing
exports, having an industrial export share much less than the already minuscule median for
Africa. The limited change in the structure of the economy, especially with regard to
manufacturing, is partly explained by the low levels of investment flows and the sluggish
growth of the private sector, which was too little to affect its historically low share in labour-
intensive manufactures. Indeed, even after more than a decade of reforms by the current
Government of Ethiopia (GOE) private economic activities in the Ethiopian manufacturing
sector remain very small, even by African standards.

A. Ethiopia GDP ratio by sectors

Agriculture Ethiopia's economy in respect of total production is dominated by agriculture,

which accounts for 45.9% share of the Gross Domestic Product (GDP) during 2006/07 fiscal
year. Approximately 45% of Ethiopia's landmass is arable, but only about 10,556 thousands
hectare is presently under cultivation.

Currently, agriculture is the leading sector in terms of contribution to the overall economic
growth and development by supplying food for domestic consumption and raw materials for
the domestic manufacturing industries and primary export commodities which constitute as
high as 86% of the total foreign exchange earnings. The national economy, therefore, is
highly correlated with the performance of the agricultural sector. Moreover, the sector
accounts currently for 85% of employment, and supplies 70% of the raw material
requirements of local industries.

The manufacturing sector, which accounted for merely 13.3% of GDP in 2006/07, is
dominated by food, beverage, textiles, hides & skins, and leather industries. But most
recently considerable amount of investment is directed towards the establishment of the
cement factories in response to the strong surge in demand for cement that emanated from
huge construction activities booming in the country.

 The sector is primarily oriented toward processing of agricultural commodities. It supplies

important consumer goods to the domestic market. The major manufactured export products
comprise clothing and apparel, canned and frozen meat, semi-processed hides and skins,
sugar and molasses, footwear, tobacco, beverages, oil cakes, bees' wax, and leather and
leather products.

The service sector contributed to about 40.4% to real GDP while recording 9.2% growth in
2005/06. The Share of the service sector has been growing up slowly but steadily in recent
years reaching 40.8 percent in 2006/07 from its level of 36 percent in 1996/97. This mainly
the result of the fast growth of education; real state; renting and business activities; whole
sale and retail trade; and hotels and restaurants sub-sectors, which In the last five years
registered an annual average growth of 11.6%, 10.2%, 11.3% and 13.7% respectively.

B. Ethiopia GDP Annual Growth Rate 1981-2016

The Gross Domestic Product (GDP) in Ethiopia expanded 10.20 percent in 2014 from the
previous year. GDP Annual Growth Rate in Ethiopia averaged 5.47 percent from 1981 until
2014, reaching an all-time high of 13.90 percent in 1986 and a record low of -11.10 percent
in 1984. GDP Annual Growth Rate in Ethiopia is reported by the National Bank of Ethiopia
Ethiopia is one of the poorest countries in the world. Most of the population rely on
subsistence agriculture and foreign aid. Yet, Ethiopia is amongst the fastest growing non-oil
economies in the world. Government reforms succeeded in opening the economy to foreign
direct investments and resulted in expansion of commercial agriculture and manufacturing
industry. However, systemic trade deficits, under-developed financial system and
unemployment are Ethiopia’s main economic constraints. This page provides - Ethiopia GDP
Annual Growth Rate - actual values, historical data, forecast, chart, statistics, economic
calendar and news. Ethiopia GDP Annual Growth Rate - actual data, historical chart and
calendar of releases - was last updated on May of 2016.

Ethiopia GDP Last Previous Highest Lowest Unit

GDP Annual Growth Rate 10.20 10.30 13.90 -11.10 Percent [+]
GDP 55.61 47.64 55.61 6.93 USD Billi [+]
GDP per capita 315.99 294.77 315.99 113.87 USD [+]
GDP per capita PPP 1431.85 1335.73 1431.85 516.01 USD [+]
GDP Constant Prices 691.00 626.60 691.00 184.60 ETB Billion [+]
GDP From Agriculture 267.90 251.80 267.90 98.30 ETB Billion [+]
GDP From Manufacturing 105.20 89.60 105.20 17.70 ETB Billion [+]
GDP From Services 322.20 289.40 322.20 69.40 ETB Billion [+]
 C. Ethiopia Inflation Rate 2006-2016

Currently, Consumer prices in Ethiopia increased by 7.4 percent in April of 2016, slowing
from a 7.5 percent rise in the previous month. It was the lowest reading since December of
2014. Inflation Rate in Ethiopia averaged 17.56 percent from 2006 until 2016, reaching an all
time high of 64.20 percent in July of 2008 and a record low of -4.10 percent in September of
2009. Inflation Rate in Ethiopia is reported by the Central Statistical Agency of Ethiopia.

To facilitate the marketing of agricultural products, the government in collaboration with

UNDP has just introduced the Ethiopian Commodity Exchange (ECX system with its own
separate regulatory body named the Agency for Commodity Exchange. Under this system, is
expected that both the private sector and small farmer! Through cooperatives would
participate and will be beneficiaries.

D. Ethiopia Taxation rate

Ethiopia’s top individual income tax rate is 35 percent, and its top corporate tax rate is still 30
percent. Other taxes include a value-added tax and a capital gains tax. The overall tax burden
equals 12.4 percent of GDP. Government spending amounts to 17.8 percent of total domestic
output, and the deficit has increased. Public debt amounts to about 22 percent of GDP.

E. Ethiopia employment and unemployment rate

The overall employment ratio to total population is estimated at 52.6 percent (63.1 percent
male and 43.4 percent female). The CSA claims this is calculated, according to standards by
the International Labor Organization (ILO), i.e., a percentage of total employed population –
in this case nationwide – to the working age population. Nonetheless, it does not seem to
speak in terms of the country’s job market reality. The data show that, of the population in
major towns, 2.4 million is employed (roughly 1.4 million male and 1.1 million female). This
puts the employment to population ratio at 49.7 percent.

Ethiopia Unemployment Rate 1999-2016 Forecast Unemployment Rate in Ethiopia decreased

to 16.80 percent in 2015 from 17.40 percent in 2014. Unemployment Rate in Ethiopia
averaged 19.88 percent from 1999 until 2015, reaching an all time high of 26.40 percent in
1999 and a record low of 16.80 percent in 2015. Unemployment Rate in Ethiopia is reported
by the Central Statistical Agency of Ethiopia.
 F. Ethiopia Interest Rate

The benchmark interest rate in Ethiopia was last recorded at 5 percent. Interest Rate in
Ethiopia averaged 5.09 percent from 1995 until 2016, reaching an all-time high of 11 percent
in December of 1995 and a record low of 3 percent in April of 2002. Interest Rate in Ethiopia
is reported by the National Bank of Ethiopia.

Actual Previous Highest Lowest Dates Unit Frequency

5.00 5.00 11.00 3.00 1995 - 2016 percent Monthly
In Ethiopia, interest rates decisions are taken by Monetary Committee of the National Bank
of Ethiopia. The official rate is the bank’s savings rate.

G. Ethiopia Exchange rates

The Ethiopian Birr is the currency of Ethiopia. Our currency rankings show that the most
popular Ethiopia Birr exchange rate is the USD to ETB rate. The currency code for Birr is
ETB, and the currency symbol is Br. Below, you'll find Ethiopian Birr rates and a currency
converter. You can also subscribe to our currency newsletters with daily rates and analysis,
read the XE Currency Blog, or take ETB rates on the go with our XE Currency Apps and
website.

Top ETB Exchange Rate

Auto-refresh 15x
USD EUR GBP INR CAD NOK CHF AED SEK
0 : 22
1 ETB 0.04618 0.04097 0.03161 3.09306 0.05966 0.37983 0.04536 0.16961 0.38297

Inverse: 21.6550 24.4110 31.6376 0.32330 16.7627 2.63279 22.0460 5.89597 2.61120

Mid-market rates: 2016-05-18 15:54 UTC

H. Ethiopia Infrastructure

1. Roads

Over the last seven years Ethiopia has been a massive increase in funds allocated for road
construction. State spending on roads accounts for a quarter of each year's infrastructure
budget and the government has earmarked the equivalent of $4 billion to build, upgrade and
repair roads over the next ten years under the Road Sector Development Program (RSDP).

This reflects the government's recognition of the importance of the road sector for national
economic growth and for profiting to a maximum from the country's assets. The RSDP was
launched in 1997 and during its first five years, the intention is to maintain, rehabilitate and
upgrade the main trunk roads, link roads and regional roads. The government will build
3,833 km of asphalt roads, 1,390 km of feeder roads and 5,399 km of gravel roads;
recondition 2,613 of asphalt roads; and carry out ‘heavy maintenance' on 1,575 km of
existing gravel roads. A Road Fund, which is being financed by a levy on fuel prices, is
designed to ensure a flow of funds for the maintenance of the road network.

Spending is concentrated on the five main arteries radiating from Addis Ababa toward
Jimma, Awassa, Adigrat and Djibouti. To kick-start the programme the World Bank is
providing $309 million, the EU $300 million, the African Development Bank $104 million
while the Ethiopian government is investing $940 million. Preparations are in progress for
the 326 km Addis Ababa-Jimma road and the 513 km Addis Ababa-Woldiya road. 

2. Airports

Ethiopia's new and upgraded airports facilitate the transport of goods and encourage
investment. There are now two international airports Addis Ababa and Dire Dawa and both
have seen an encouraging increase in passenger and freight transport over the last few
years. New passenger and cargo terminals have been built at Dire Dawa airport and are now
fully operational. Smaller airports such as Bahir Dar have been upgraded. In order to
encourage tourism five major airports – Arba Minch, Lalibela, Mekele, Axum and Gondar
have been singled out for upgrading; improvements at the first three airports are already
complete and work on the last two will be completed by early 1999. The opening of the
new airport at Arba Minch has opened up wide-ranging economic opportunities for the lush
south.
Upgrading works have also been completed at Semera, Robe (Goba) and Jijiga airfields.
Upgrading of Asosa, Combolcha (Dessie), Shire, Negelle, Kebri Dar, Shilabo, Humera,
Gambella and Shire airfields will be completed by 1999. 

3. Telecommunications

Ethiopia was faced with the task of dramatically increasing the number of the existing
160,000 telephone lines and extending the service into rural areas, where most of the
population live. In 1996 the Ethiopian Telecommunications Authority was split in two; the
new Ethiopian Telecommunications Authority is responsible for regulating the industry,
while the job of Telecommunications Corporation (ETC) is to expand and improve the
services and revitalize the infrastructure.

In line with the policy of devolving power to the regional states, ETC has been
decentralized so that the individual states are responsible for providing their own telecom
services; decision-making now takes place at local level.

The main objectives are to support the free-market economy and investment ventures and
satisfy the demands of the private sector and to fully participate in the rural development
programme. This year ETC launched its three-year Accelerated Development Programme
(ADP). Its aim is to increase the telephone density rate from one phone for every 1000
people to one phone for every 100. By the end of the millennium there should be 760,000
lines. The required 600,000 additional lines have been procured and state-of-the-art digital
exchanges and transmission equipment for more than 120,000 lines have already been
installed in some rural and urban areas. In addition, more than a thousand villages will soon
have phones, thanks to the installation of 470 Very Small Aperture Terminals (VSATs) and
about 200 Digital Radio Multi-Access Subscriber Systems (DRMASs). Eighty of the latter
have already been installed. Outdated open wire systems will be replaced. By the year 2000
each village will have at least one phone and the rural areas will begin their link into the
global information network.

For international traffic ETC uses an earth satellite station. An additional satellite station
will begin operating in the northern part of the country by the end of 1999. Internet services
began in January 1997 and are currently being upgraded; the number of lines available to
internet users recently doubled and a more efficient service will in future be provided to the
 business community, educational, health and agricultural sectors at competitive rates. In
future the VSAT system will provide internet, digital TV services and interactive distance
learning access, which will link higher education institutions with many colleges in the
more distant regional states.

A 36,000 line capacity GSM mobile telephone service will provide Addis Ababa with
mobile phones by the end of the year. They will be supplied to the regional states in the
next phase.

The investment required for all these developments will be raised mainly through ETC's
revenue and profits as these are now fed back into the company and not channelled to the
government as they were under previous regimes. Furthermore the government is now
encouraging the participation of domestic and foreign private investment in the
telecommunications sector. ETC is one of the most efficient public enterprises and is highly
profitable. Its rate of return now averages 17% on total assets, and its average profit margin
is 28%. 

4. Services

Opportunities exist for private investment in the following services:

 exporting the country's various products except traditional export products like raw
coffee, oil seeds, pulses, etc. by way of undertaking market promotion, quality
improvement or packaging;
 construction ,comprising first grade contracting and rental of construction machinery
as well as real estate development;
 social services, such as health, education, banks, electric power services and sports
facilities;
I. Culture and Religion

1. Culture

A traveller visiting Ethiopia cannot fail to be impressed by the colour and individuality of its
cultures and traditions. Whether in the bustle of the town or the tranquillity of the
countryside, there is a strong sense of identity and pride that is visible in all aspects of life.
Religion plays a guiding role in the life of Ethiopia’s peoples with a myriad of religions
being practised in the country, from Christianity to Islam to animistic beliefs. Accompanying
these religions are a wealth of festivals that create high points in otherwise regular and well-
ordered lives.

Food is also pivotal to the Ethiopian lifestyle, whether it be the focal point of a communal
gathering or the daily challenge to obtain enough food to be comfortable. There is a unique
menu of food and drink which makes the most of sometimes scarce resources. Likewise,
transport is a pragmatic mixture of the mechanical and the animal which often makes for an
interesting spectacle on the street!

Music, dance and imagery are everywhere. The churches are filled with a special brand of
picturesque images of colour and tradition, while itinerant musicians can be found in every
town and village, lightening the mood and providing accompaniment for energetic dances.

No matter how urban or rural the community, the people dress with style and pride in their
white or embroidered wraps, contrasting with the opulent colours worn by the priests in their
long robes holding sparkling umbrellas.
 2. Religion

Religion is instrumental to everyday life in Ethiopia, as it has been for centuries. Priests and
deacons abound in their often colourful robes, carrying their staffs and ornate crosses that
people frequently kiss as they pass. Ethiopian languages are full of references to God, and the
calendar’s days of interest are determined largely by religion.

On the central plateau, the Ethiopian Orthodox church holds sway, as it has done since the
4th century when Ethiopia became the first state to adopt Christianity. The Orthodox Church
has many connections with ancient Judaism. Fasting and detailed food restrictions, the
specific ways of slaughtering animals, the layout of the churches and the practice of
circumcision all make for a very particular religious culture.

Indeed, Ethiopia had large communities of ‘falashas’, Ethiopian Jews, especially in the
Gondar region in the north, who have played an important role in the history of Ethiopia,
especially in the earlier years. Most of these however have now departed to live in Israel,
having been airlifted out of the country with Operation Solomon and Operation Moses in the
latter part of the 20th century.

Islam is the second largest religion in Ethiopia with roughly one third of the population as
followers. Although certain regions are predominantly either Islam or Christian, Muslims
generally live peaceably alongside Christians throughout the country, though this was not
always the case. The south and east are where most Muslims reside – 99% of the people of
Somali are Muslim and the city of Harar, in the east of the country, is officially the fourth
most holy Muslim site in the world.

In the lowland areas, animistic and pagan religions are still commonly found among tribal
people who live in simple, traditional communities.

J. Political, legal, economic, social, ecological, technological changes in past 5

years (PESTEL Analysis) overview of Ethiopia
Political overview of Ethiopia

For much of the twenty century, Ethiopia was ruled by highly centralized governments. The
current ruling party EPRDF has governed Ethiopia’s since 1991. Since taking power of the
EPRDF has led an ambitious reform effort to initiate transition by more democratic system of
governance and decentralize authority .It has involved devolving powers & mandates first by
regional Empires & then to words, district authorities, & kebeles authorise and/or village
authorised.

Although the formal Ethiopians state structure has been transforming from highly centralized
system to federal & increase decentralized one a no. of challenges remain .National elections
in 2005 & 2010 , and the hugely uncontested local elections in April month of 2008 ,
illustrated the fragility of the democratic transition Dominance by EPRDF , weakened state
by opposition .In May 2010 parliamentary elections resulted in a 99.6 percentage of huge
victory for the ruling EPRDF & this allies ,reducing the opposition from 174 to only two
seats in the 547 lower.

4. Economic overview of Ethiopia

Ethiopia, with a population of about above 84 million (2015), is the second-most populous
country in Sub-Saharan Africa. One of the world's oldest civilizations ,Ethiopia is also one of
the world's much poor countries .At US dollar 390 , Ethiopia's per capita income is much
lower than the Sub-Saharan African average of US$ 1,165 in FY 2010 , ranking it as the 6th
poorest country in the world ( Atlas Method).

After the major drought in 2002/03 that resulted in GDP contract, Ethiopia has been one of
the fastest growing economies in African countries. Official statistics indicated that an
average real GDP growth of 11 percent over the seven consecutive years. Its robust growth
performance and considerable development gains came under threat during 2008 and 2011
with the emergence of twin macroeconomic challenges of high inflation and a difficult
balance of payments situation .Problem was exacerbated by the high fuel and food prices in
the global market.

4.1 Technological overview of Ethiopia

Ethiopian under the Wayne junta continues to rank at the bottom among other nations in
every development scale. After Twenty years of Miles Zenawi's dictatorship, most Ethiopians
live as obscene poverty where children in some areas scavenge for food in trash dumps
.Information age, only 1 % of Ethiopians have access to computer, 132nd in electricity
production, and Ethiopia ranks 135th out of 138 countries in Internet usage, 138th in mobile
phone subscription, and 133rd in adult literacy rate, 129th in freedom of the press, according
to a recent report by the World Economic Forum. That is why Ethiopians are saying Beak
(enough) to Miles Zenawi's 20 years of misrule, corruption and repression.

4.2 Industry analysis (leather Company in Ethiopia

4.2.1 Ethiopian Leather Industry: The Overview

Leather is one of the main industrial sectors in Ethiopia. The Government of Ethiopia (GoE)
has given high priority to this sector in its industrial policy and its “Export Development
Strategy”. With an annual off-take rate of nearly 10% for cattle, 33% for sheep and 38% for
goats, the country is endowed with enormous potential for cheap supply of skin and hide.
There is a clear recognition of this potential by policy makers in Ethiopia as indicated by the
Growth and Transformation Plan (GTP) and several other national plans that preceded it. In
the country GTP document, the leather and leather products industry is one of the priority
industries that are expected to contribute considerably to export diversification and foreign
exchange earnings through greater value addition and productivity improvement (FDRE,
2010).
According to MEDaC (1999), the livestock population of the country has risen to 34.1, 30.54,
and 21.11 million head of cattle, sheep and goats, respectively, in the year 1998/99, up from
the 1993/94 figures of 31.45, 27.5 and 19.76 million head of cattle, sheep and goats,
respectively. The annual average growth rate was 1.2, 1.4 and 0.5 %, respectively (MEDaC,
1999).

Ethiopia has a long history of handcrafting and blacksmithing. The leather soaking and
tanning industry emerged with the establishment of the ASCO tannery (the current Addis
Ababa Tannery) in 1918 and Darmar/Awash (currently ELICO) tannery by Armenian traders
in 1927. In the subsequent years, several local tanneries, such as Dire, Modjo and Kombolcha
were set up.The emergency of the modern leather processing industry also dates back to the
1930s, a period associated with the establishments of two shoe factories, TikureAbbay and
Anbessa, by Armenian merchants.In the 1950s and the 1960s, for example, leather and
leather goods production were small in volume and largely targeted the local market. In the
1974, all private tanneries were nationalized. The government subsequently established the
National Leather and Shoe Corporation, which assumed the responsibility of managing eight
tanneries and six shoe factories.

In 1986, the socialist regime banned the export of raw hides and skin in an attempt to
encourage the domestic production of semi-processed leather articles. This ban radically
altered the marketing structure of hides and skins by restricting exports to at least the wet-
blue level. While the ban might have forced hide and skin traders to sell directly to tanneries
for processing, it has also encouraged illegal cross-border trade in both live animals and hides
and skins. It is by now evident that the ban had a limited impact in improving the local
leather tanning and leather goods manufacturing capacity.

The Ethiopian leather sector is composed of raw hides and skins traders, leather tanneries,
which source their supply mostly from the local market, and footwear producers, who use
both local and international markets for raw material supply. The most important source of
raw material for leather tanneries are hides and skins that are procured from skin collectors
and traders. Larger tanneries that are fitted with machines and equipment to produce leather
products higher up in the leather value chain buy semi-processed leather products from other
tanneries. The industry produces a variety of types of finished leather, both for domestic use
and for export, and leather products, amongst which the most prominent is footwear.
Table1. Export performance of selected African economies in raw hide and skin.

Total Raw hides and skins exports of selected

countries (USD thousands)
Years Ethiopia

2006 63516

2007 66778

2008 77693

2009 93394

2010 90960

2011 42769

2012 67199

2013 122713

2014 85608

2015 103422

Source: ITC, COMTRADE data

In the 1990s, the privatization policy adopted by the EPRDF government implied that all
state-owned (SOEs) tanneries were auctioned off. The liberalization policy also allowed for
the flourishing of private tanneries, leather garment and leather goods manufacturing
industries. In the footwear sector, for example, the newly established private companies were
able to quickly match the production capacity of the then existing large SOEs (some were
privatized latter) in early 2000s. In 2008, there were 21 tanneries in Ethiopia with a combined
tanning capacity of 4,000 pieces of hide and 30,000 pieces of skin per day. There are now 26
tanneries and more than 15 large export oriented footwear producers and an untold number of
micro and small shoemakers in Ethiopia. The tanneries have a combined tanning capacity of
more than 170,000 pieces of skins and hides per day, and footwear producers can produce
more than 20,000 pairs of shoes per day.
Table 2.Export performance of selected African economies in leather and leather products
(USD thousands).

Years Ethiopia

2006 94

2007 34

2008 12

2009 248

2010 94

2011 498

2012 640

2013 676

2014 3010

2015 3286

Source: ITC, COMTRADE data

Despite its long pedigree, the leather products industry in Ethiopia has been struggling with
limited processing capacity that explains not just the inability of local leather goods
producers to penetrate the export market, but also their failure to withstand competition from
imports once the economy was liberalized in 1991. Following the liberalization policy of the
current regime, for example, the leather footwear sector was inundated with cheap foreign
imports in the late 1990s. Perhaps not surprisingly, this had the immediate effect of driving
out many footwear producers ‘plunging the sector into a slump’ in the early 2000s. Helped by
improved local capability and effective industrial polices, the sector has since then registered
impressive growth that enabled it to reclaim some of the domestic market and even
successfully venture into the export market.

4.3 Ethiopia: Leather Sector to Economic Transformation

Ethiopia has a huge potential in leather and leather products industry as it stands first in
Africa and tenth in the world in terms of livestock population. However, the livestock
potential was lagging behind to play its part more in hastening the country's economic
development for long. For example, the overall export performance of the sector during GTP
I period was lower than its target. According to the Leather Industry Development Institute, it
was planned to earn about 496.5 million USD, the actual earning was 132.86 million USD.
Lack of effective, efficient and coordinated support in terms of supply of raw-hides, skin and
other production inputs as well as other related problems were among the challenges faced to
achieve the target.

The leather sector has a potential in increasing the Gross Domestic Product (GDP) of the
country. It requires strong partnership among stakeholders such as domestic and foreign
investors, educational institution, and experts. To make reforms, overcoming basic challenges
and related bottlenecks should be underlined. More significantly protruding the way forward
matters most.

To maximize benefits from the sector, modern management system, adequate level of
integration among the various levels of the industry along its value chain, have to be properly
organized and administered. Besides, creating market linkages, conditions that lead farmers
to black-market should also be well assessed and addressed.

As the leather production is the potential that yet not much exploited, more contribution is
needed to attain a huge economic significance for the country. To this effect, the Ethiopian
government has already made promising strides in providing efficient support to promote
local investors to achieve the target. Currently, the government has started encouraging
manufacturing centers and expanding extension service provisions to the sector. But more
marketing centers need to be established to benefit the country more, and increase foreign
currency earnings from the sector.

Industrial policies were introduced. This is because of the presence of wide ranging and
mutually reinforcing problems at several stages of the leather value chain that have kept
production volume and quality low. The government has thus devised polices to improve the
supply and quality of raw materials and has sought to stabilize their prices. Efforts have also
been made to upgrade the production facilities and techniques of leather processing units
while attempting to improve the international marketability of leather products. In short, the
government interventions in the industry range from the point of skin and hides collection to
the leather production and marketing stages. These were problems that inhibit industrial
transformation and growth of the LLPI and that the market, left to its own devices, cannot
help overcome. Thus proactive state intervention were not only required, they are also now
recognized to have brought about extensive progress in the leather industry.

4.4 Government view about leather industry

The Ethiopian government has set for itself a long term vision of becoming a middle income
country by 2020-2023 and meeting the MDGs in 2015. Several government policies and
plans are in place to fulfil the larger goal of meeting the MDGs and the vision of becoming a
middle income country. The latest is the Growth and Transformation Plan (GTP) that spans a
period of 2010/11-2014/15 and emphasizes agriculture and industry as main drivers of
growth8 (FDRE, 2010).

The industrial development strategy as a sectoral strategy issued in 2002 (FDRE, 2002) has
preceded the GTP. It recognizes the private sector as an engine of development and
emphasizes the need to follow export-led growth, the need to pursue Agriculture
Development Led Industrialization (ADLI), the need to forge linkages between internal and
external investors and the role of government in providing leadership.

The purpose is to develop the industrial sector and enhance its contribution to the overall
economic growth. In a bid to support industrial development, the strategy outlines that there
is a need to create stable macro economy, establish modern financial system, provide reliable
infrastructural facilities such as road transport, rail transport, air transport, telecommunication
service, power provision, and water and land delivery. Further, the need to create efficient
and developmental administration including fostering transparency and accountability,
improved tax and information system, fair competition and efficient judicial system was also
emphasized. Within the industrial sector, some specific industrial groups that are considered
as strategic are selected as priority sub-sectors. These include textile, wearing apparel, leather
tanning and footwear. These industries are labour-intensive, have the ability to forge strong
linkages with agriculture and can bring export-led industrialization.

The Ethiopian Government has provided various institutional and policy support in order to
realize the development of these sectors. In terms of policy, the main trust is to provide an
enabling environment for the private sector. The deregulation and liberalization of goods and
factor market, maintaining a stable and predictable macro-economic environment and
issuance of investment policy are the major ones. The government has also established a
consultation forum between the private sector and the government beginning of 2002. In
addition, incentive schemes to encourage exports are also put in place. These include:-

 Exemption from income tax;

 Importing equipments free of tax
 Improving service delivery (shortening period of license, renewal of permits etc);
 Exemption of imported inputs for export purposes from indirect taxes;
 Credit guarantee scheme to avoid problems of working capital for exporters
 Allotment of finance for loan for those engaged in export activities;
 Provision of access to infrastructure for those engaged in export. The establishment
of industrial zones in all regions addresses the infrastructural needs and land
requirements of investors;
 Creating linkages with foreign investors in marketing and production; and
 Improving the transport and transit services.

5. 5. Anbessa shoe share company (ASSC)

A. Overview of the company
I. Background

Anbessa Shoe, formerly known as the Darmar Shoe Factory, was established in 1939 by an
Italian national. The factory was run by its Italian founder for only three years and was sold
in 1942 to an Armenian citizen, who ran the factory for 33 years as the Darmar Shoe Factory.
Darmar was initially engaged in both tannery and shoe making. In 1975, Darmar was
nationalized and organized as two public enterprises: Anbessa Shoe Factory and Awash
Tannery. The firm started to export shoes, in small quantities, in the early 1980s. In 1993,
following the issuance of a new proclamation, Anbessa Shoe Factory was restructured as a
share company. The factory is located in two premises in the capital. The main factory and
administrative offices are located in the centre of the capital, Lidetta sub city. In addition, the
factory has a branch unit (MANPO Branch) in the eastern part of the city which is now being
used as local unit.

II. Nature of the business and specific company objectives

Anbessa shoe factory is engaged in both manufacturing (production) and distribution (sales)
of various types of shoes. The objective is with a view of making the profit motive a central
theme in general and to enable the factory achieve the following objectives in particular:
Producing all kinds of leather shoes and shoe uppers which will meet the requirement of
market.

Developing better designs of shoes, shoe uppers and components to local & international
Developing alternative means of replacing imported raw materials by suitable local
components.

II. Vision and Mission of the company

The vision of the factory is to be a leading one producer of high quality leather footwear and
leather articles using natural leather, the latest technology and the skill of experienced
personnel’s for both local and export market.

The mission of the factory is to add value to livestock resource through processing natural
leather in to various leather-footwear, leather-articles and leather-shoe-upper that meet the
requirements of both local and export market and utilize the revenue derived from it to boost
profitability of the organization which in turn ensures the government its deserved dividend
and provide job security for the firm’s employees.

B. Analysis of the company’s Competitiveness Using Porter’s Five Forces Model

Threats of new entrants:

When examining the leather sector more closely, one can understand that it is a labour
intensive industry while requiring huge amount of capital especially when setting up or
acquiring new production plants. This high sunk cost cannot be recovered if the firm would
closed-down and exit the market.

This by itself is a barrier to entry for many small competitors. But the abundance of raw hides
and skins in the country, the availability of labour force at low cost, the focus given by the
government to the sector’s export potential and the continued increase in the number of
population of the country (as a means of creating strong and sophisticated home demand
base) results in the establishment of new giant factories owned by foreign firms particularly
that of Chinese firms. Thus, high sunk cost doesn’t function as entry barrier to giant firms,
unlike that of small firms. Entry barriers are also not functional to the company due to low
capacity utilization of the company in which the company fails to benefit from economies of
scale.

Rivalry among competing firms:

As the product is a basic requirement for everyone, great numbers of firms are competing in
both domestic and international markets, as a result of which the company faces stiff
competition. The financial strength firms have and presence of skilled labour /talented
designer in European/Asian countries help European and Asian firms to strengthen their
position and reduce the relative gap enjoyed by the company(Sheba leather industry) in
possession of abundant natural resource(hides and skins).

Bargaining power of suppliers:

Domestic suppliers are the main source for the company’s hide and skin but there is no an
organized existence of hide and skin collecting firms which posed a threat to the company
since the company deals on individual bases with these suppliers and the temporary
availability of hides and skins on holidays provide the supplier the capability to command
premium price for their product. Thus, domestic suppliers have a great bargaining power in
dealing with the company. However, the bargaining powers of foreign suppliers are low due
to the existence of many suppliers of chemicals and shoe accessories to the company in
foreign market. This availability of many suppliers provides the company a great bargaining
power in dealing with foreign suppliers.

Bargaining power of Buyers:

Mainly, products of the company are sold to large manufacturers on subcontracting base, by
contracting brand level companies and by contracting retailers in the market, showing that
buyers of the company’s products are diversified. As a result the company offsets the
bargaining power of one groups of buyer by selling more to other group of buyer which
ultimately reduce the bargaining power of buyer while increasing the company’s bargaining
power.
Threat of Substitute Products:

The increase in the number of competitors in shoe production both nationally and
internationally and the relative similar price of products to customers created a significant
threat of substitutes to the products of Sheba. Thus we can conclude that there is high threat
in case of substituting the products of Sheba by other competitors.

C. Financial analysis and accounting processes (use financial indicators like

ratios)

As of most Ethiopian factories, ASSC uses mostly the traditional accounting management
system to measure performance i.e. finance and accounting measures such as cost allocation
technique, income statement, statement of owners equity and statement of cash flow. In this
process financial performance measures such as sales growth, ROI, annual return on total
asset (ROA), and profit and loss are measured yearly via financial statement format.
Financial statement of ASSC is done annually and it includes profit and loss statement,
statement of cost of goods sold, inventory or total stock check up, sales and distribution
expense of each retail shops.

D. Financial analysis
The financial analysis of the leather shoe project is based on the data presented, are the
following assumptions:-

1. Profitability

Based on the projected profit and loss statement, the project will generate a profit throughout
its operation life. Annual net profit after tax will grow from Birr 4.97 million to Birr 6.44
million during the life of the project. Moreover, at the end of the project life the accumulated
net cash flow amounts to Birr 63.16 million. For profit and loss statement and cash flow
projection see Appendix 7.A.3 and 7.A.4, respectively.

2. Ratios
In financial analysis, financial ratios and efficiency ratios are used as an index or yardstick
for evaluating the financial position of a firm. It is also an indicator for the strength and
weakness of the firm or a project. Using the year-end balance sheet figures and other relevant
data, the most important ratios such as return on sales which is computed by dividing net
income by revenue, return on assets (operating income divided by assets), return on equity
(net profit divided by equity) and return on total investment (net profit plus interest divided
by total investment) has been carried out over the period of the project life and all the results
are found to be satisfactory.

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 for capacity utilization and sales value estimated by using income statement projection
are computed as followed.

Break -Even Sales Value = Fixed Cost + Financial Cost = Birr 8,932,965

Variable Margin ratio (%)

Break- Even Capacity utilization = Break- even Sales Value X 100 = 26%

Sales revenue

4. Pay-back Period

The pay- back period, also called pay off period is defined as the period required for
recovering the original investment outlay through the accumulated net cash flows earned by
the project. Accordingly, based on the projected cash flow it is estimated that the project’s
initial investment will be fully recovered within 4 years.

5. Internal Rate of Return

The internal rate of return (IRR) is the annualized effective compounded return rate that can
be earned on the invested capital, i.e., the yield on the investment. Put another way, the
internal rate of return for an investment is the discount rate that makes the net present value
of the Investment's income stream total to zero. It is an indicator of the efficiency or quality
of an investment. A project is a good investment proposition if its IRR is greater than the rate
of return that could be earned by alternate investments or putting the money in a bank
account. Accordingly, the IRR of this project is computed to be 27.33% indicating the
viability of the project.

6. Net Present Value

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

Accordingly, the net present value of the project at 10% discount rate is found to be Birr
25.76 million which is acceptable. For detail discounted cash flow see Appendix 7.A.5.

E. Economic and social benefits

The project can create employment for 72 persons. The project will generate Birr 13.20
million in terms of tax revenue. The establishment of such factory will have a foreign
exchange saving and earning effect to the country by substituting the current imports and
exporting its products to the international market. The project will also create backward
linkage with the livestock sector and also generates income for the Government in terms of
payroll tax.

F Non-financial analysis / Human resource development processes

In this process, issues that have to be given focus are recruiting, education and training,
payment and incentives, motivation and generally employee satisfaction, development and
proper human resource management. Unless these issues are performed well they will
directly or indirectly affect the total performance of the firm. For example, in ASSC the
payment is unsatisfactory and is not based on performance so it did not motivate production
workers towards productivity. Production workers mostly are with no training and education
for long time, no salary promotion, sometimes unsatisfactory incentives or bonus which these
all affects the satisfaction of employee. The discussions with some of the workers of the firm
show that there is no regular work progress meeting and discussion with management bodies
towards the working environment and timely problems. Trainings are mostly on job and
almost insignificant in giving educational opportunity for employee. The training
performance of the firm for the budget year 2007E.C only 41%.

Generally, from these conditions it can be said that training, education and development
activities are low. Performance based evaluation system/procedure to evaluate employees
objectively based on defined criterion that encourages/motivates best performer workers
through bonus or other incentives and penalizes lagging once is not in place.

G. Operational conditions in the firm/ factory

Generally the footwear production system has four major processes: cutting, stitching, lasting
bottom and finishing. The description of these major processes with some other supportive
recesses is shown below.

Cutting: Cutting of finished leather to different shoe components is done by modern

hydraulic cutting machines.

Stitching: Assembly of the different components of the upper parts of shoes is done by
different types of flat bed, post-bed, zigzag, eyeleting machines and others. Parts of shoes
referred as an upper are vamp, tongue, apron, toecap, counter, quarter, and mudguard, etc.

Lasting: Shaping the upper to the last is done by automatic counter moulding machine, toe,
and side and heel seat lasting machines.

Bottoming: This is a process of attaching lasted upper to the sole.

Finishing and Packing: Trimming, polishing, shoe lacing and packing is done by different
shoe finishing machines.

H. SWOT analysis for the leather footwear sub sector

SWOT analysis is a study about the strengths, weaknesses, opportunities and treats. In the
previous sections, the current status of the leather footwear industry has overviewed and
assessed which enabled us to see the whole image of the sub-sector. Now, the SWOT
analysis for the leather footwear sector of Ethiopia can be drawn. The strength and weakness
are internal and the opportunities & treats are external aspects or factors. The Analysis is
made based on the SWOT analysis of the Ethiopian Leather and Leather Products Industry
made by UNIDO, review of recent documents and overviews of the Ethiopian footwear
subsector made in the previous section
Table SWOT Analysis

SWOT SWOT analysis

component
 Presence of mechanised shoe enterprises and some exports of footwear
Strength
 Presence of trainable workforce
 Availability of finished leather due to presence of fully mechanised
tanning facilities and trend to move from export of semi-processed
leather to export of finished leather
 There is institutional infrastructure for quality, standardization and for
services (QSAE)
 The quality of leather is not always high enough (inconsistent)
Weakness
 Shortage of skilled workers and updated technology, Poor finishing,
low productivity
 Slow responsiveness to changing shoe models
 Usage of old technology, obsolete equipment & lack of spare parts
 Weak product development, design or research development
capabilities and little diversification.
 Insufficient international exposure
 Weak marketing: weak promotion and advertising, weak market
information services
 Low capacity to respond to the international demand in terms of
quantity and time

 Presence of Cheap labour force

Opportunity
 Access to raw leather locally if tanneries improve their performance
 The establishment of a trade mark or product image “Made in
Ethiopia” (currently ASSC is practicing it )
 Presence of LIDI as a “catalyst” to the development of the sub sector
in all stages of the chain.
 Export-led industrialization strategy in which LLPI included and fully
 supported by the government
 Availability of potential local market
 Transfer of shoe production from developed countries to developing
through outsourcing and sub-contracting
 Clustering and networking between formal and informal sector (e.g.
Ethio-international footwear cluster)
 Regional and sub-regional market for leather products (COMESA)
 Finished leather quality problem due to the growing spread of Ekek
Threat
 Competition from Asian Countries with cheap imports of leather
products, without the application of quality standards.
 Lack of Marketing System for finished leather based on quality
grading
 Incapable in getting international market share
 Negative image concerning local shoe products

SWOT Analysis about present position factor

SWOT analysis
 Easily trained labour
 Considerable resource base
 Hides - fine grain pattern and good fibber structure and
internationally known for quality upper leather
 Sheep skin - world's finest and compacted texture globally well
Strengths: recognized as excellent raw materials for the production of high
quality dress glove, sports glove and garment
 Goat skins - classed as Bait-genuine (the international name of
high quality goats’ skin and Bati type with higher great demand in
the international fashion sued leather.

 Lack of highly Skilled man power in leather technology, market

intelligence, etc
 Lack of high technology
Weaknesses:
 Lack of waste treatment plants
 Low productivity, efficiency

 Priority sector well recognized by the Government

 Investment opportunity
 Hides & skins, leather and leather products have highly significant
Opportunities: in the global trade
 The high demand for Ethiopian hides and skin
  Confidence of international development partners (ITC, UNIDO,
USAID, CDE,CFC, DTZ, etc.)

 Poor animal husbandry

 The growing threats of spread of ekek
 Absence of extension strategy for raw hides and skins
improvement
 Flay cuts problems
 Inadequate slaughterhouses
Threats:  Lack of organized supply collection systems
 Inadequate quality due to high rate of defects and poor
preservation techniques
 Shortage of raw materials
 Long supply chain and price speculations of raw hides and skins
 High costs of environmental control.

Development of a country has no root without investment and investment without return
bears no fruit. Investment is time, energy, or matter spent in the hope of future benefits
actualized within a specified date or time frame. Investment has different meanings in
economics and finance. In economics, investment is the accumulation of newly produced
physical entities, such as factories, machinery, houses, and goods inventories. In finance,
investment is putting money into an asset with the expectation of capital appreciation,
dividends, and/or interest earnings. This may or may not be backed by research and
analysis. Most or all forms of investment involve some form of risk, such as investment in
equities, property, and even fixed interest securities which are subject, among other things,
to inflation risk. It is indispensable for project investors to identify and manage the risks
related to the investment.
 6. Conclusions and Findings

From the study conducted, though there are a number of factors which affect the whole
activities of the leather industry. Those factors can be categorized in two: within the
organization and out of the organization. Level and external problems, the focus of the
study is to the firm level problems because these problems can be solved by the firm using
its own potentials, resources and appropriate method to improve the organizational
performance. However, the external problems need participation of different bodies’
government, associations and organizations. The intervention areas in one or another way
are related with the problems of financial, operational, employee satisfaction, quality
performance and customer satisfaction which are all total organizational performance
problems. To solve such problem, it is a need to use a total performance improvement
method which can have a balanced performance measures and management philosophy.
7. Recommendation
We recommend that this is exactly the time to invest in the garment business in Ethiopia. Not
only are labour costs low and the workforce trainable, access to major markets like the U.S.
and the EU is available on preferential terms. What's more, the investment climate has
improved notably in the past year or so. Our own recent observation has been positive enough
to lead us to expand investment in this area (leather factory) and
 Investment opportunities for introducing modern commercial livestock breeding and
processing into the largest livestock population in Africa (cattle, sheep and goats)
 Leather and Hide Opportunities for investment in tanning up to finishing, manufacture
of luggage items, handbags, saddler and harness items, footwear, garment and other
leather goods Ethiopia presently turns out more than 10,000 university graduates per
year, including business, management, economics, accounting, law and engineering
graduates 151 technical and vocational education and training schools in Ethiopia
Private universities and colleges flourishing in Addis and regional cities. These create
good opportunity for development of leather industry.
 Stable Economic Environment: Ethiopia has been able to achieve macroeconomic
stability, Stable annual economic growth in double digits since 2003, Stable exchange
rate, Government commitment to private sector, Safe and secure working and living
environments.
  Significant Tax Incentives: Export Customs Duty Products and services developed in
Ethiopia are exempt from export tax

8. REFERNCE

Ethiopia emerges amongst leading sub-Saharan footwear exporters, Royal Norwegian

Embassy in Addis Ababa newsletter, 2010.
Promoting Leather Based Value Chains in Ethiopia – Project Document by ECBP – (Second
Draft), January, 2009.
Investing in Ethiopia: Leather and Leather Goods, www.ethiopianembassy.org
Tilman Altenburg, Industrial Policy in Ethiopia, Discussion Paper /German Development
Institute, 2010.
A Master Plan for the Ethiopian Leather and Leather Products Industry (LLPI), UNIDO,
2005.
Anbessa Shoe Share Company, Annual Company Level Performance Report.
Ram Naresh Roy (PhD), A Modern Approach to Operations Management, New Age
International (P) Ltd, 2005.
Anbessa Shoe Share Company, Financial statement.
Rampersad, H.K., The way to a high-performance culture with the Total Performance
Scorecard, John Wiley & Sons, Ltd., TPS International Inc., Florida, USA, 2008.
 .

The Ethiopian government has demonstrated impressive dedication and ability to create
the preconditions for a market-based and socially inclusive industrial transformation.
It is strongly committed to investing in technological learning in order to build
new competitive advantages. This becomes evident in ambitious programmes to
strengthen the Technical and Vocational Education System and to set up new universities
as well as supporting institutions for specific sectors, e.g. for textile, leather and
horticultural products. The government has defined priorities for diversification and
industrial development. Agricultural demand-led industrialisation and export promotion

play a key role in its strategy.

Conclusions
The Ethiopian government has demonstrated impressive dedication and ability to create
the preconditions for a market-based and socially inclusive industrial transformation. It is
strongly and credibly committed to investing in technological learning in order to build
new competitive advantages and leave the history of feudalism and “rent-seeking” behind.
Improvements for the vast majority of the rural poor are at the centre of the government’s
project for societal transformation. Overall, policy formulation and implementation is
relatively effective, given the country’s level of per-capita-income, and the government
has shown flexibility and pragmatism in choosing and adapting its industrial policies.
The main risk for Ethiopia’s future development stems from three interrelated characteristics
of its industrial policy process:
−The government deliberately employs a carrot-and-stick approach that differentiates
between economic activities and firms, up to the point where targets for individual
firms are sometimes negotiated on a case-by-case basis in exchange for public support.
−Allocation of resources for industrial policy is not fully transparent, e.g. it is not clear
when firms are eligible to get preferential treatment in term of access to licenses, land,
credit and foreign exchange, on what condition ailing firms will be bailed out, and
whether these conditions vary between state-owned, endowment-owned, and independent
private firms.
−Business and politics are still strongly entwined in Ethiopia. SOEs still dominate many
manufacturing industries and service sectors, and party-affiliated endowments have
taken many of the business opportunities left for private engagement. It is not always
clear to what extent p