Design of the Head Quarter Building of ECWC

(New Multi-Purpose High-rise building Complex Project)

Project No. ECWC T-23/2009
Feasibility Study

Location: Addis Ababa City Government around Mexico

Square

Addis Ababa, Ethiopia

January 2020
ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Table of Contents
Figure & Table .........................................................................................................................v

Figure .........................................................................................................................................v

Table ..........................................................................................................................................v

EXECUTIVE SUMMARY .......................................................................................................vii

1. BACKGROUND INFORMATION .................................................................................... 1

1.1 Brief History of Ethiopian Construction Works Corporation (ECWC) ............... 1

1.2 Purpose of ECWC Establishment .......................................................................... 3

1.3 Basic Facts of Addis Ababa City ......................................................................... 5

2. BUSINESS ENVIRONMENT AND INCENTIVES FOR INVESTORS .................... 17

2.1 Analysis of the Business Environment ............................................................... 17

2.2 Political .................................................................................................................... 17

2.3 Economic ................................................................................................................. 18

2.4 Socio - Economic and Cultural ........................................................................... 19

2.5 Availability of Infrastructure ................................................................................... 20

2.6 Government Development Policy and Strategy ................................................. 33

2.7 Incentives for Investors ......................................................................................... 36

a. Customs Import and Export Duty ........................................................................... 36

b. Income Tax Holiday .................................................................................................. 37

c. Loss Carried Forward ............................................................................................... 37

d. Guarantees to Investors............................................................................................ 37

e. Incentives for Investors working within Industrial Parks .................................... 39

2.8 Conclusion of the PEST Analysis ....................................................................... 42

3. MARKET STUDY .......................................................................................................... 45

[Link]. | SGS Consulting Solution PLC i

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

3.1 General Overview ................................................................................................... 45

3.2 Market Area ............................................................................................................ 47
3.3 Target Customers.................................................................................................... 48
3.3.1 Commercial Banks........................................................................................... 48
3.3.2 Insurance Companies...................................................................................... 51
3.3.3 Sports and Fitness Center ............................................................................... 52
3.3.4 Cinema and Theatres ...................................................................................... 53
3.3.5 Restaurants, Cafeterias and Bars .................................................................... 53
3.3.6 The Business Community and Business Organizations ................................... 54
3.3.7 Government Offices........................................................................................ 55
3.3.8 Non-Governmental Organization (NGO) Offices ............................................ 55
3.4 Demand Analysis..................................................................................................... 56
3.4.1 Factors Affecting the Demand ........................................................................ 56
3.4.2 Demand Projection ......................................................................................... 63
3.5 Supply Analysis........................................................................................................ 66
3.6 Projected Supply ..................................................................................................... 72
3.7 Demand and Supply Gap......................................................................................... 76
3.8 Competition ............................................................................................................ 77
3.9 Marketing Strategy ................................................................................................. 77
3.9.1 Identifying Target Market ............................................................................... 78
3.9.2 Promotion and Advertisement ....................................................................... 78

4. SITE EVALUATION ...................................................................................................... 81

4.1 Location................................................................................................................... 81
4.2 Utilities .................................................................................................................... 85
3.9.3 Power .............................................................................................................. 85
3.9.4 Water .............................................................................................................. 86
3.9.5 Telephone, Internet and Wi-Fi........................................................................ 86
3.9.6 Fuel.................................................................................................................. 87
4.3 Environment............................................................................................................ 87

5. TECHNICAL STUDY..................................................................................................... 88
5.1 Land......................................................................................................................... 88

[Link]. | SGS Consulting Solution PLC ii

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

5.2 Building and construction ....................................................................................... 88

5.3 Machineries and Auxiliary Equipment .................................................................... 89
3.10 Office Furniture and Equipment ............................................................................. 91
5.4 Vehicles ................................................................................................................... 92
5.5 Occupancy Rate ...................................................................................................... 93
5.6 Implementation Schedule....................................................................................... 93

6. COST ESTIMATION ..................................................................................................... 96

6.1 Pre-operation Expenditure ..................................................................................... 96

6.2 Working Capital....................................................................................................... 96
6.3 Investment Outlay................................................................................................... 97
6.4 Source of Finance.................................................................................................... 97

7. ORGANIZATION AND MANAGEMENT ..................................................................... 99

7.1 Organizational Structure......................................................................................... 99

3.10.1 Office of the General Manager ..................................................................... 100
3.10.2 Administration and Finance .......................................................................... 100
3.10.3 Marketing Department ................................................................................. 101
3.10.4 Technical and Maintenance Department ..................................................... 102
7.2 Management......................................................................................................... 103
7.3 Manpower............................................................................................................. 103

8. FINANCIAL VIABILITY ............................................................................................... 105

8.1 Basic Assumptions Employed................................................................................ 105

a) Project Life ............................................................................................................ 105
b) Repair and Maintenance Cost............................................................................... 105
c) Depreciation and Amortization............................................................................. 106
d) Terminal (salvage) Value....................................................................................... 106
e) Discounting ........................................................................................................... 106
8.2 Results of Financial Analysis.................................................................................. 107
3.10.5 Profitability.................................................................................................... 107
3.10.6 Cash Flow Projection/Liquidity:- ................................................................... 107
3.10.7 Financial Internal Rate of Return (IRR):- ....................................................... 108
3.10.8 Net Present Value (NPV) ............................................................................... 108
[Link]. | SGS Consulting Solution PLC iii
ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

3.10.9 Sensitivity Analysis-....................................................................................... 109

3.10.10 Benefit to Cost Ration (BCR) ..................................................................... 111

9. SOCIO ECONOMIC ASPECT ................................................................................... 112

9.1 Employment Opportunity ..................................................................................... 112
9.2 Generates Revenue for the Government ............................................................. 112
9.3 Provide Aesthetic Value for the City ..................................................................... 112
9.4 Generates Profit.................................................................................................... 113

10. CONCLUSION and RECOMMENDATION ........................................................... 114

10.1 Conclusion............................................................................................................. 114

10.2 Recommendation.................................................................................................. 115
10.3 Viability Comparison of the G+40 and G+20 projects........................................... 116

[Link]. | SGS Consulting Solution PLC iv

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Figure & Table

Figure
Figure 1: Far View of Addis Ababa City.................................................................................. 7
Figure 2: CBE & AU Head Quarter (from right to left respectively) ..................................... 16
Figure 3: Sample Land Marks of Addis Ababa ...................................................................... 16
Figure 4: Growth of Bank Branches in Ethiopia..................................................................... 50
Figure 5: Growth of Insurance Branches in Ethiopia.............................................................. 52
Figure 6: Ethiopia population Estimation ............................................................................... 57
Figure 7: urban population growth, 1976-2011 EC................................................................ 59
Figure 8: Real GDP Growth in Percent ................................................................................... 61
Figure 9: Ethiopia GDP per capita ........................................................................................... 62
Figure 10: Ethiopia GDP Projection......................................................................................... 63
Figure 11: Sample Deteriorated Images of Addis Ababa ........................................................ 84
Figure 12: Organogram of the Company .............................................................................. 102
Table
Table 1: The Sub Cities of Addis Ababa & their Population................................................... 8
Table 2: Tallest buildings in Addis Ababa.............................................................................. 15
Table 3: Growth of Bank Branches in Ethiopia...................................................................... 49
Table 4: Growth of Insurance Branches in Ethiopia............................................................... 51
Table 5: Number of new MSEs and Employment created...................................................... 54
Table 6: Urban population growth, 1976-2011 EC................................................................. 59
Table 7: Number of New Licenses Issued in the past five years in Addis Ababa.................... 65
Table 8: Forecasted trade and business licenses to be issued and new employment
opportunity to be created ...................................................................................................... 65
Table 9: Projected new office space enquired (Demand)....................................................... 66
Table 10: Number of operational mixed/multipurpose buildings within one kilometer radius
................................................................................................................................................ 67
Table 11: Number of operational mixed/multipurpose buildings >1 but <2 kilometer radius
................................................................................................................................................ 68
Table 12: Number of operational mixed/multipurpose buildings >2 but <3 kilometer radius
................................................................................................................................................ 69
Table 13: Total number of operational mixed/multipurpose buildings within one kilometer
radius ...................................................................................................................................... 70
Table 14: Total Number of operational multipurpose buildings in Addis Ababa ................... 71
Table 15: current supply of multipurpose buildings in Addis Ababa ...................................... 72
Table 16: Number of construction permits granted from 2008 EC to 2011 EC. ..................... 73
Table 17: Number of new construction permits granted for multipurpose buildings ........... 74
Table 18: projected supply of multipurpose rentable area in m2 .......................................... 76

[Link]. | SGS Consulting Solution PLC v

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Table 19: Demand and Supply Gap in m2 unit ....................................................................... 76

Table 20: List of Machineries and Equipment......................................................................... 91
Table 21: List of Furniture and Equipment ............................................................................. 92
Table 22: List of vehicles with their respective cost ............................................................... 93
Table 23: Implementation Schedule ....................................................................................... 95
Table 24: Working Capital Requirement................................................................................. 97
Table 25: Investment Layout .................................................................................................. 97
Table 26: Manpower Requirement and Annual Labor Cost ................................................. 104
Table 27: Net Present Value ................................................................................................. 109
Table 28: Comparison of the two alternatives ..................................................................... 116

[Link]. | SGS Consulting Solution PLC vi

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

EXECUTIVE SUMMARY

This study is conducted to evaluate a high rising multipurpose building

project in which Ethiopian Construction Works Corporation has planned to

undertake. The study has assessed the market condition for the project, the

technical aspect of the project, and Man power & management requirement

of the project. Moreover, the financial requirement and sources of finance for

the project were also identified.

Prior to this study, the promoter has already passed a decision to build a

G+20. However, the promoter wanted to scale up the building to a height of

G+40 for a valid on its own side. Hence, this feasibility study is purely

conducted to assess the viability of the G+40 two towers multipurpose

building. The following few paragraphs summarize the results of this study.

The project is planned to be established in Addis Ababa City, Kirkos Sub

City around Mexico Square, along the Mozambique Street.

Based on the market study conducted, there is sufficient market for

multipurpose high rising building in Addis Ababa. Moreover, it is understood

that the competition in the area is very minimal as there is no much high

rising buildings in the area.

The project under discussion is planned to be financed from the promoter of

which is the sole sponsor of the project. The Total investment cost of the
[Link]. | SGS Consulting Solution PLC vii
ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

project is estimated to be Birr 11,911,933,105.85. Out of which Birr

11,905,999,722.00 is for fixed investment, Birr 933,383.85 is for working

capital and Birr 5,000,000.00 is for pre-operating costs.

The projected profit and loss statement shows a net profit of ETB

362,436,693 in the 1st year of operation which steadily increases to net

profit of ETB 1,009,257,950 in the 10th year. The cash flow projection also

indicates a positive net cash inflow of ETB 960,217,265 in the 1st year and

ETB 1,607,020,298 in the 10th year. The balance sheet projection also

shows a steady capital build up from ETB 12,274,369,799 in the 1st year to

ETB 19,011,868,472 in the 10th year. Accordingly, the Financial Internal Rate

of Return (FIRR) after tax is calculated to be 7.03% while the FIRR before

tax is 9.71%. The before and after tax NPVs of the project are ETB

2,041,858,353 and 21,552,905 respectively at 7% discount rate.

The project is found to be very sensitive to a decrease in revenue, an

increase in operating cost and a slight increase in investment cost.

[Link]. | SGS Consulting Solution PLC viii

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

1. BACKGROUND INFORMATION

1.1Brief History of Ethiopian Construction Works Corporation

(ECWC)

The Ethiopian Construction Works Corporation (ECWC) is a public enterprise

that is established with the authorized capital of Birr 20,313,608,143.90. Of

which Birr 7,743,333,613.80 is paid up in cash and in kind. The corporation

amended by council of Ministers Regulation No. 390/2016, on September

28/2016; on December 18/2015 based on council of Ministers Regulation No.

366/2015. The corporation amended by council of Ministers Regulation No.

390/2016, on September 28/2016.

ECWC is governed by the Public Enterprises Proclamation No.25/1992. Its

supervising authority is The Ministry of Public Enterprises and its policy-

making body is the Board of the Corporation whose members are appointed

by the government selected from different organizations. The headquarters of

the corporation is located in the city of Addis Ababa, around Gured Shola. It

is head by a Chief Executive Officer (CEO).

The corporation is a result of the amalgamation of two formerly independent

public enterprises, namely the Ethiopian Road Construction Corporation and

the Ethiopian Water Works Construction Enterprise.

[Link]. | SGS Consulting Solution PLC 1
ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

While it is a recent phenomenon, which is established on December 18/2015,

its history part of the history of the above mentioned former enterprises and

hence can be traced back to the late 1940s and early 1950s.

At that time the Imperial Government of Ethiopia was convinced to establish

a Road Agency solely responsible for rehabilitating/ restoring and expanding

the road network throughout the country. Accordingly, in 1951 the Imperial

Highway Authority (IHA) was established to plan, design, construct, and

maintain roads.

Vision, Mission & Values of ECWC

Vision

To be a worldwide competent construction company by 2026

Mission

By using skilled manpower and modern technology, delivering quality

construction works both domestically and overseas, assembling construction

machineries, and equipment, manufacturing spare parts as well as acquiring,

owning and administering dams constructed by the government, collecting

charges from the beneficiaries of such dams and expanding such

development activities.

[Link]. | SGS Consulting Solution PLC 2

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Values

Our core values are:-

 Quality first

 Teamwork

1.2 Purpose of ECWC Establishment

ECWC is established for the following objectives:

1. To engage in domestic and overseas construction works as a

contractor in construction, upgrading and maintenance of roads,

bridges, works related to dams, irrigations, hydropower generations,

water supply systems, sewerage systems, drainage, deep water wells,

reclamations, river diversions, of buildings, airfields, rail ways, ports

and other civil works;

2. To engage in the assembling of construction equipment and

machineries, and manufacturing spare parts; to provide maintenance

service for construction equipment and machineries, and produce

construction materials and different kinds of pipes necessary for its

activities, and to sell them as may be appropriate;

3. To acquire, own and administer irrigation dams, deep water wells and

as may be necessary water supply canals constructed and to be

[Link]. | SGS Consulting Solution PLC 3

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

constructed by the Federal Government budget and collect charges

from the beneficiaries of such dams;

4. To engage in the rental business of construction equipment,

machineries, warehouses and buildings;

5. To produce qualified human resource with required discipline, number

and quality for the Corporation by using its own training facilities or

work in co-ordination with relevant domestic or international research,

educational and training institutions;

6. To make studies and forward proposals in line with directions given

by the Ministry of Public Enterprises to get financial, technological and

modern administrative inputs (including attracting investment or to

engage in investment) to be competitive and profitable in domestic

and overseas works;

7. To sell and pledge bonds and to negotiate and sign loan agreements

with local and international financial sources in line with the directive

issued by the Ministry of Finance and Economic Co-operation and in

accordance with policy direction given by Ministry of Public Enterprises;

[Link]. | SGS Consulting Solution PLC 4

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

8. To render design and construction, engineering procurement and

contracts, design building operation and management or transfer and

other general construction project management services.

9. To engage in deep foundation and excavation for specialized

electromechanical works, tunneling ready mix concrete production and

pouring, demolishing services, rendering a concrete and steel structure

based building technology and construction solution related to

prefabricated building and conventional system,

10. To undertake any other related activities necessary for the attainment

of its purposes.

Source: [Link]

1.3 Basic Facts of Addis Ababa City

Addis Ababa is the capital and largest city of Ethiopia. It is the seat of the

Ethiopian federal government. It consists of a population of 3,384,569 as per

the 2007 population enumeration, with yearly growth rate of 3.8%. This

number has been expanded from the initially published 2,738,248 figure and

gives off an impression of being still to a great extent underestimated.

As a chartered city , Addis Ababa has the status of both a city and a

state. It is where the African Union is headquartered and where its

[Link]. | SGS Consulting Solution PLC 5

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

predecessor the Organization of African Unity (OAU) was based. It also hosts

the headquarters of the United Nations Economic Commission for Africa

(ECA), as well as various other continental and international organizations.

Addis Ababa is therefore often referred to as "the political capital of Africa"

for its historical, diplomatic and political significance for the continent. The

city lies a few miles west of the East African Rift which splits Ethiopia into

two. The city is populated by people from different regions of Ethiopia. It is

home to Addis Ababa University.

Addis Ababa lies at an elevation of 2,200 metres (7,200 ft) and is a grass

land biome, located at 9°1′48″N 38°44′24″E Coordinates: 9°1′48″N 38°44′24″E.

The city lies at the foot of Mount Entoto and forms part of the watershed

for the Awash. From its lowest point, around Bole International Airport, at

2,326 metres (7,631 ft) above sea level in the southern periphery, Addis

Ababa rises to over 3,000 metres (9,800 ft) in the Entoto Mountains to the

north. Addis Ababa City Administration has ten sub cities.

Addis Ababa is located at the centre of Shewa region, the city stands at

the very heart of Ethiopia and enjoys excellent connections with all of the

country's economic zones. Addis Ababa is dominated by the 3,000-metre

(9,840-foot) high Entoto Mountains immediately to the north; Addis Ababa is

Ethiopia's largest city. Covering 250 square kilometers (97 square miles), the

city rambles pleasantly across many wooded hillsides and gullies cut through

[Link]. | SGS Consulting Solution PLC 6

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

with fast-flowing streams. Despite its proximity to the Equator, its lofty altitude

- the third-highest capital in the world - means that it enjoys a mild, Afro-

alpine climate.

Figure 1: Far View of Addis Ababa City

The city is divided into ten sub-cities. The detail of the sub-cities is

described in detail in the table below:

[Link]. | SGS Consulting Solution PLC 7

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Table 1: The Sub Cities of Addis Ababa & their Population

Nr Sub city Area (km²) Population Density Map

1 Addis Ketema 7.41 271,644 36,659.1

2 AkakyKaliti 118.08 195,273 1,653.7

3 Arada 9.91 225,999 23,000

4 Bole 122.08 328,900 2,694.1

5 Gullele 30.18 284,865 9,438.9

6 Kirkos 14.62 235,441 16,104

7 KolfeKeranio 61.25 546,219 7,448.5

8 Lideta 9.18 214,769 23,000

9 Nifas Silk-Lafto 68.30 335,740 4,915.7

10 Yeka 85.46 337,575 3950.1

For the capital city 662,728 households were counted living in 628,984

housing units, which results in an average of 5.3 persons to a household.

The economic activities in Addis Ababa are diverse. According to official

statistics from the federal government, some 119,197 people in the city are

engaged in trade and commerce; 113,977 in manufacturing and industry;

80,391 Homemakers of different variety; 71,186 in civil administration; 50,538

[Link]. | SGS Consulting Solution PLC 8

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

in transport and communication; 42,514 in education, health and social

services; 32,685 in hotel and catering services; and 16,602 in agriculture. In

addition to the residents of rural parts of Addis Ababa, the city dwellers also

participate in animal husbandry and cultivation of gardens. 677 hectares

(1,670 acres) of land is irrigated annually, on which 129,880 quintals of

vegetables are cultivated.

It is a relatively clean and safe city, with the most common crimes being

pick pocketing, scams and minor burglary. The city has recently been in a

construction boom with tall buildings rising in many places. Various luxury

services have also become available and the construction of shopping malls

has recently increased. According to Tia Goldenberg of IOL, area spa

professionals said that some people have labeled the city, "the spa capital of

Africa. Ethiopian Airlines has its headquarters on the grounds of Bole

International Airport in Addis Ababa.

Tourism is a growing industry within Addis Ababa and Ethiopia as a whole.

The country has seen a 10% increase in tourism over the last decade,

subsequently bringing an influx of tourists to Addis Ababa. In 2015, the

European Council on Tourism and Trade named Ethiopia the #1 tourist spot

in the world. The city has a zoo which is famous for its lions. They were

considered to be "genetically unique".

[Link]. | SGS Consulting Solution PLC 9

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

The city is home to the Ethiopian National Library, the Ethiopian Ethnological

Museum (and former Guenete Leul Palace), the Addis Ababa Museum, the

Ethiopian Natural History Museum, the Ethiopian Railway Museum and

National Postal Museum.

Notable taller architecture in Addis Ababa includes commercial banks head

quarters, the Huda Tower, Nani Tower, as well as the approved Angola

World Trade Center Tower, Abyssinia Bank Tower, Mexico Square Tower,

and the 200 million dollars AU Conference Center and Office Complex.

Addis Ababa University was founded in 1950 and was originally named

"University College of Addis Ababa", then renamed in 1962 for the former

Ethiopian emperor Haile Selassie I who had donated his GeneteLeul Palace

to be the university's main campus in the previous year. It is the home of

the Institute of Ethiopian Studies and the Ethnological Museum. The city also

has numerous public universities and private colleges including Addis Ababa

Science and Technology University, Ethiopian Civil Service University, Admas

University College, St. Mary's University, Unity University, Kotebe Metropolitan

University and Rift Valley University.

Public transport is through public buses from three different companies

(Anbessa City Bus Service Enterprise, Sheger, and Alliance), Light Rail or

blue and white taxis. The taxis are usually minibuses that can seat at most

[Link]. | SGS Consulting Solution PLC 10

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

twelve people, which follow somewhat pre-defined routes. The minibus taxis

are typically operated by two people, the driver and a weyala who collects

fares and calls out the taxi's destination. Sedan taxis work like normal taxis,

and are driven to the desired destination on demand. In recent years, new

taxi companies have appeared which uses other designs, including one large

company using yellow sedan taxis.

Addis Ababa is considered to be extremely safe in comparison to the other

cities in the region. On a crime index, Addis Ababa scores a 44.28, putting

it at a crime level of moderate. Pick pocketing and petty unarmed thefts are

more common within the city. Corruption and bribery are extremely common

crimes in Addis Ababa. Violent crimes are very unlikely to happen in the

city.

Addis Ababa was the site for a Guinness World Record for the biggest

human replication of an airplane. In June 2016 at Addis Ababa Airport, a

record-setting 350 Ethiopian Airlines employees wore bright yellow uniforms

and stood in measured formation to accurately outline an Airbus 350 XWB.

The event was a tribute to Ethiopian Airlines’ purchase of Africa’s first Airbus

350 XWB, an important milestone for the region’s aviation industry.

Ethiopia shipped US$2.9 billion worth of goods around the globe in 2017.

Ethiopia’s highest-value exports include processed coffee, petroleum oils, fresh

[Link]. | SGS Consulting Solution PLC 11

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

cut roses, miscellaneous vegetables, sesame seeds, live cattle, gold, kidney

beans and goat meat according to the International Trade Centre.

Addis Ababa, the capital city, is the highest capital city in Africa, at 2,400

meters.

Ethiopia is the second most-populous country in Africa, with a population of

over 90 million people by 2015. It is second to Nigeria, which had a

population of over 174 million people by 2013.

Ethiopia is the diplomatic capital of the continent. It hosts the headquarters

of African and international organizations such as the African Union, UN

Economic Commission for Africa, UNESCO and UNDP.

Ethiopia has the most UNESCO World Heritage Sites in Africa. The nine

sites are Aksum, Fasil Ghebbi, Harar, Konso Cultural Landscape, and Lower

Valley of the Awash, Lower Valley of the Omo, Rock-Hewn Churches, Simien

National Park and Tiya.

Ethiopia is one of the main destinations for tourists exploring the Horn of

Africa. It has a beautiful blend of cultures and delicious exotic dishes. It has

numerous airports to get you to any destination within the country. Among

these key points of entry is Addis Ababa Airport, also known as Bole

International Airport.

[Link]. | SGS Consulting Solution PLC 12

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Recent Developments in Addis Ababa

The inauguration the Unity Park will create one significant contribution the

flow and stay of tourists within the capital.

Currently Addis Ababa just launched a 29 billion birr (about $1.028 billion)

project aiming at making the city green by developing and rehabilitating two

river streams of the city. The project aims to enhance the well-being of city

dwellers by mitigating river flooding and through the creation of public spaces

and parks, bicycle paths and walkways along the riversides’.

This project will run along two of the largest rivers of the city, stretching a

total of 51 kilometers all the way from the mountains of Entoto through to

Akaki River.

It also aims to improve the well-being of inhabitants and realize the country’s

aspiration of building a green economy through the expansion of green

spaces and converting solid waste dropped into the rivers to usable

materials.

The public parks that will be developed through this project will have lanes

dedicated for bicycle riders, pure water and solar energy supply and

recreational areas. The project is expected to be completed within three

years, and create job opportunities for lots of people of the city.

[Link]. | SGS Consulting Solution PLC 13

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

The Addis Ababa River Side Project is an initiative of Prime Minister Abiy

Ahmed of Ethiopia. It aims to face-lift the image of the city and properly

utilizes the potential of the capital. The development project will run along

the two biggest rivers in Addis Ababa – stretching 23.8kms and 27.5kms

respectively – all the way from the mountains of Entoto through to Akaki

River.

The three main aims are: firstly, to elevate the city to a site of urban

tourism leveraging on rehabilitation of the aforementioned water bodies.

Secondly, enhance the well-being of city dwellers by putting river flooding in

check and creating public spaces, parks, bicycle paths and walkways along

the river banks. Lastly, to enable the aspiration of a green economy by

expanding green spaces and creating related services economies.

Some of the impacts expected from the project are to draw international and

domestic tourism into the capital with the view of a healthy atmosphere for

visitors. To create employment for teeming youth and other professionals’

whiles at it boost the economies that will serve persons who come into

contact with the project.

Source: Wikipedia & Addis Ababa City Government Official Website

Addis Ababa is also the home of many high-rising and iconic buildings in

Ethiopia. The under construction the head quarter of the Commercial Bank of

[Link]. | SGS Consulting Solution PLC 14

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Ethiopia ,which has got 46 floors and 198m tall , is the tallest building in

the country. African Union Headquarters building is one of the iconic high-

rising buildings that were designed to be an icon of the African Union’s

progression, symbolizing the stabilization, rejuvenation, and peace of the

united continent. The Grand Conference Hall’s ellipsoidal volume was placed

in the center of the complex as a prominent feature, emphasizing the

importance of inclusion and communication. Here you see the 20 tallest

buildings of Addis Ababa. This list only regards multi-story buildings.

Table 2: Tallest buildings in Addis Ababa

S/N Building Floors Height Year

1 Commercial Bank of Ethiopia Headquarters 48 198 m 2019
2 African Union Headquarters 21 118 m 2011
3 Nani Tower 22 103 m 2004
4 United Bank Headquarters 35 ≈131 m 2019
5 NIB Bank Headquarters 35 ≈131 m 2019
6 Zemen Bank Headquarters 30 ≈112 m 2019
7 ORDA Headquarters 27 ≈101 m 2020
8 Nile Insurance Company Headquarters 25 ≈94 m 2019
9 Wegagen Bank Headquarters 23 ≈86 m 2017
10 Kebede Ketema Tower 22 ≈82 m 2019
11 Legacy Real Estate Tower 22 ≈82 m 2019
12 Dashen Bank Headquarters 21 ≈79 m 2017
13 Mozambique Street Building 21 ≈79 m 2019
14 Eleli Building 21 ≈79 m 2019
15 Bole Central 20 ≈75 m -
16 Grace Plaza 20 ≈75 m -
17 Chelelek Alsam Tower 20 ≈75 m 2019
18 Roosevelt Street Buidling 20 ≈75 m 2020
19 Bole Housing Project I 19 ≈71 m -
20 Bole Housing Project II 19 ≈71 m
Source: [Link]
ethiopia

[Link]. | SGS Consulting Solution PLC 15

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Figure 2: CBE & AU Head Quarter (from right to left respectively)

Addis Ababa City is the home of many museum, cultural houses, government

and private universities and colleges, historical places, monuments, the

residence of many countries embassy and international companies. This

makes the city to attract eyes of the many international and national

investors and tourists. Addis Ababa is Africa's unchallenged diplomatic capital,

with more than seventy- embassies and consular representatives clustered in

the mountain city.

Figure 3: Sample Land Marks of Addis Ababa

[Link]. | SGS Consulting Solution PLC 16

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

2. BUSINESS ENVIRONMENT AND INCENTIVES FOR

INVESTORS

2.1Analysis of the Business Environment

External business environments affect the operations of the envisaged project.

A prior review of the situations would help to foresee factors that may affect

the project and pave the way to make preparations ahead.

The major external factors that affect the operation of a business enterprise

are considered to be the political, socio – economic/ socio-cultural and

technological development (PEST). Moreover, availability of infrastructure is

also vital for the smooth operation of a business. Accordingly, analysis of

these factors and their impacts as related to the activity of the envisaged

project are briefly discussed below.

2.2 Political

The formal Ethiopian state structure has been transformed from a highly

centralized system to a federal and increasingly decentralized one. Due to

the extensive capacity building programs carried out, significant progress has

been achieved in good governance & public service delivery, in ensuring

transparency of operation and the efficiency and accountability of the justice

system.

[Link]. | SGS Consulting Solution PLC 17

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Relatively Ethiopia offers a stable political and economic environment as well

as security; exceptional climate; almost complete absence of routine

corruption; and continuously improving public service delivery; make it

potentially an ideal destination for investment.

More specifically, even though Ethiopia is a large and very diverse country,

the political environment is characterized by very little crime and disorder.

2.3 Economic

Ethiopia is one of the fastest growing economies of the world. During the

past ten years, real GDP has registered an annual average growth rate of

11.3%. Ethiopia`s economy is expected to continue to grow on average by

about 9.9% per annum for the GTP॥. Since 1992, the government has

successfully implemented a series of reform programs, in order to transform

the economy from a command to a market economy, to speed up the

integration of the economy into the world economy and encourage the wider

participation of the private sector in developing the national economy. Such

reforms include, among others:

 Deregulation of domestic prices;

 Liberalization of foreign trade and abolition of all export taxes;

 Devaluation of the exchange rate;

[Link]. | SGS Consulting Solution PLC 18

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

 Enhancement of the private sector through development PPP;

 Promulgation of a liberal investment law; and

 Issuance of a new labor law

Currently, the government is working to transform the economy from agrarian

to industrial. To achieve this objective various activities that would enhance

the establishment of manufacturing enterprises are underway. Among these

are the development of industrial zones and/ or industrial areas, prioritization

of loans, allocation of land and various incentive mechanisms.

2.4 Socio - Economic and Cultural

The country's current population is about 103 million and it estimated to be

111million by 2020. One of the features of Ethiopia`s demographic

characteristics is that a large number of the population join the national

workforce each year. According to the document of GTP ॥, the ratio of the

population of working age to the total population is about 55.2% at the base

year 2014/15 and it is estimates 54.5% at the end of GTP ॥. Provided that

the additional workforce receive the support necessary to be productive, the

country`s workforce plays a significant role in increased economic growth and

development.

[Link]. | SGS Consulting Solution PLC 19

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

The total student population of the higher education system in Ethiopia is

40.5% and it is estimated to be 79% by the end of GTP ॥. Furthermore, as

part of the government’s effort to create a skilled labor force, the Technical

and Vocational Education and Training (TVET) program is given high priority.

Accordingly, in addition to improving the quality and number in the primary

and secondary education, it is planned to substantial increase the number of

under graduate students.

The above points discussed reveals that the country can avail skilled and

semi-skilled labor forces that are needed for industrialization. Moreover, due

to the abundant work force availability, the cost of the labor force is very

competitive compared to the labor cost of the Asian countries like China and

India and many other African countries like Kenya, Uganda, and Egypt.

2.5 Availability of Infrastructure

a) Transport

Recognizing the importance of the road infrastructure in supporting social and

economic development and in meeting poverty reduction objectives, the

Government of Ethiopia has placed increased emphasis on improving the

quality and quantity of the road infrastructure.

Owning to the series of Road Sector Development Programs which is started

in 1997 the stock of roads in the country has increased significantly.

[Link]. | SGS Consulting Solution PLC 20

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

The expansion in the length of roads in km is one indicator of the

development of the sub-sector. The other indicators are road density, per

1,000 people ratio and average distance to all weather roads. Average

distance from all-weather roads has also decreased from 21 km to 10.2 km.

The Ethiopian Airports Enterprise (EAE) owns and operates 21 airports. The

Enterprise has embarked on upgrading of the existing airports infrastructure

facilities and its related systems. This included the transformation of Addis

Ababa International Airport with a new runway, five taxiways, a new

international terminal, and upgraded communication and safety facilities

completed in 2003 as per ICAO standard. Moreover, the company has

conducted expansion of USD 250 million projects to expand Addis Ababa

Bole International Airport and to turn the airport into a mega hub for the

region. The project includes the expansion of the two existing terminals,

allowing Bole to serve around 25 million commuters each year, a significant

increase from its current annual capacity of 6.5 million passengers.

EAE has also upgraded the Arba Minch, Axum, Gondar, Lalibela, Mekelle,

Dire Dawa and Bahir Dar Airports to international standards. The upgrading

of Jimma, Assosa, Gambella and Jijiga airports is also underway. EAE has

also constructed a new airport in Hawassa and Humera towns. The

enterprise is also contemplating to build a giant international airport (mega

[Link]. | SGS Consulting Solution PLC 21

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

hub project) in a lowland area outside Addis Ababa. Due to the air traffic

growth at the Addis Ababa Bole International Airport , the Ethiopian Airport

Enterprise to plan to build a new international airport between Modjo and

Meki towns on the Hawassa road. EAE plans to operate a total of 21

airports across the nation by the end of 2015/16 fiscal year.

Air transport is an important part of Ethiopia's transport network. Ethiopian

Airline has gained a very good reputation internationally in its 73 years of

active services. The airline provides both domestic and international air

transport services. It has an outstanding safety records and is one of the

few profitable African airlines. Ethiopian, a star alliance member, services

include both passenger and cargo transport in its international flights and

domestic routes. It also provides training and maintenance services to more

than a dozen other African and Middle Eastern airlines.

The airline's hub is located at Addis Ababa Bole International Airport. As of

November 2016, the carrier served 97international and 20domestic passenger

destinations, with 55 passenger destinations in Africa, 17 in Europe and the

Americas, and 25 in the Middle East and Asia; the airline also operates a

cargo network of 35 destinations in Africa, Europe, and in the Middle East

and Asia. Regarding Ethiopian cargo services, it operates over 40 cargo

destinations spread across Africa, Europe, Asia and the Middle East via its

hub in Addis Ababa, and another cargo hub at Liege.

[Link]. | SGS Consulting Solution PLC 22

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Ethiopian Airlines has been expanding its capacity in terms of passenger

aircraft number. The overall number of passenger aircrafts has increased from

29 carriers in 2005 to 82 in 2016. Out of the 85 fleet sizes, 113 of them

are passenger and the remaining 35 are cargo. The airline serves over 61

countries all over the world. It has a daily departure of 253. At the same

time the airlines has been replacing low capacity passenger aircrafts with

high capacity passenger aircrafts overtime. The high capacity aircrafts

operated by EAL includes eight ultramodern Boeing 787- and 777-Dream

liners.

Until 1976 when Ethiopian configured its 707-320C aircraft into a cargo only

freighter, the airline used the belly holds of its passenger aircraft for cargo

carriage. In 1985, Ethiopian acquired a B707 all-cargo aircraft, further

expanding its cargo facilitates and this was followed in 1988 by the delivery

of two Lockheed L100-30s, registering a quantum leap in cargo capacity. At

present, EAL freighter fleet consists of two 757Fs and the belly holds of

nine B767-300ER, six B757s and five 737-700 aircraft. In addition, the

company has obtained two B777F to transport floriculture and horticulture

produces to Brussels thereby enabling perishable Ethiopian commodities reach

the European market.

Moreover, the EAL has placed a firm order for 31 aircrafts which include

state-of-the-art five Boeing 787 Dream liners and fourteen, A350-900 Airbus.

[Link]. | SGS Consulting Solution PLC 23

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

In addition to Ethiopian, other airlines have flight schedules from and to

Addis Ababa and these include such airlines as Emirates, KLM, Lufthansa,

Kenyan and others.

Currently Ethiopia has a limited rail service. However, realizing the cost

effectiveness and the importance of railway transport the government has

given precedence for the development of national railway network.

Accordingly, the government has identified eight railway corridors for study;

design and subsequent implementation, the total length of which is about

4,744 km. In order to make the implementation process manageable, the

NRNE projects have been phased into two parts as follows. Addis Ababa-

Djibouti Railway Project which was planned under phase । has already

completed and the other phase one projects are under implementation.

Phase I

 Mekele – Weldya/Hara Gebeya - Semera-Tadjourah Port Railway

Project

 Addis Ababa –Ijaji-Jimma-Dima Including Jimma - Bedele Railway

Project

 Awash- Kombolcha-Hara Gebeya Railway Project

 Mojo-Shashemene-Arbaminich-Weyto Railway Project

[Link]. | SGS Consulting Solution PLC 24

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Phase II

 Jimma-Guraferda-Dima direct to Bonga

 Ijaji-Nekemet-Assosa-Kumuruk

 Mekele-Shire

 Fenoteselam-Bahirdar-Wereta-Weldia

 WeretaAzazo-Metema

 Adama-Indeto-Gassera-Ginir

The government has selected portion of the above corridors to be

constructed in the GTP 2 periods. A total of 2,300 km of railway has been

planned for construction in the GTP2 period, and EPC contractors have

commenced construction of the Addis Ababa – Djibouti railway corridor. The

total project length up to the Ethiopian border is 657 km. Moreover, the

following railway projects are under process for commencement of

construction:

 Awash – Weldiya (375 km)

 Weldiya – Mekelle (420 km),

 Weldiya – Asayta, (229 km), and

 Asayta – Tadjourah Port (210 km)

[Link]. | SGS Consulting Solution PLC 25

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Moreover the Addis Ababa Light Rail Transit Project constituting the Addis

Ababa N – S LRT project with a length of 16.3 km and the Addis Ababa E

– W LRT project with a length of 17.2 km and with a cumulative project

length of 34 km is providing service since 2007 EFY.

In order to ensure efficient, cost effective and reliable import and export

movement of cargo to and from the sea ports of neighboring countries, the

government has established the Ethiopian Shipping and Logistics Services

Enterprise. The Enterprise is currently operating two dry ports which are

located at Modjo and Semera, 73 km and 588 km, from the capital

respectively. Addis Ababa, the capital city, is linked by road to the port of

Djibouti 910 km at the Gulf of Aden. The port of Barbara, 964 km in

Somaliland and Port Sudan, 1,881 km, in Sudan are other external trade

routes that provide services for export-import trades of the country. Another

potential port accessible to Ethiopia is Mombassa, 2,077 km in Kenya.

The Shipping wing of the Ethiopian Shipping and Logistics Service Enterprise

provides Coastal and International Marine and Internal Water Transport

services from/to Djibouti Port, through over 40 ports across the globe in the

Gulf area and around the Indian Sub-Continent, China, Korea, Japan,

Singapore, South Africa and Indonesia.

[Link]. | SGS Consulting Solution PLC 26

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

The sector has also started rendering Multimodal Transport Service/Inland

Transport Service/ by transporting the cargo under a single contract, but

performed with at least two different means of transport from its origin to its

destination. This enables the customers to receive their cargo without any

inconveniences.

The Ethiopian Shipping and Logistics Services Enterprise own 8 vessels with

a combined capacity of 150,000 tons. As part of its fleet renewal, ESLSE

has made out a contract for nine new ships with a Chinese company. The

order is for seven 28,000 ton heavy lift, multipurpose vessels and two

41,500 ton tankers. The multipurpose ships have already been delivered.

b) Energy Supply and Development Plan

Ethiopia is well endowed with renewable energy sources. These include first

of all hydro, but also wind, geothermal and solar. It is estimated that

Ethiopia's hydropower potential is up to 45,000 MW which is the 2nd highest

in Africa (only DR. Congo has a higher potential). Approximately 30,000 MW

are estimated to be economically feasible which is equivalent to an electricity

generation of 162 TWh. The current production of 3.98 TWh thus equals an

exploitation of only 2.5%.

[Link]. | SGS Consulting Solution PLC 27

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Ethiopia receives a solar irradiation of 5000--7000 Wh/m² according to region

and season and thus has great potential for the use of solar energy.

According to a study by Hydro China Corporation, Ethiopia has wind power

potential that could potentially generate more than 10,000 MW of electricity.

Ethiopia is among the few countries in Africa with a significant amount of

geothermal resources. Ethiopia’s geothermal resources are estimated to be 5

GW.

The Ethiopian Electric Light and Power Authority (EELPA), which were

established in 1956, after having undergone restructuring have been

reorganized as the Ethiopian Electric Power Corporation (EEPCo). EEPCo is

responsible for generating, transmitting, distributing and selling of electricity

nationwide.

The Corporation maintains two different power supply systems; namely, the

Interconnected System (ICS), which is mainly supplied from hydropower

plants, and the Self-Contained System (SCS), which consists of mini-

hydropower plants and a number of isolated diesel generating units that are

widely spread over the country. In the ICS system EEPCo currently operates

12- hydropower, one geothermal- and 13 diesel grid-connected power plants

with a total capacity of 2,012.8 MW, 7.3 MW and 108.6 MW respectively.

[Link]. | SGS Consulting Solution PLC 28

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

In order to meet the increasing power consumption, the Ethiopian government

has been striving to exploit the huge electricity generation potential of the

country. Even though the country’s total installed capacity from hydropower

plants raised very slowly for over half-a-century, from 2000 to 2011, it has

shown a significant rise. In fact, the hydropower generation capacity

augmented more during 2010 than it did in half-a-century time. The

increment in generation capacity was also very slow before 2004. In 2004

however, it jumped to 800,406 KW from 607,660 KW in 2003, and reached

2.04 million KW in 2010.

Three hydropower plants (Gilgel Gibe II, Tanabeles, and Tekeze I) with a

combined capacity of 1,180 MW were commissioned in 2010, more than

doubling the previous installed capacity of the country. Gilgel Gibe II, which

does not have its own dam, has an installed capacity of 420 MW,

TanaBeles has 460 MW, and Tekeze I has 300 MW.

To meet the country`s growing energy needs efforts are being made by the

government to increase use of alternative energy sources such as wind,

geothermal, and hydro energy. At the end of the GTP period (2014/15), the

power generation capacity of the country is planned to increase to 10,000

MW. The Gilgel Gibe III (1,870 MW) is completed in 2015, and the massive

[Link]. | SGS Consulting Solution PLC 29

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

under construction of the Great Renaissance Dam (6,000 MW) which is

planned to be the largest plant in the country. As a result, the country’s

electricity coverage is assumed to grow from 41% in 2010 to 75% in 2017.

Genale Dawa III which has an installed capacity of 254MW is under

construction. The government has planned to construct Gilgel Gibe IV and

Gilgel Gibe V, Halele Worabesa and on other potential areas.

Moreover, the Government of Ethiopia has initiated the Climate-Resilient

Green Economy (CRGE) initiative to protect the country against the adverse

effects of climate change and to build a green economy that will help

realize its ambition of reaching middle-income status before 2025.

The CRGE foresees to develop up to 25,000 MW of Ethiopia’s generation

potential by 2030. Of this hydro holds 22,000 MW, geothermal 1,000MW and

wind 2,000MW. It is believed that the planned generation expansions will

have developed demand within the country in the long term. In the short

term various regional market potential assessment studies have equivocally

indicated the presence of a market in Ethiopia’s neighborhoods and beyond.

c) Telecommunication

Ethio -Telecom, the former Ethiopian Telecommunications Corporation (ETC),

which is state owned, sole telecom service provider in the country. The

[Link]. | SGS Consulting Solution PLC 30

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Telecom provides national and international telecommunication services using

Satellite, Micro-wave Digital Radio Multi Access System (DRMAS), VSAT,

UHF, VHF, Long Line and HF Radio.

Ethiopia’s telecommunications facility is showing marked improvements.

Currently, all regional cities and towns are connected by direct microwave

links, and have automatic telephone and cellular phone services. International

links are maintained via satellite earth stations and fiber optics, providing

telephone, telex, fax, internet, television, digital data transmission, pre-and

post-paid cellular phones and coin box services. Furthermore, the Telecom is

currently engaged in a major transformation work of Next Generation Network

(NGN) projects to create a world class telecom service provider.

Currently the government is planning to privatize some share of monopoly

Ethio-telecom and has provide license to two foreign telecom companies

d) Financial Services

Efficient banking and other financial services are available in Ethiopia. The

National Bank of Ethiopia (NBE) is the central bank of the country.

Commercial banking functions are performed by the state-owned Commercial

Bank of Ethiopia (CBE) and a number of private banks. The commercial

banks offer savings and checking accounts, short-term loans, foreign-exchange

transactions and mail and cable money transfer services. They also

[Link]. | SGS Consulting Solution PLC 31

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

participate in equity investments, provide guarantees and perform other

commercial banking activities.

The number of banks operating in the country has reached nineteen (two of

them government-owned and the rest private. The two specialized state-owned

banks are Development Bank of Ethiopia (DBE) and Commercial Bank of

Ethiopia (CBE).The former Construction and Business Bank (CBB) merged

with CBE at mid officials of 2016.

The DBE, with its 95 branches and 12 districts, extends short-, medium- and

long-term loans to viable development projects including industrial and

agricultural projects. The CBB, with its 1444 branches, provides long-term

loans for the construction of plants producing housing construction materials

and the construction of private schools, clinics, hospitals, and real estate

development. Private Banks operating in the capital and other major cities

are: Awash, Dashen, Abyssinya, Wegagen, United, Nib, Cooperative Bank of

Oromiya, Lion, Oromiya International, Buna, Zemen, Birhan, Abay, Addis,

Debub Global and Enat.

The number of insurance companies is fourteen (one is government-owned

and the rest private). Private insurance companies existing in the country are

Africa, Awash, Nice, United, Global, Nile, Nyala, Nib, Lion, National, Ethio –

Life, Oromiya and Abay.

[Link]. | SGS Consulting Solution PLC 32
ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

In addition to banks and insurance companies, micro-finance institutions play

an important role in providing credit and saving facilities for micro-enterprises.

2.6 Government Development Policy and Strategy

a) Agricultural Development Led Industrialization

The present government has also adapted a long-term overall economic

development strategy that is the Agricultural Development Led Industrialization

(ADLI). As the name implies agriculture development is chosen to act as the

springboard for the country’s overall development. This choice emanates from

the recognition that agriculture is the backbone of the national economy. The

agriculture sector is also a major source of raw material to industries. ADLI

is a two-pronged strategy incorporating, on one side, the external sector

(export -led part) and, on the other, the internal sector which shows the

forward and the backward-linkages between agriculture and industry. The base

of the strategy is that agriculture will supply commodities for exports;

domestic food supply and industrial output and expand market for domestic

manufactures.

The main objectives of the Agricultural Development Industrialization Strategy

(ADLI) are outlined below;

 Promotion of economic efficiency and growth;

[Link]. | SGS Consulting Solution PLC 33

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

 Development of domestic technological capabilities for the promotion

and development of intermediate and capital goods industries including

the production of spare parts and components;

 Promotion of inter and intra-sectoral linkages;

 Creation of a small domestic base for the transfer, adaptation and

development of technology;

 Promotion and greater use of labor intensive technologies as well as

local resources;

 Achievement of local competitiveness in areas of clear comparative

advantage in industrial exports; and

 Promotion of balanced regional industrial development.

To achieve these objectives, certain measures and institutional arrangements

should be in place. Accordingly, the following elements were identified as

pre-requisites for the successful achievement of the objectives and goals of

the ADLI.

 Creation and development of appropriate institution to promote

industrialization;

 Creation of favorable environment for industrial development;

 Promotion of inter and intra-sectoral linkages;

[Link]. | SGS Consulting Solution PLC 34

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

 Creation of an appropriate financial environment;

 Promotion of balanced regional industrial development;

 Establishment of close coordination between industry and other sectors

of the economy, specially agriculture and mining;

 Infrastructure development;

 Industrial export promotion; and

 Development of national technological capability.

b) Industrial Development Policy

In order to achieve the objectives of ADLI, it is important to formulate a

suitable industrialization strategy. Accordingly, industrial sector development

strategy was adopted in July 2003. The fundamental principles of the

strategy include: private sector led industrialization, development of export

oriented industries, strengthening the capacity of existing industries to be

competitive at the national, regional and international levels and investment

promotion and facilitation with increased emphasis on foreign investment.

Utilizing to the extent possible, labor intensive technologies with a view to

creating employment, generating incomes and alleviating poverty.

The strategy identifies key manufacturing sub-sectors to which top priority will

be given. These include: textiles and garments industries, leather and leather

products, agro-processing industries, and construction industries. These sub-

[Link]. | SGS Consulting Solution PLC 35

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

sectors are based by and large on domestic resources, offer excellent export

possibilities, have large and growing domestic markets and exhibit strong

linkages with other sectors of the economy, especially agriculture.

c) The Growth and Transformation Plan

The policy landscape of Ethiopia has entered into the second phase with the

launching of the second five-year development plan i.e. the Growth and

Transformation Plan ॥ (2015/16-2019/20). The plan envisages the

transformation of the country’s economy from agrarian to industrial.

2.7 Incentives for Investors

The Investment Proclamation 769/2012 and the Investment Incentives of the

Council of Ministers Regulation No. 270/2012 were amended by Proclamation

849/2014 and Regulation No. 312/2014, respectively, to address mainly the

issue of industrial development zones in detail. The proclamations and the

regulations on Investment Incentives constitute the main legal frameworks for

both foreign and domestic investments in Ethiopia. In the above

proclamations the government of Ethiopia has put forward various incentives

to encourage private investment. Accordingly, the following incentives are

granted to investors.

a. Customs Import and Export Duty

 Duty free entry of all investment capital goods, such as plant

machinery and equipment, construction materials, etc;

[Link]. | SGS Consulting Solution PLC 36
ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

 Duty free entry of spare parts worth up to 15% of the value of the

imported investment capital goods; provided that the goods are not

produced locally in comparable quantity, quality and price;

 Transfer of investment capital goods entered duty free to another

investor enjoying similar privileges;

 Exemptions from customs duties or other taxes for raw materials

necessary for the production of export goods;

 Exemption from the payment of any export tax and other taxes

destined for export.

b. Income Tax Holiday

Tax holiday which ranges from one to five years, depending on location and

type of the investment, is granted to investors.

c. Loss Carried Forward

Business enterprises that suffer losses during the tax holiday period can

carry forward such losses for half of the income tax exemption period

following the expiry of the exemption period.

d. Guarantees to Investors

Guarantees provided to investors and Ethiopia`s membership status in

international organizations which relate to this issue are:

[Link]. | SGS Consulting Solution PLC 37

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

 The Investment Proclamation provides investment guarantee against

measures of expropriation and nationalization that may only occur for

public interest and in compliance with the requirement of the law. The

Government guarantees to provide adequate compensation

corresponding to the prevailing market value of property and such

payment shall be effected promptly;

 Foreign investors can freely remit profits, dividends, principal and

interest on foreign loans, fees related to technology transfer and

proceeds from the liquidation of a business;

 Ethiopia is a member of the World Bank-affiliated Multilateral

Investment Guarantee Agency (MIGA), which issues guarantees against

non-commercial risks to enterprises that invest in signatory countries;

 Ethiopia is being concluding bilateral investment promotion and

protection agreements with a number of developed and developing

countries.

 Ethiopia has signed the World Bank treaty of “International Convention

on Settlement of Investment Disputes (ICSID)” between states and

nationals of other states;

 Ethiopia has also an observer status in the World Trade Organization

(WTO).

[Link]. | SGS Consulting Solution PLC 38

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

e. Incentives for Investors working within Industrial Parks

The Industrial Parks Proclamation No. 886/2015 (the “Proclamation”) is the

first detailed law in relation to the establishment development, administration

and supervision of industrial parks in Ethiopia. This issue of our legal update

highlights the salient features of the Proclamation.

Industrial park is a confined area designated as an industrial development or

processing zone with access to full infrastructure and utilities. The

Proclamation defines Industrial Park as “an area with distinct boundary

designated by the appropriate organ to develop identical, similar or

interrelated industries together or to develop multifaceted industries, based on

a planned fulfillment of infrastructures and various services such road, electric

power and water; having special incentive schemes with a broad view to

achieving planned and systematic development of industries, mitigation of the

impacts of environmental pollution and development of urban centers. It

includes, among others, special economic zones, industrial parks, technology

parks; export processing zones, free trade zones and others to be

designated by the Investment Board.”

Following the enactment of the Investment Proclamation 769/2012

Proclamation, the government established the Ethiopian Industrial Development

Zones Corporation in 2013, and which was later re-established as the

[Link]. | SGS Consulting Solution PLC 39

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Industrial Parks Development Corporation with the status of a public

enterprise under the Council of Ministers Regulation No 326/2014. The

Corporation is entrusted with the powers and duties to develop and

administer industrial parks; to prepare detailed master plan for national

industrial parks based on the national master plan; to receive land and serve

as a land bank to industrial parks; to make necessary infrastructure

accessible to industrial park developers in collaboration with the concerned

bodies; to outsource the management of industrial parks though management

contracts and to promote the benefits of industrial parks and attract investors

to the parks.

Ethiopian Government is building world-class sustainable eco-parks that are

dedicated to textile and apparel, leather and leather products,

pharmaceuticals, agro-processing etc that are aimed at coordination of

production along value chain. The industrial parks have strong government

support and investment policy led by Ethiopian Investment Board (EIB)

chaired by the Prime Minister. The parks are located along key economic

corridor and connected to ports and surrounded by the infrastructures such

as airports, railway lines, dry ports, universities etc. Other services available

in industrial parks are: one-stop-shop (on site and in EIC’s HQ in Addis

[Link]. | SGS Consulting Solution PLC 40

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Ababa), one site dedicated fire prevention and protection, waste treatment,

facilitation and after care, and park security are some of the major ones.

Ethiopia has been investing much on industrial park development and

currently the country has eight operational parks. According to the Ethiopian

Investment Commission, industrial park manufacturers and developers are

endowed with the following incentives:

Incentives applicable to Industrial Parks

Manufacturers:

 Exempted from income tax up to 8 - 10 years

 Exempted from duties & other taxes on imports of machinery,

construction materials, spare parts with a value of 15% of capital

goods after business license, raw materials for the production of

export commodities & vehicles

 One-stop government services within the parks premises

 Land lease term: 60-80 years at nominal rate for factories &

residential quarters

 Expedited procedure of securing entry, work permit and certificate of

residency for expatriate personnel working in industrial parks and their

dependents

[Link]. | SGS Consulting Solution PLC 41

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

 Customs facilitation - transport of imported raw materials straight from

customs post to factory through bonded export factory scheme

Developers:

 Exempted from income tax up to 15 years (outside Addis Ababa)

 Exempted from duties & other taxes on imports of machinery,

construction materials, spare parts, 15% of capital goods after business

license, raw materials & vehicles

 Provision of essential infrastructure, including dedicated power

substations

 One-stop government services within the parks premises

 Land lease term: 60-80 years at nominal rate for factories &

residential quarters

2.8 Conclusion of the PEST Analysis

From the above analyses it can be concluded that Ethiopia is in the midst

of a sustained growth surge that is becoming increasingly broad-based,

building on major improvements in educational attainment, improved health

outcomes, and infrastructure capacity in terms of access to power,

transportation and telecommunications. Moreover, the Government’s Growth

and Transformation Plan sets targets for further improvements in these areas,

[Link]. | SGS Consulting Solution PLC 42

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

together with significant reforms for continuous improvement of governance

and public service delivery.

The macro economic performance in the past seven years has been very

positive and the GTP indicates a very good prospect, with a minimum of

11% GDP growth per annum, for the future. Although the incentive packages

that are currently given seem to be adequate the government is planning to

give additional incentives for the manufacturing sector, particularly to export

oriented and import substituting projects. Priorities will be given to the

manufacturing sector in support provision in the areas of licensing, land and

finance allocation, training and the like.

The infrastructure development program now underway is integrating the

country’s internal economy. Moreover, Ethiopia’s connections to global markets

are being significantly upgraded with new, high-speed rail and road corridors

under construction. For international trade, this will position Ethiopian

industries closer to fully modern seaport facilities (Djibouti), on a trade route

accounting for 30% of global container traffic and connecting East, South,

and West Asia to Europe and the Americas, a position that has historically

been a natural advantage for Ethiopia.

Besides the favorable demographic characteristics of the population; the

expansion of universities as well as TVET in all parts of the country

[Link]. | SGS Consulting Solution PLC 43

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

provides good opportunity in the supply of skilled and semi-skilled technical

personnel. The fast improving social and economic infrastructures, including

the advancement of ICT, in the country would enable enterprises to run their

business smoothly, which is a major opportunity. The country also offers

stable economic policies and a solid investor protection framework.

Accordingly, it can be concluded that Ethiopia is ideal for investment.

Source: Official Websites of the respective companies

[Link]. | SGS Consulting Solution PLC 44

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

3. MARKET STUDY

3.1 General Overview

Building and construction has been an aspect of life since the beginning of

human existence. Scholars believe that the industry began with the functional

need for a controlled environment to moderate the effects of climate. Shelters

constructed to adapt a variety of climate are believed to be the first

buildings regardless of the construction material used. The first shelters

constructed perhaps lasted a few hours or days. However, through time,

when people began to stay in one place especially after the advent of

agriculture, the shelters evolved in to durable ones.

Early building materials were delicate, such as leaves, branches, and animal

hides. Gradually, more durable natural materials such as clay, stone, and

[Link]. | SGS Consulting Solution PLC 45

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

timber began to be used. As time evolves however, synthetic materials such

as bricks, concrete, metals, and plastics were used.

The first shelters were dwellings, but later other functions, such as food

storage and ceremony, were housed in separate buildings. Some structures

began to have symbolic as well as functional value, marking the beginning

of the distinction between architecture and building.

The emergence of cities and urbanization is also believed to be a turning

point in the history of buildings. The very first cities were founded in

Mesopotamia after the Neolithic Revolution, around 7500 BCE. Mesopotamian

cities included Eridu, Uruk, and Ur. Early cities also arose in the Indus

Valley and ancient China. As cities continue to grow the dynamism of

buildings and construction also grew tremendously.

With Increasing population in general and urbanization in particular, the

construction works and the nature of buildings became more and more

sophisticated.

[Link]. | SGS Consulting Solution PLC 46

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

The key economic driver for the growth of tall buildings is the lack of space

in densely urbanized parts of the world, and this is particularly true for

residential developments. The rising population in cities has also meant that

mixed-use buildings are gaining greater importance and high-rise construction

is no longer restricted to the financial and business sectors. It is becoming

an accepted global model for managing the increasing number of city

dwellers as more than one million people on our planet move to cities each

week.

3.2 Market Area

Market area is the geographic location where demand comes from and

where competitors are located. In this regard, the mixed use tower is

planned to be constructed adjacent to the main road which goes from

Mexico square to Kera. It is a few meters away from one of the busiest

square in the city i.e. Mexico Square. It is also with in 200 meter radius

[Link]. | SGS Consulting Solution PLC 47

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

from La Gare which is identified as the center of the city by the City

Administration itself.

Both La Gare and Mexico Square are the hubs of the city and there is

mass transit of taxis, buses and even metro.

The area is has proximity to major offices, markets, facilities and residential

areas. Mercato (the busiest market center in Africa), the National and

Menelik Palaces, Major Hospitals, Major Hotels of the city, the City

Administration, are all within 3 kilometer radius from the project location.

The African Union is only 500 meter far from the proposed location of the

project.

3.3 Target Customers

Target customers, better known as a target market, is a group of customers

that a firm plans to reach with marketing efforts. Identification of target

customers is a crucial and essential theme in marketing. The planned mixed

use tower will have diverse customer base but the most important ones are

identified herein below.

3.3.1 Commercial Banks

One of the lucrative businesses in Ethiopia is the banking business. All of

the Banks are highly profitable and liquid as well. Currently there are

[Link]. | SGS Consulting Solution PLC 48

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

nineteen operational Banks in the country. These Banks open branches on

every corner of the city where they think they can find customers. As a

result, the number of Bank branches is increasing at a tremendous rate. The

following table and bar graph show the number and growth of Bank

branches in Ethiopia.

Table 3: Growth of Bank Branches in Ethiopia

Year Number of Branches Growth Rate
1999/00 267 -
2000/01 283 6%
2001/02 295 4%
2002/03 339 15%
2003/04 358 6%
2004/05 389 9%
2005/06 421 8%
2006/07 487 16%
2007/08 562 15%
008/09 636 13%
2009/10 681 7%
2010/11 970 42%
2011/12 1,289.00 33%
2012/13 1,724.00 34%
2013/14 2,208.00 28%
2014/15 2,693.00 22%
2015/16 3,301.00 23%
2016/17 4,257.00 29%

Source: NBE Annual Report 2016-2017

[Link]. | SGS Consulting Solution PLC 49

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Figure 4: Growth of Bank Branches in Ethiopia

4500
4000
3500
3000
2500
2000
1500
1000
500
0
2007/08

2016/17
1999/00
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07

2009/10
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
2008/09

As can be seen in the table and figure above, the number of Bank

branches in the country is increasing tremendously. Especially in the past

seven years the average Branch growth rate was 30%. Commercial banks

(both private and public) have opened 956 new branches in 2016/17 alone,

which raised the total number of branches to 4,257 from 3,301 a year ago.

About 33 percent of bank branches were located in Addis Ababa.

These Banks can be potential customers for the planned mixed use tower

under discussion as they can open their branches in the tower targeting the

potential customers who visit the tower.

On the other hand, there over five Banks which are under establishment.

These Banks require buildings for both their head quarter and branches.

[Link]. | SGS Consulting Solution PLC 50

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Hence, they can be target customers for the tower; and the marketing

should take them in to consideration as they can rent the full tower for their

head quarters.

3.3.2 Insurance Companies

Currently, there are seventeen insurance Companies with over 492 branches

all over Ethiopia. Like the Banks, the Insurance Companies are also

expanding their branches to encompass and increase their clients. The

number of insurance branches grew with an average rate of fourteen percent.

The following table and graph show the trend and growth of Insurance

branches in Ethiopia.

Table 4: Growth of Insurance Branches in Ethiopia

Year Number of Branches Growth Rate
1999/00 91 -
2000/01 95 4%
2001/02 101 6%
2002/03 105 4%
2003/04 121 15%
2004/05 133 10%
2005/06 139 5%
2006/07 146 5%
2007/08 172 18%
008/09 194 13%
2009/10 207 7%
2010/11 221 7%
2011/12 243.00 10%
2012/13 273.00 12%
2013/14 332.00 22%
2014/15 377.00 14%
2015/16 426.00 13%
2016/17 492.00 15%

Source: NBE Annual Report 2016-2017

[Link]. | SGS Consulting Solution PLC 51

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Figure 5: Growth of Insurance Branches in Ethiopia

600

500

400

300

200

100

These Insurance Companies will be great potential customers for the planned

mixed tower under feasibility.

3.3.3 Sports and Fitness Center

These days, the fitness industry is booming in Addis Ababa with an

increasing customer and increasing price for the service as well. Almost all

high rising buildings and malls in the city have their own Gym, Spa,

massage therapies, Sauna etc.

With ever increasing youth population and sport affiliated young generation,

the demand for sport and fitness centers is expected to increase in the

future as well. The sport and fitness center industry will be a potential

customer for the planned tower under study.

[Link]. | SGS Consulting Solution PLC 52

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

3.3.4 Cinema and Theatres

Another booming industry with the increasing population especially the youth

in Addis Ababa is the Cinema and Theatre industry. The number of Cinema

and Theatre halls in Addis Ababa is increasing through time. Most the brand

new malls and city multiplexes have their own cinema and theatre halls.

The majority of the youth in the city is being attracted to the Cinema and

theatre halls as there are limited other recreational options. As a result, the

Cinema and theatre halls are getting an increasing number of spectators

every ear.

In this regard, the Cinema and theatre industry is a major target market for

the tower under study and should be considered even starting from the

designing stage.

3.3.5 Restaurants, Cafeterias and Bars

Addis Ababa has a number standardized Restaurants, Cafeterias and Bars

which serve both traditional as well as western services. However, almost all

of them are concentrated near and around bole and there are none in and

around La Gare and Mexico. So, if the promoter of the tower under study

can provide them with the state of the art complex with an attractive of the

city, it has the potential to attract these Restaurants, Cafeterias and Bars.

[Link]. | SGS Consulting Solution PLC 53

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

3.3.6 The Business Community and Business Organizations

As we can see in the next consecutive sections, Ethiopia has been growing

with a double digit rate for over a decade. This double digit growth

registered by the economy has incubated a large number of new business

organizations and a number of new comers have joined the business

community.

For instance if we can see only the Medium and Small Enterprises,

excluding the large scale and Micro Enterprises, on average more than

206,000 new Enterprises have joined the Economy in the past three years.

These new MSEs have created more than 5.6 million new employment

opportunities. For further detail, the following table can be referred.

Table 5: Number of new MSEs and Employment created

Particulars 2014/15 2015/16 2016/17

No. of MSE’s 271,519 190,587 157,768
No of Total employment 2,788,667 1,665,517 1,172,678

Source: NBE Annual Report 2016-2017

These new business organizations which join the economy and the business

community require new offices and working places. Moreover, with economic

growth existing business firms tend to expand and the expansion requires

additional offices areas and working places.

[Link]. | SGS Consulting Solution PLC 54

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

So, these newly formed business organizations and personnel who join the

business community are potential target markets for the mixed tower under

study.

3.3.7 Government Offices

Addis Ababa is the capital City of the Federal Democratic Republic of

Ethiopia (FDRE) and it is the seat of the Federal government as well. As a

result, there are a large number of federal government offices in the city.

Moreover, there are also a number of government offices which belong to

the Addis Ababa city Administration. Most of the offices of both governments

are resided in crowded and old rental offices which has hindered the quality

of service delivery to a great extent with no room for expansion. The

government is trying to improve the service delivery of the offices by building

as well as by renting appropriate working places.

Hence, these federal as well as City Administration offices could be potential

target customers for the planned mixed use tower under study.

3.3.8 Non-Governmental Organization (NGO) Offices

Addis Ababa is the seat of the African Union (which is within less than one

kilometer radius from the mixed use tower) and the United Nation Economic

Commission for Africa (UNECA) (which is within less than 2.5 kilometer

radius from the mixed use tower). Moreover, currently, Addis Ababa hosts

[Link]. | SGS Consulting Solution PLC 55

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

114 embassies, and in addition there are three consulates and two other

representations in Ethiopia. This has enabled Addis Ababa to be a preferable

destination of multiple Non-Governmental Organizations’ Offices.

This Non-Governmental Organizations (NGO) can rent a section of a tower

or a whole tower for their office purpose. This makes them potential target

customers for the planned tower.

3.4 Demand Analysis

3.4.1 Factors Affecting the Demand

There are various factors that affect demand for a specific product both in

the international and local markets. Some of them may be controlled

internally (at Company or Country level) while others are beyond the control

of the producer/supplier and the country. The demand for mixed use

buildings is being stimulated by long term economic and social factors.

These include the rapidly increasing population, urbanization, increasing per

capita income (economic growth), etc. These factors which have an influence

on the demand of mixed use buildings are discussed below.

a. Population

According to different sources, the population of Ethiopia represents nearly

1.23 percent of the world´s total population which arguably means that one

[Link]. | SGS Consulting Solution PLC 56

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

person in every 82 people on the planet is a resident of Ethiopia. The

country is the twelve most populous countries in the world.

The total population in Ethiopia was estimated at 105.0 million people in

2017, according to the latest census figures. Looking back, in the year of

1960, Ethiopia had a population of 22.2 million people.

Figure 6: Ethiopia population Estimation

As can be observed from the above bar graph, the country’s population grew

at an alarming rate. As per CSA’s projection the population of Ethiopia could

reach 143 million by the year 2037. On the other hand, the world population

review’s estimate indicates that the population of the country already has

surpassed the 112 million mark.

[Link]. | SGS Consulting Solution PLC 57

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

This huge population and its high growth rate create a great opportunity and

market for the construction industry in general and the mixed use buildings

in particular.

From this discussion above, it is crystal clear that the population growth in

the country is a positive factor which influences the demand for mixed use

buildings because it is people who use the restaurants, bars, cafeterias, and

guest rooms which could be opened on the buildings.

b. Urbanization

Next to Food and clothing, shelter is a basic human need and one of the

most wanted commodities in the market. Thus, as urban population grows,

aggregate demand for residential real estate in general rises.

The urban population in Ethiopia has grown by 232% within the last three

decades i.e. between the year 1976 and 2011 Ethiopian Calendar.

According to a data from the Central Statistical Authority, the urban

population in 1976 EC was only 4,869,289 but this figure is more than

tripled within thirty years. The Table and Figure below illustrates the urban

population growth, 1976-2006 EC.

[Link]. | SGS Consulting Solution PLC 58

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Table 6: Urban population growth, 1976-2011 EC

Year EC

Description 1976 1986 1999 2006 2011

Urban Population 4,869,289 7,323,207 11,862,821 16,141,046 20,218,405

Urbanization Rate 50% 62% 36 % 25%

(Decade)

SOURCE: CSA

Figure 7: urban population growth, 1976-2011 EC

20.00

18.00

16.00

14.00

12.00
Millions

10.00

8.00

6.00

4.00

2.00
1976 1986 1999 2006 2011

As it is depicted above the urban population of the country is increasing at

an alarming urbanization rate. As the urban population grows, urban planners

want to provide city inhabitants with neighborhoods that integrate work, home,

[Link]. | SGS Consulting Solution PLC 59

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

shopping, transportation, and even green spaces. This increases the demand

of mixed use buildings in city centers.

Moreover, urbanization brings about an expansion of economic activities in

urban centers, which also improve disposable income of the people. Hence,

with increase in the urban population the demanded for buildings in general

and mixed use buildings in particular increases.

c. Economic Growth

Economic development or economic growth is often accompanied by creation

of new economic activities and entrepreneurships will flourish. These new

economic and entrepreneurial activities will generate profits and new

businesses emerge continuously. These emerging businesses require new

offices and working places. Moreover, with economic growth existing business

firms tend to expand and the expansion requires additional offices areas and

working places. This indirectly increases the demand for mixed use buildings.

Besides, the demand for residential houses, restaurants, bars, offices and

guest houses increases with the rise in disposable income of citizens until

the income elasticity of demand for the goods reaches zero. This shows that

there is a direct relationship between Economic Growth and the demand for

mixed use buildings.

[Link]. | SGS Consulting Solution PLC 60

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

As the figure below shows, during the year 2010, gross domestic product

(GDP) in real terms grew by 11.4 percent. The GDP growth rate registered

in 2011 was 8.7 percent. In 2012, the country’s GDP grew by 9.9 percent

in real terms. Furthermore, a growth rate of 10.3, 10.4 and 8 is registered

in the next consecutive three years. Accordingly, the average economic

growth rate during the five years (2011-2015) of the first GTP period was

9.46 percent per annum. In the first three consecutive years of the second

GTP period, the country’s GDP grew by 10.9, 7.7 and 9.2 respectively.

Though the growth performance registered in these three GTP II years is

below the target set for the period the figures still make the country one of

the fastest growing Economies in the world.

Figure 8: Real GDP Growth in Percent

This boosting economic growth being registered in the country is a driving

force and increases the demand mixed use buildings.

[Link]. | SGS Consulting Solution PLC 61

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

d. GDP Per capita

The Gross Domestic Product per capita in Ethiopia was last recorded at

570.30 US dollars in 2018. The GDP per Capita in Ethiopia is equivalent to

5 percent of the world's average. GDP per capita in Ethiopia averaged

271.19 USD from 1981 until 2018, reaching an all time high of 570.30 USD

in 2018 and a record low of 164.30 USD in 1992.

Figure 9: Ethiopia GDP per capita

GDP per capita in Ethiopia is expected to be 605.00 USD by the end of

this quarter, according to Trading Economics global macro models and

analysts expectations. In the long-term, the Ethiopia GDP per capita is

projected to trend around 685.00 USD in 2020, according to trading

economics’ econometric models.

[Link]. | SGS Consulting Solution PLC 62

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Figure 10: Ethiopia GDP Projection

Rising incomes mean that people are able to afford to spend more on

different goods and services. Hence, during periods of economic growth and

higher GDP per capita demand for cafeterias, bars, restaurants, offices,

residential apartments, etc tend to rise. This rise in demand for cafeterias,

bars, restaurants, offices, residential apartments, etc on its turn increases the

demand for mixed use buildings. Accordingly, the improving GDP Per capita

in Ethiopia positively affects the demand for mixed use buildings.

3.4.2 Demand Projection

Estimation of office space is the primary concern of demand analysis for

mixed use building. Demand is generated by office using jobs. Accordingly,

the demand for the mixed us building under study is projected using the

office space requirement of the City in the coming years. In these regard,

the following data and assumptions are employed in the demand projection.

[Link]. | SGS Consulting Solution PLC 63

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

 Statistical data of new trade and business licenses issued over the

last five years in Addis Ababa is obtained from Ministry of Trade &

Addis Ababa City Administration Trade and industry Development

Bureau.

 The statistical data is used to forecast the number of trade and

business licenses to be issued in the future.

 Simple growth method is used to project the number of licenses to

be issued.

 The number of trade and businesses licenses issued in 2019 is used

as a base for forecasting.

 The average growth rate of trade and business license issued in the

last five years i.e. 9 per cent is used as a rate in the simple growth

method.

 The forecasted number of business and trade licenses to be issued is

used to project the office space requirement in the City.

 The number of trade and business licenses cancelled or returned is

assumed to be equivalent with expansion licenses issue.

 It is assumed that every new business creates employment opportunity

to at least 3 persons.

 Office space demand per person is assumed to be 7 meter square.

[Link]. | SGS Consulting Solution PLC 64

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Table 7: Number of New Licenses Issued in the past five years in Addis Ababa
Year Number of New Licenses Issued Growth Rate
2015 117,173 0
2016 103,493 -12%
2017 109,325 6%
2018 117,420 7%
2019 156,079 33%

Source: Ministry of Trade & Addis Ababa City Administration Trade and
industry Development Bureau.

Based on the above assumptions and data, the number of new trade and

business licenses to be issued and new employment opportunity to be

created are forecasted in the table below.

Table 8: Forecasted trade and business licenses to be issued and new employment
opportunity to be created

Projected Number of New Licenses New Employment Opportunity

Year Issued created
2020 170,126 510,378
2021 185,437 556,312
2022 202,127 606,380
2023 220,318 660,955
2024 240,147 720,441
2025 261,760 785,280
2026 285,319 855,956
2027 310,997 932,992
2028 338,987 1,016,961
2029 369,496 1,108,487
2030 402,751 1,208,252
2031 438,998 1,316,995
2032 478,508 1,435,524
2033 521,574 1,564,721
2034 568,515 1,705,546

Accordingly, the new office space required to accommodate the new

personnel created is projected in the table below.

[Link]. | SGS Consulting Solution PLC 65
ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Table 9: Projected new office space enquired (Demand)

Year New Space Office Required in m2
2020 3,572,646
2021 3,894,184
2022 4,244,660
2023 4,626,685
2024 5,043,087
2025 5,496,960
2026 5,991,692
2027 6,530,944
2028 7,118,727
2029 7,759,409
2030 8,457,763
2031 9,218,962
2032 10,048,669
2033 10,953,049
2034 11,938,823

3.5 Supply Analysis

Apart from the various governmental projects for the construction of

residential condominium to curb the acute shortage faced by Addis Ababa,

there are also many ongoing and planned commercial constructions for the

purpose of offices, shopping malls, hotels, hospitals, schools, etc.

The city development plan of Addis Ababa redefines the existing city center

and removing slum areas. More than 50% of the city’s part is covered with

a slum that should be renovated through gradual intervention. The city

administration has prepared local development plans to develop the different

components of the city.

The redefined city center is around La Gare which is less than 200 meter

away from the project under study.

[Link]. | SGS Consulting Solution PLC 66

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

There are a number of high rising buildings in and around La Gare and

Mexico. However, there is no secondary data that shows the number of

commercial buildings in the area that support the supply analysis part of this

study. As a result, the consulting firm opted for primary data and undertook

a market survey in the area. The survey included only mixed/multipurpose

operational buildings with five storeys (G+4) and above. La Gare which the

redefined center of the City is used as a center for the survey.

As per the survey undertaken by the consulting firm there are 37 operational

mixed/multipurpose buildings within one kilometer radius. The following table

shows the number of buildings with their respective floor which are found

within one kilometer radius.

Table 10: Number of operational mixed/multipurpose buildings within one

kilometer radius
S/N No. Floors Qty
1 G+4 4
2 G+5 1
3 G+6 5
4 G+7 6
5 G+8 7
6 G+9 2
7 G+10 3
8 G+11 2
9 G+13 3
10 G+14 1
11 G+15 2
12 G+19 1
Total 37

Source: SGS Consulting Solutions PLC

[Link]. | SGS Consulting Solution PLC 67

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

On the other hand, there are 71 operational mixed/multipurpose buildings in

more than one but less than two kilometer radius. The following table shows

the number of buildings in >1 but <2 kilometer radius.

Table 11: Number of operational mixed/multipurpose buildings >1 but <2

kilometer radius

S/N No. Floors Qty

1 G+4 22
2 G+5 12
3 G+6 6
4 G+7 7
5 G+8 6
6 G+9 7
7 G+10 5
8 G+11 1
9 G+12 4
10 G+14 1
Total 71

Source: SGS Consulting Solutions PLC

Within the third kilometer radius there are 135 operational mixed/multipurpose

buildings. The following table shows the number of buildings in >2 but <3

kilometer radius.

[Link]. | SGS Consulting Solution PLC 68

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Table 12: Number of operational mixed/multipurpose buildings >2 but <3

kilometer radius

S/N No. Floors Qty

1 G+4 16
2 G+5 22
3 G+6 17
4 G+7 14
5 G+8 11
6 G+9 17
7 G+10 13
8 G+11 6
9 G+12 8
10 G+13 4
11 G+14 7
Total 135

Source: SGS Consulting Solutions PLC

According to the above data, the number of operational mixed/multipurpose

buildings close to the city center or to the project area is very few.

However, as we move away from the center the number of buildings

increases. This shows that the supply of mixed/multipurpose buildings in the

project area is very limited. Furthermore, the data shows that there is a

room for additional multipurpose buildings specific to the project area.

By merging the above three tables into one, we can get the total number of

operational mixed/multipurpose buildings within three kilometer radius away the

center. The table below shows the total number of operational

mixed/multipurpose buildings within three kilometer.

[Link]. | SGS Consulting Solution PLC 69

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Table 13: Total number of operational mixed/multipurpose buildings within one

kilometer radius

S/N No. Floors Qty

1 G+4 42
2 G+5 35
3 G+6 28
4 G+7 27
5 G+8 24
6 G+9 26
7 G+10 21
8 G+11 9
9 G+12 12
10 G+13 7
11 G+14 9
12 G+15 2
13 G+19 1
Total 243

According to the table, there are 243 operational buildings within three

kilometer radius. The data in the above table shows, the total number of

operational multipurpose buildings on an area that covers 28.26 square

kilometer. Different sources show that the total area of Addis Ababa is 527

square kilometer. Consequently, the sample data in the above table i.e. the

sample size represents more than 5.36% of the population size. Based on

this fact and assuming uniform distribution of buildings, the total number of

operational mixed/multipurpose buildings in Addis Ababa can be drawn as

depicted in the table below.

[Link]. | SGS Consulting Solution PLC 70

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Table 14: Total Number of operational multipurpose buildings in Addis Ababa

No buildings on an Estimated total No of

S/N No. Floors area of 28.26 sq km buildings in Addis Ababa
1 G+4 42 784
2 G+5 35 653
3 G+6 28 522
4 G+7 27 504
5 G+8 24 448
6 G+9 26 485
7 G+10 21 392
8 G+11 9 168
9 G+12 12 224
10 G+13 7 131
11 G+14 9 168
12 G+15 2 37
13 G+19 1 19
Total 243 4,534

Assuming a building on average has 250 meter square per floor, the number

of buildings in the above table can be converted in a meter square unit

which properly describes the supply side.

[Link]. | SGS Consulting Solution PLC 71

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Table 15: current supply of multipurpose buildings in Addis Ababa

Estimated total No of
No. buildings in Addis
S/N Height Floors Ababa Estimated area in m2
1 G+4 5 93 116,604
2 G+5 6 112 167,910
3 G+6 7 131 228,545
4 G+7 8 149 298,507
5 G+8 9 168 377,799
6 G+9 10 187 466,418
7 G+10 11 205 564,366
8 G+11 12 224 671,642
9 G+12 13 243 788,246
10 G+13 14 261 914,179
11 G+14 15 280 1,049,440
12 G+15 16 299 1,194,030
13 G+19 20 373 1,865,672
Total 8,703,358

As per the table above, the total current supply of multipurpose buildings in

meter square unit is estimated to be 8,703,358.

3.6 Projected Supply

In this feasibility, the supply projection for multipurpose building is made

based on the number of multipurpose buildings for which construction permit

is granted by the Addis Ababa City Administration construction permit and

Control Authority. Accordingly, the number of new construction permits granted

in the past four years and their respective number of floors is reviewed. The

following table shows the number of new construction permits granted in the

past four years.

[Link]. | SGS Consulting Solution PLC 72

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Table 16: Number of construction permits granted from 2008 EC to 2011 EC.

2008 2009 2010 2011

No of No of No of No of No of No of No of No of
floor Buildings floor Buildings floor Buildings floor Buildings
5 10 5 3 5 3 5 0
6 32 6 24 6 14 6 2
7 53 7 42 7 26 7 13
8 57 8 48 8 32 8 7
9 40 9 34 9 14 9 1
10 75 10 60 10 47 10 6
11 19 11 23 11 15 11 6
12 4 12 8 12 5 12 3
13 14 13 17 13 6 13 1
14 7 14 6 14 0 14 2
15 2 15 5 15 3 15 0
16 12 16 8 16 6 16 1
17 2 17 5 17 1 17 0
18 0 18 0 18 1 18 0
19 2 19 0 19 2 19 0
20 1 20 1 20 1 20 1
21 1 21 0 21 1 21 2
22 0 22 1 22 1 22 0
23 0 23 0 23 0 23 1
24 1 24 0 24 0 24 0
25 0 25 1 25 0 25 0
26 0 26 1 26 0 26 0
27 0 27 1 27 0 27 0
35 1 35 2 35 0 35 0
36 1 36 0 36 0 36 0
334 290 178 46
Source: Addis Ababa City Administration construction permit and Control
Authority

As can be seen from the table above the number of new construction

permits granted over the past four years for multipurpose buildings has

declined significantly. The table below shows that the number of new

construction permit for multipurpose buildings on average declined at a rate

of 42percent. This could be associated with the challenges the construction

industry has faced in recent years. However, it clearly indicates that the
[Link]. | SGS Consulting Solution PLC 73
ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

number of multipurpose buildings joining the market in the near future is

declining.

Table 17: Number of new construction permits granted for multipurpose buildings

Year in EC No of new construction permits Growth Rate

2008 334 0
2009 290 -13%
2010 178 -39%
2011 46 -74%
Average -42%

Source: Addis Ababa City Administration construction permit and Control

Authority

Apart this fact the supply of multipurpose buildings is projected based on the

following assumptions.

 The buildings for which construction permit is granted in 2008 EC are

assumed to be completed and are operational by now.

 75 percent of the buildings for which construction permit is granted in

2009 EC are assumed to be completed and are operational by now.

The remaining 25 percent are assumed to be under construction and

will be operation in the year 2020 GC.

 50 percent of the buildings for which construction permit is granted in

2010 EC are assumed to be completed and are operational by now.

The remaining 50 percent are assumed to be under construction and

will be operation in the year 2020 GC.

[Link]. | SGS Consulting Solution PLC 74

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

 25 percent of the buildings for which construction permit is granted in

2011 EC are assumed to be completed and are operational by now.

The remaining 75 percent are assumed to be under construction and

will be operation in the year 2020 GC.

 Average floor size is assumed to be 250 meter square.

 From 2021 GC onwards the supply is expected to increase at an

average growth rate of 20% per annum which is close to the average

growth rate of the construction industry in the past few years.

 Occupancy rate of operational buildings is assumed to be 85%.

Hence, the remaining 15% is waiting for a tenant.

Based on the above assumptions the supply of multipurpose building is

projected as depicted in the table below.

[Link]. | SGS Consulting Solution PLC 75

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Table 18: projected supply of multipurpose rentable area in m2

Supply from operational Total Projected

Year buildings Supply from new entrants supply
2020 1,305,504 482,313 1,787,816
2021 1,305,504 578,775 1,884,279
2022 1,305,504 694,530 2,000,034
2023 1,305,504 833,436 2,138,940
2024 1,305,504 1,000,123 2,305,627
2025 1,305,504 1,200,148 2,505,652
2026 1,305,504 1,440,177 2,745,681
2027 1,305,504 1,728,213 3,033,717
2028 1,305,504 2,073,855 3,379,359
2029 1,305,504 2,488,627 3,794,130
2030 1,305,504 2,986,352 4,291,856
2031 1,305,504 3,583,622 4,889,126
2032 1,305,504 4,300,347 5,605,850
2033 1,305,504 5,160,416 6,465,920
2034 1,305,504 6,192,499 7,498,003

3.7 Demand and Supply Gap

Table 19: Demand and Supply Gap in m2 unit

Year Projected Demand Projected Supply Demand and supply Gap

2020 3,572,646 1,787,816 1,784,830
2021 3,894,184 1,884,279 2,009,905
2022 4,244,660 2,000,034 2,244,626
2023 4,626,685 2,138,940 2,487,745
2024 5,043,087 2,305,627 2,737,460
2025 5,496,960 2,505,652 2,991,308
2026 5,991,692 2,745,681 3,246,011
2027 6,530,944 3,033,717 3,497,227
2028 7,118,727 3,379,359 3,739,368
2029 7,759,409 3,794,130 3,965,279
2030 8,457,763 4,291,856 4,165,908
2031 9,218,962 4,889,126 4,329,836
2032 10,048,669 5,605,850 4,442,818
2033 10,953,049 6,465,920 4,487,129
2034 11,938,823 7,498,003 4,440,820

[Link]. | SGS Consulting Solution PLC 76

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

3.8 Competition

There are different competitors that will compete with the project either

directly or indirectly. But the mixed use tower under discussion will employ

diversified marketing strategies that could enable it Cope up with the different

competitors in the market. Moreover it will frequently conduct competitors

research which focuses on, the strength and the weaknesses, the different

competitors’ strategies, the techniques they use in rendering the service, their

customer handling methods, and others.

3.9 Marketing Strategy

Marketing is an essential role of every business organization and marketing

activities must be performed for the survival of every business organization.

Marketing Strategy is the fundamental goal of increasing sales and achieving

a sustainable competitive advantage. In this era of globalization, any

International Company which wants to maintain its competitiveness in the

global market needs to have a clearly stated and effective marketing

strategy.

In this regard, the promoter of the project needs to design an effective

marketing strategy and technique that enables its success. Accordingly, the

following are some of the marketing techniques recommended for the mixed

use tower under study.

[Link]. | SGS Consulting Solution PLC 77

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

3.9.1 Identifying Target Market

In any successful marketing the first step is to identify the needs of the

customers and their ways of life too. Target market identification, by

definition, is the method used to sort potential clients for sales and

marketing campaigns, advertising and promotions using income, demographic,

and lifestyle characteristics of a market and census information. Determining

a target market allows a company to focus its marketing efforts in the most

cost effective way possible.

In this study the major target customers/ market for the project under

discussion is identified in the previous section. The identified target customers

include Banks, Insurance Companies, Sports & Fitness centers, Government

offices, Non-Government Organizations, Cinemas & Theatres. Cafes,

restaurants, Bars, etc. Hence, the marketing and promotions of the promoter

should be focused to these identified target customers.

3.9.2 Promotion and Advertisement

Promotion refers to any type of marketing communication used to inform or

persuade target audiences of the relative merits of a product, service, brand

or issue. The aim of promotion is to increase awareness, create interest,

generate sales or create brand loyalty.

[Link]. | SGS Consulting Solution PLC 78

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

In this regard, the promoter of the envisioned project has to promote and

advertise using different mediums.

a. Advertisement through TV and Print out media

In this regard, the promoter is recommended to aggressively advertise its

service using mainly TV and Radio. Along with this, it should prepare and

distribute calendars, pamphlets as well as participate in exhibitions and

bazaars to show the services customers can get when they visit the tower.

b. Social Media

Today social media strategies are absolutely the best when it comes to

marketing a business. It enables interacting with consumers on various social

channels and creates more buzz about the product or service so that it

attracts more buyers.

Therefore, the promoter shall make sure that it establishes a social media

presence and communicate with its followers on a daily basis. The promoter

shall share its logo, blog posts and every new announcement about the

services in the mixed use building.

[Link]. | SGS Consulting Solution PLC 79

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

c. SMS Marketing

SMS marketing is one of the fastest and most effective ways to reach out

to target customers and spread the information about a product or service.

This is because SMS messages have a 98% open rate and a more than

45% response rate. This is an excellent way of grabbing attention.

Hence, the promoter shall enter into a contractual agreement with Ethio

Telecom to send an SMS message to all subscribers periodically advertising

and promoting the mixed use tower and the services in it.

[Link]. | SGS Consulting Solution PLC 80

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

4. SITE EVALUATION

4.1 Location

The sky scrapper tower is planned to be established in the center of Addis

Ababa with in 200 meter radius from La Gare on the main Road from

Mexico Square two Kera. The Addis Ababa City Administration identifies the

La Gare area as the main city center in its Development Plan (2002-2012).

The following Paragraphs is directly taken from the Addis Ababa Structural

plan 2017-2027 document prepared by the Addis Ababa City planning Project

Office. The paragraphs clearly show and speak volume in the words of the

city Administration itself about the importance of the location.

The Addis Ababa City Development Plan (2002-2012) had proposed the

development of a poly-nuclear main centre, with a Core CBD around La

Gare and three important nodes (Arada, Merkato, and Arat Killo) linked

through strong business corridors. The core comprises diverse urban functions

within a 1km radius of La Gare. Long-standing cultural and entertainment

establishments such as the National Theatre and Cinema Ambassador; large

medical service providing entities such as Black Lion, Zewditu and Gandhi

hospitals; the Addis Ababa Municipality and the Ethiopian Philately Museum,

the Addis Ababa Museum, the National Library, the National Stadium, the

Meskel Square and the Addis Ababa Exhibition Centre are all located within

[Link]. | SGS Consulting Solution PLC 81

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

this core area. The area is also characterized by the concentration of

government and private banks, including the National Bank of Ethiopia. There

are round 20 mixed apartment/office buildings currently owned by RHA in the

vicinity. There are also a number of major government offices; and some of

these institutions and publicly owned properties are poorly maintained,

occupying large underutilized spaces. Some uses (Ministry of Defence) are

not fully compatible with the surrounding activities and restrict free movement.

The area also has some of the best hotels in the city like the Sheraton

Addis and Addis Ababa Hilton. New high class hotels (like Intercontinental,

Jupiter and Radisson Blue) have been constructed around Casainchis. A

financial district is emerging around Sengatera area where the major banks

(CBE, Awash, Dashen, Hibret and Nib) have already or are in the process

of locating their head quarters in purpose-built high rise office buildings.

Other newly added structures include the Oromiya Cultural centre, the Nani

building and other mixed use buildings of different capacity. Major

improvements and more development are still needed to satisfy both

residents and the international clientele. The availability of retail facilities,

space for outdoor activities and public gatherings is very limited. There is

also a big deficiency in terms of parks and green spaces, while the existing

ones are poorly managed. Lack of public amenities and sanitation concerns

is a critical matter. Lack of urban quality, coherence and legibility in the built

[Link]. | SGS Consulting Solution PLC 82

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

form has become a critical challenge. This is being partially accelerated by

the City Government’s seemingly short-sighted goal of generating more

revenue from leasing off land, which so far has ended up in creating

unhealthy densities and a ‘concrete jungle’ in certain parts of the city.

Deviations from the plan during the implementation of the Casainchis Local

Development Plan, mainly by re-parcelling larger plots and open spaces is

such one example which also can be considered as a missed opportunity

that could have been used to create a more attractive and liveable core.

The city core is one of the earliest parts of the city and thus has better

infrastructure- old tarmac roads with a relatively better density (20% locally)

and better quality. Although the long standing rail transport service from

Addis Ababa to Djibouti via Dire Dawa has been disrupted during the last

few years, La Gare continues to be a major hub for city buses and taxis.

(Around 20 Anbessa routes that serve about 94,000 passengers per day start

from the La Gare Station). With the increased traffic volume, however,

junctions like Mexico and Urael are being tested.

There has been no periodic maintenance and upkeep of existing public

amenities (traffic lights, walkways, building facades, green landscapes), which

has contributed to the deterioration of the city’s image and urban character.

For instance, there is no public latrine within 1km catchment from La Gare.

[Link]. | SGS Consulting Solution PLC 83

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Although some part of the district is served by a sewer system, the

available sewer network is aged and limited in capacity. Moreover, despite

the expansion of new multi-storey buildings, little attention has been given to

the creation of additional public spaces. Appropriation of public streets for

private use as parking and private entrances has become commonplace.

Despite commendable interventions by the city’s beautification bureau as

regards island refurbishing and greening and the associated streetscape

improvements, there is a need to develop a more synchronized and well

structured approach to enhance the availability of public spaces. Given the

international role of Addis Ababa, safety and security in the city centre has

a great significance to residents, commuters and tourists, which underline the

need to pursue integrated public space planning.

Figure 11: Sample Deteriorated Images of Addis Ababa

The emblematic Churchill axis that stretches from La Gare to the City Hall

is a cherished character of this district. The La Gare compound, which is

about 40ha at one end, to all intents and purposes, restricts direct
[Link]. | SGS Consulting Solution PLC 84
ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

connection between the northern and the southern parts of the city, calling

for a well thought-out solution.

Hence, from location perspective, the location identified for the project is an

ideal one that can tic every box correctly.

4.2 Utilities

For any industry the predominantly required utilities are electric power and

water. The tower under study is planned to be established in Addis Ababa

City Administration which has all the necessary infrastructures like electric

power, water, telephone, internet, road etc.

3.9.3 Power

The main source of power for the tower is electric power to be supplied by

the Ethiopian Electric Power. An electric power that would enable the

envisioned factory to work without interruption will be installed. The power

will be utilized for lighting and fulfill energy requirement of the inhabitants of

the tower.

Moreover, there will be a standby diesel generator to be used for the supply

of electricity during power interruption for running critical equipments like

elevators and others.

[Link]. | SGS Consulting Solution PLC 85

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

The installation cost of the electric power is estimated to be Birr

2,500,000.00 including all costs of transformer and accessories.

The company can use renewable energies such as solar and wind energies

to reduce energy consumption and to avoid the highly dependence on the

national grid. However, for the purpose of calculation of this project these

renewable energies were not taken.

3.9.4 Water

Water is one of the important utilities for the tower as it is used for

sanitation, gardening, steam & sauna baths, cooking and drinking, etc. The

source of water for the tower will be tap water which will be supplied by

the Addis Ababa City water and sewerage Authority.

The cost of installation of tap water is assumed to be Birr 100,000.00.

3.9.5 Telephone, Internet and Wi-Fi

The tower also needs telephone for both local and international

communication including Internet service. Moreover, providing free Wi-Fi

service will attract customers easily.

The cost of installation of telephone, internet and Wi-Fi is assumed to be

Birr 300,000.00.

[Link]. | SGS Consulting Solution PLC 86

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

3.9.6 Fuel

The supply of fuels such as gas oils for running of vehicles and generators

will be supplied from local gas stations.

4.3 Environment

The project will have the necessary facility for disposing waste material and

will be linked to a modern sewerage system; it will have no any

environmental impact. Furthermore, a furnace will be built, which will serve

for incinerating some waste materials such as paper, piece of wood and etc.

[Link]. | SGS Consulting Solution PLC 87

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

5. TECHNICAL STUDY

5.1 Land

The Mixed use building has a total site area of 14,265 m2. The built up

area will be 50% of the total plot area. The remaining area will be utilized

for green area, internal roads, corridor and parking.

5.2 Building and construction

The building and construction work of the intended multipurpose high-rise

building will be equipped with technologically advanced systems for creating

good working environment in terms of safety, health, comfort, durability,

aesthetic, and ease of access. It would be able to accommodate the specific

space and equipment needs of its potential tenants. Especially attention shall

be made to the selection of interior finishes and art installations. Particularly

in entry spaces, conference rooms and other areas with public access.

The building will constitute the following specifications

 The building will constitute two twin towers of 2B+G+40

 The total built up area is estimated to be around 220,000 meter

square

 There will be toilets on each floor for both masculine and feminine

[Link]. | SGS Consulting Solution PLC 88

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

 The building will have sufficient parking space for tenants as well as

their clients

 Comfortable and attractive offices

 There will be internet and telephone lines on each floor with a

reasonable distance from one another

The total cost of the building is estimated to be Birr 11,880,000,000.00.

5.3 Machineries and Auxiliary Equipment

Running a building complex might not need sophisticated machineries but

some machineries and equipment are mandatory. Some of the machineries

and equipment include:

 Standby Generator: There is constant electric power interruption in

Addis Ababa; hence high rising buildings let alone sky scrapers are

unthinkable without a standby Generator.

 Fire Alarm and Public Address System: In order to detect and warn

people through visual and audio appliances when smoke, fire, carbon

dioxide and other emergencies are present, the tower would install

fire alarm and public address system.

 Network Infrastructure: Now a day customers of guest houses, hotel

rooms, and offices have clear expectation; i.e. to find high speed

internet access wherever they go. In considering this and to meet the

[Link]. | SGS Consulting Solution PLC 89

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

customer’s expectation, the tower shall access network structure to

entire rooms.

 IP Security Camera: IP camera uses to monitor certain aspects of

the tower process and the exterior of the facility. The cameras allow

the operators to view critical pieces of process equipment and

security of the facility directly from the control room. This makes for

a safer operating process of the tower, preventing theft and

maintaining the safety of customers and guests.

 PBX System: A PBX (Private Branch Exchange) is a switch station

for telephone systems. It consists mainly of several branches

telephone systems and it switches connections to and from them,

thereby linking phone lines. The promoter, thus, would use a PBX for

connecting all internal phones to an external line.

 Wireless Network: A wireless local area network (LAN) uses radio

waves to connect devices such as smart phones and laptops to the

Internet and to the tower’s business network and its applications. To

get customers accessible and maintain their convenience, mobility,

productivity, the promoter arranges to establish Wi-Fi network in the

in the tower.

The following table shows the summary of machineries and equipment that

need to be purchased to run the tower smoothly.

[Link]. | SGS Consulting Solution PLC 90

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Table 20: List of Machineries and Equipment

SN Description Measurem Qty Unit cost in Total cost in

ent Birr Birr.
1 Standby Generator Unit 1 5,000,000.00 5,000,000.00
2 Carpentry tool box Set 1 200,000.00 200,000.00
3 Electrician tools box Set 1 100,000.00 100,000.00
4 Plumber tools kit Set 1 100,000.00 100,000.00
5 Data Center Unit 1 500,000.00 500,000.00
6 Network infrastructure Unit 1 1,000,000.00 1,000,000.00
7 Installation of IP Security Camera Unit 1 2,000,000.00 2,000,000.00
8 Wireless Network Unit 1 1,000,000.00 1,000,000.00
9 PBX System Unit 1 2,000,000.00 2,000,000.00
10 Fire Alarm and Public Address Unit 1 2,000,000.00 2,000,000.00
system
Total 13,900,000

3.10 Office Furniture and Equipment

The promoter will procure various office furniture and equipment for the

smooth operation of the project. The following table shows the list and cost

breakdown of the furniture and equipment planned to be procured. The total

cost of office furniture and equipment is Birr 943,722.00.

[Link]. | SGS Consulting Solution PLC 91

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Table 21: List of Furniture and Equipment

No Description Quantity Unit Price Total Cost

1 Executive Table with side 180 4 16,200.00 64,800.00

2 Managerial Chair 4 15,019.00 60,076.00

3 Secretary Table 2 8,148.00 16296.00

4 Secretary Chair 2 6,194.00 12,388.00

5 Coffee Table 10 3,150 31,500.00

6 Guest Chair 20 5,670.00 113,400.00

7 Meeting Table 1 67,492.00 67,492.00

8 Computer Stand 10 2,777.00 27,770.00

9 Office Equipment such as Computers, Printers, etc Various Lump sum 500,000.00

10 Shelves Various Lump sum 50,000.00

Total 943,722.00

5.4 Vehicles

To run the tower smoothly the promoter has to procure various vehicles for

different purpose. Accordingly, the promoter will procure three Toyota Haice

Minibuses to give transport service to the workers, and two Toyota Hi-Lux

Double Cabin picks up for management purpose. Moreover, one automobile

for the General Manager of the tower will be procured. The total cost of

vehicles is estimated to be Birr 8,256,000.00.

[Link]. | SGS Consulting Solution PLC 92

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Table 22: List of vehicles with their respective cost

Sr. No Description Quantity Unit Price Total Cost

1 Toyota Hi-Lux Pick Up Double 1 2,556,000.00 2,556,000.00
2 Automobile 1 1,200,000.00 1,200,000.00
3 Toyota Haice Minibus 3 1,500,000.00 4,500,000.00
Total 5 8,256,000.00

5.5 Occupancy Rate

As per the sample survey made by the consulting firm, the occupancy rate

of multipurpose buildings in Addis Ababa is more than 90 percent.

However, for this specific project the occupancy rate is assumed to be 85

percent in its first year of operation. The occupancy rate is assumed to

increase at 5 percent per annum until it reaches 100 percent in its fourth

year of operation.

5.6 Implementation Schedule

Implementation of a modern project calls for meticulous planning, scheduling

and monitoring to realize the project goals in budgeted time frame. The goal

can be achieved by adopting modern project management techniques.

In this section, the possible schedule for implementation of the project and

assumptions thereof are presented.

The main activities of the project include,

 Design consultant Procurement and negotiation

[Link]. | SGS Consulting Solution PLC 93
ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

 Preliminary and Detail Design Work

 Contractor Hiring

 Construction Work

 Man Power Hiring

 Tenure Agreement Signing

The main activities for the implementation of the project indicated in figure

below shows that it will take about 50 months from design consultant

selection to handover of the construction work and a further 6 month for

man power hiring and tenure agreement signing. Hence, it requires a total of

56 months for the project to be fully operational. However, some of the

activities like Design consultant Procurement and negotiation are already

carried out; so, the remaining activities can be finalized within 48 months.

The various activities that are to be completed as per the sequence and

time schedule are indicated below.

[Link]. | SGS Consulting Solution PLC 94

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Table 23: Implementation Schedule

Activities Months

July to Oct
Jan to Jun

Nov 2020 to

May 2024
Nov 2023

Dec 2023

Mar 2024
Feb 2024
Jan 2024

Apr 2024
Oct 2023
2020

2020
Design consultant Procurement and negotiation (three months)

Preliminary and Detail Design (Six Month)

Contractor Hiring (four months)

Construction Work (thirty six Months)

Handover (one Month)

Man Power Hiring (one Month)

Tenure Agreement Signing (Five Month)

[Link]. | SGS Consulting Solution PLC 95

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

6. COST ESTIMATION

6.1 Pre-operation Expenditure

The pre-operating expenditure includes major items of project administration, fee paid

for consultants and various other costs. Pre-operating interest is another element of the

initial investment items which is calculated for interest which will accrue during the

grace period. However, the project is assumed to be financed from own source and as

a result the pre-operating interest is zero. The total pre-operating expenditure of the

project is estimated to be Birr 5,000,000.00.

6.2 Working Capital

The working capital required will be mainly used for the insurance, salary, fuel and

lubricant, cleaning & sanitation, cost of utility and to cover other stationary & office

supplies.

The working capital has been determined as given in the following table below.

Accordingly, the additional working capital requirement is estimated at Birr 933,383.85

and the subsequent working capital need will be generated from the service itself.

[Link]. | SGS Consulting Solution PLC 96

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Table 24: Working Capital Requirement

Initial Working Capital Year Total
Description Required Months
Required Requirement
Salary 1 246,700.00 2,960,400.00
Fuel & Lubricant Cost 1 23,667.19 284,006.25
Insurance 12 600,000.00 600,000.00
Stationary and office supplies 1 1,666.67 20,000.00
Marketing Expense 1 9,350.00 112,200.00
Utility 1 2,000.00 24,000.00
Cleaning & Sanitation 1 50,000.00 600,000.00
Total Costs 933,383.85 4,600,606.25

6.3 Investment Outlay

The total planned investment cost of the project is estimated to be Birr

11,911,933,105.85 out of which Birr 11,905,999,722.00 is for fixed investment, Birr

933,383.85 is for working capital and Birr 5,000,000.00 is for pre-operating costs. The

detail is listed below;

Table 25: Investment Layout

Item Local cost Foreign Cost Total cost
Building and Construction 11,880,000,000.00 - 11,880,000,000
Utility Installation 2,900,000.00 2,900,000
Machinery & Equip 0.00 13,900,000.00 13,900,000
Vehicle 8,256,000.00 8,256,000
Office Furniture and Fixtures 943,722 - 943,722
Sub-Total Fixed Investment 11,892,099,722.00 13,900,000.00 11,905,999,722.00
Working Capital 933,384 0 933,383.85
Sub-Total W/C 933,383.85 - 933,383.85
Pre- operating Costs 5,000,000 - 5,000,000
Pre- operating Interest - - 0
Sub-Total Expenses 5,000,000.00 - 5,000,000.00
Total Investment 11,898,033,105.85 13,900,000.00 11,911,933,105.85

6.4 Source of Finance

In this feasibility study, the total cost of the project assumed to be covered in full by

the project sponsor or the promoter itself. The possibility of bank loan is ruled out for

two reasons;

[Link]. | SGS Consulting Solution PLC 97

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

i. Since, the investment cost is pretty paramount none of the local private

banks have the capacity to finance even a small portion of it. On the other

hand, since the sector is not in the priority area of the government, the

public owned banks cannot finance the project even though they have the

capacity to finance. Unfortunately, the promoter cannot get a loan from

foreign banks as the National Bank of Ethiopia prohibits foreign loan for the

sector. So the promoter has no option than financing the full cost of the

project by itself.

ii. Currently, the cost of borrowing i.e. interest rate in Ethiopia is much higher

than the real cost of money i.e. the saving rate. When a borrowing is

involved, the discounting factor (discount rate) shall be the interest rate. The

prevailing lowest interest rate for a long term loan in Ethiopia is 11.5%

which is provided by the Development Bank of Ethiopia. Hence, if the

promoter of the project under discussion plans to source fund in the form of

long term loan, then the minimum discount rate shall be 11.5% and this will

make the Net Present Value (NPV) of the project to be less than zero. As

a result, the idea of securing long term loan for the project shall be ruled

out from the very beginning.

[Link]. | SGS Consulting Solution PLC 98

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

7. ORGANIZATION AND MANAGEMENT

No matter what the investment capital is injected to a project, it will be fruitless unless

it is managed properly and successfully. Therefore, it is essential to put in place

plausible organization structure, management system, management team, qualified and

skilled staff.

7.1 Organizational Structure

To achieve organizational goals and objectives, individual work needs to be coordinated

and managed. Organizational Structure is a valuable tool in achieving coordination, as it

specifies reporting relationships, delineates formal communication channels, and describes

how separate actions of individuals are linked together. The efficiency of a productive

firm lies mainly on its structural organization, transparency and effectiveness of the

management.

A well formulated and designed organizational structure is necessary to execute

administrative and operational tasks of the project. Hence, the project will be organized

in such a way that there will be a General Manager at the apex of the hierarchical

ladder. Three organizational components (departments) are proposed other than office of

the General Manager in order to carry out the day to day function of the multipurpose

building. The three departments are Administration & Finance, Technical & Maintenance

and Marketing Departments.

[Link]. | SGS Consulting Solution PLC 99

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Employees under each Department will be supervised by the department head that is

accountable for the General Manager. The following section deals with the duties and

responsibilities of each department.

7.1.1 Office of the General Manager

The General Manager will report to the CEO of the Ethiopian Construction Works

Corporation (ECWO) who is the sponsor and promoter of the multipurpose building

under study.

The General Manager will be responsible for the overall operational and supervisor

function. Major duties of the General Manager include;

 Plan, organize, direct and control the overall activities of the building.

 Formulate policies and strategies that will enable the center to excel its service and

be profitable.

 Incorporate modern technological innovation that will facilitate the service delivery of

the building to increase customers’ satisfaction.

 Set short and long run objectives of the organization.

7.1.2 Administration and Finance

This Department will lead the administration and finance functions of the project having

the responsibility of undertaking the following tasks:

[Link]. | SGS Consulting Solution PLC 100

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

 Applying and practicing sound administrative functions.

 Personnel management

 Manpower recruitment, training and development

 Preparing and closing of accounts

 Establish and control the accounting procedure and system

 Management of cost and budget

 Internal control and financial planning

The Administration and Finance Department will have two units under its supervision:

Administration and Finance. The administration unit will be responsible in handling

Personnel management; while the Finance unit will handle finance and accounts

functions.

7.1.3 Marketing Department

The Marketing department duties include,

 Will handle the overall marketing activities of the organization which include

planning, organizing, directing, and controlling.

 Will develop the marketing strategies for future expansion tasks.

 Will develop effective customer handling strategies.

[Link]. | SGS Consulting Solution PLC 101

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

 Execute the promotion methods.

7.1.4 Technical and Maintenance Department

 Will handle the overall physical maintenance and related issues

 Will make sure electricity and back up is organized.

 Follow up security issues and educate tenants

 Works in collaboration with general service to make sure tenants are well served

The Following Figure shows the Organization of the Company.

Figure 12: Organogram of the Company

CEO OF ECWO

GENERAL
MANAGER

LEGAL ADVISOR

ADMINISTRATION TECHNICAL AND

MARKETING
& FINANCE MAINTENANCE

FINANCE ADMINISTRATION

[Link]. | SGS Consulting Solution PLC 102

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

7.2 Management

The success or failure of a Company is entirely dependent on the capacity of its

management. Hence, the availability of capable management is very crucial. The

General Manager to be hired should be highly experienced and needs have good

commitment as well as communication skills. Moreover, the rest of the top management

as well need to be highly experienced individuals. So a great deal of care should be

made during recruitment. The managements will be employed from local market and

extensive training shall be provided both locally and abroad. In this regard, the

Company will be managed in a way that meets its target.

7.3 Manpower
The project will have a number of employees that will be employed from the

surrounding. It is planned to recruit qualified and experienced employees. Further

training will be offered to employees on specific areas to upgrade the skill and

experiences of staff and to meet the required technical skills for a standard

multipurpose building.

The table below indicates the details of manpower requirement with their respective

wages and salaries.

[Link]. | SGS Consulting Solution PLC 103

 ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Table 26: Manpower Requirement and Annual Labor Cost

S/ Job Title Educational Level & Quantity Monthly Total Monthly Total Annual
N Relevant Experience Salary Salary Salary in ETB

1 General Manager BA in Management & ten 01 25,000.00 25,000.00

years experience 300,000.00

2 Legal Advisor BA in Management & two 01 7,000.00 7,000.00

years experience 84,000.00

3 Admin & finance BA in Management & 5 01 15,000.00 15,000.00

Manager years experience 180,000.00

4 Technical and BA in building Management 01 15,000.00 15,000.00

Maintenance Manager & 5 years experience 180,000.00

5 Marketing Manager BA in Marketing & 5 years 01 15,000.00 15,000.00

experience 180,000.00

6 Finance Head BA in Accounting & 3 years 01 10,000.00 10,000.00

experience 120,000.00

7 Administration Head BA in Management & 3 01 10,000.00 10,000.00

years experience 120,000.00

8 Secretary Level4 in Secretary 01 3,500.00 3,500.00 42,000.00

9 HRM officer BA in Management 02 7,000.00 14,000.00 168,000.00

10 IT Expert BSC in computer 02 7,000.00 14,000.00

science/IT 168,000.00

11 Marketing expert BA in Marketing 02 7,000.00 14,000.00 168,000.00

12 Accountant BA in Accounting 02 7,000.00 14,000.00 168,000.00

13 Electrician Diploma in General 01 4,000.00 4,000.00

Electricity 48,000.00

14 Plumber Diploma in General 01 4,000.00 4,000.00

Mechanic 48,000.00

15 Maintenance Expert Diploma in General 01 4,000.00 4,000.00

Mechanic 48,000.00

16 Driver Grade 8 Complete 05 3,500.00 17,500.00 210,000.00

17 Casher Level4 in Accounting 01 3,500.00 3,500.00 42,000.00

18 Cleaner Grade 8 complete 20 1,500.00 30,000.00 360,000.00

19 Guard Grade 8 Complete 16 1,700.00 27,200.00 326,400.00

Total 61 2,960,400.00

[Link]. | SGS Consulting Solution PLC 104

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

8. FINANCIAL VIABILITY

8.1 Basic Assumptions Employed

a) Project Life

According to the implementation plan of the project, the total implementation period

allotted for the entire project from the designing to the tenure agreement signing is 56

months. With regard to operational life of the project, it is believed that the

multipurpose building will have a life of over thirty years. However, a standard

assumption of 10 years is considered for financial forecasting purpose. Hence, the

costs and benefits of the project are computed over 10 years after the commencement

of operation.

b) Repair and Maintenance Cost

The annual repair and maintenance cost of the plant is estimated based on the

following rates.

Item Rate

a) Machinery and equipment 2% of total cost

b) Building and civil works 0.01% of total cost

c) Vehicle 3% of total cost

d) Office furniture and equipment 3% of total cost

e) Utility Installation 1% of the total cost

[Link]. | SGS Consulting Solution PLC 105

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

c) Depreciation and Amortization

Based on the Business Income Tax Proclamation Number 286/2002, the following

depreciation rates are applied to depreciate the assets of the project:

 Buildings and associated civil works 5%, linear to scrap Value

 Machinery and equipments 10%, linear to scrap Value
 Vehicles 20%, linear to scrap Value
 Office furniture and equipment 10%, linear to scrap Value
 Pre-production Cost 10%, linear to scrap value
 Pre-production interest 10%, linear to scrap value
d) Terminal (salvage) Value

Salvage value of the project is computed based on the following rates

a) Building 50%

b) Machinery and equipment 0%

c) Vehicles 0%

d) Office furniture and equipment 0%

d) Working Capital 100%

e) Discounting

The total investment cost of the project is discounted at 7 per cent over the life of

the project.

[Link]. | SGS Consulting Solution PLC 106

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

8.2 Results of Financial Analysis

7.3.1 Profitability

Projected Profit/loss statement presents the results of a project’s operations during a

period of time. It shows income earning from the project and expenses incurred in

attaining the income.

The projected profit and loss statement forecasted for the operational 10 years shows

the project will generates a net profit of Birr 362,436,693 in the first year and grows

continuously until it reaches Birr 1,009,257,950 in the last projection period.

7.3.2 Cash Flow Projection/Liquidity

Cash flow projection provides a look at the movement of cash in and out of the

project. It is important in determining whether or not a project has enough cash to pay

its bills, handle expenses and acquire assets. Thus, it is important to give due

attention to identify whether the total inflows of the project have the capacity to cover

all cash outflows during its operational period. Otherwise, the project will faces liquidity

crisis and fail before achieving its objective of establishment.

Based on this fact, the cash flow of the project under study shows an incremental

cumulative cash balance from Birr 960,217,265 in the first operational year to Birr

13,069,341,515 at the last projection period implying that the project will not face

[Link]. | SGS Consulting Solution PLC 107

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

liquidity constraint to finance its operational cost meeting at the same time its debt

obligation incase if there is any.

7.3.3 Financial Internal Rate of Return (IRR)

IRR calculations are commonly used to evaluate the desirability of investments. The

higher a project's IRR, the more desirable it is to undertake the project. Assuming all

projects require the same amount of up-front investment, the project with the highest

IRR would be considered the best and undertaken first.

In this regard, for the project under study, after tax internal rate of return computed

based on 10 years projection period is 7.03% which is above the rate of cost of

money which is currently 7 percent showing the project's viability.

7.3.4 Net Present Value (NPV)

NPV is an indicator of how much value an investment or project adds to the firm.

With a particular project, if is a positive value, the project is in the status of

positive cash inflow in the time of t. If is a negative value, the project is in the

status of discounted cash outflow in the time of t. Appropriately risked projects with a

positive NPV could be accepted. This does not necessarily mean that they should be

undertaken since NPV at the cost of capital may not account for opportunity

cost, i.e., comparison with other available investments. In financial theory, if there is a

choice between two mutually exclusive alternatives, the one yielding the higher NPV

should be selected.

[Link]. | SGS Consulting Solution PLC 108

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

NPV calculation for the project under consideration shows that the NPV with 7%

discount rate before tax is Birr 2,041,858,353.00 and Birr 21,552,905.00 after taxes.

This shows that the investment would add a value to the firm and is an acceptable

venture.

Table 27: Net Present Value

Net Present Value (NPV)

Before Tax 2,041,858,353.00

After Tax 21,552,905.00

7.3.5 Sensitivity Analysis-

Under sensitivity analysis it is tried to make assessments that compare the expected

results with possible results. The profitability of the project will vary under various

circumstances that could possibly happen. Thus, the project's sensitivity to adverse

circumstance is analyzed from three different scenarios: decrease in revenue by 10%;

increase in operating costs by 10% and increase in investment costs by 10%.

I. Decrease in Revenue

Based on the financial findings, when revenue decreases by 10% after tax IRR of the

project is 0%. From this, one can say that the project is very sensitive to a decrease

in revenue.

[Link]. | SGS Consulting Solution PLC 109

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

This means the project will be in a complete loss when a circumstance that may

happen and trigger to reduce its revenue by 10%. In such circumstances, the project

might not achieve its objective of establishment.

Hence, a great care should be taken in order to avoid circumstances that might

decrease the revenue of the project.

II. Increase on operating Cost

On the other hand, if the operating costs of the project increase by 10% due to

unforeseen circumstances; other things remain constant, after tax IRR of the project

anticipated at 2%.

This means, like the revenue the project is also very sensitive to an increase in its

operating costs. In such circumstances, the project has no capacity to cover its costs

and make profit for the promoter.

Hence, a great deal of care should be taken in order to avoid such circumstances

that tend to increase the operating costs of the project.

[Link] in Investment Cost

Similarly, when the investment cost increase by 10%, after tax IRR of the project

anticipated to be 0%. This shows that the project is very sensitive to an increase in

investment cost too.

[Link]. | SGS Consulting Solution PLC 110

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

To summarize, the project is very sensitive to all scenarios. As a result, it has no

capacity to absorb external shock and it cannot attain its objectives if one of the

circumstances discussed above happen.

7.3.6 Benefit to Cost Ration (BCR)

A benefit-cost ratio (BCR) is an indicator, used in cost-benefit analysis that attempts to

summarize the overall value for money of a project or proposal. A BCR is the ratio of

the benefits of a project or proposal, expressed in monetary terms, relative to its

costs, also expressed in monetary terms. All benefits and costs should be expressed in

discounted present values. A BCR can be a profitability index in for-profit contexts. A

BCR takes into account the amount of monetary gain realized by performing a project

versus the amount it costs to execute the project. The higher the BCR the better the

investment is. General rule of thumb is that if the benefit is higher than the cost the

project is a good investment.

In this regard, the BCR computed for the project under is 1.07. Since, the BCR is

greater than one it shows that the project is viable.

[Link]. | SGS Consulting Solution PLC 111

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

9. SOCIO ECONOMIC ASPECT

Based on the foregoing presentation and analysis, we can learn that the proposed

project possesses wide range of benefits that complement the financial feasibility

obtained earlier. In general the envisaged project promotes the socio-economic goals

and promotes hospitality business of the country.

Some of these benefits are listed as follows:

9.1 Employment Opportunity

The proposed project is expected to create employment opportunity to a number of

citizens of the country. This would be one of the commendable accomplishments of the

project.

9.2 Generates Revenue for the Government

In the project life under consideration, the city administration will collect significant

amount of revenue annually from profit tax payment alone. Such result creates

additional fund for the city administration that will be used in expanding social and

other basic infrastructures in the city.

9.3 Provide Aesthetic Value for the City

Tall buildings assume the role of high-level icons for the city, and can create an epic-

scale skyline. At the tall building's top, the architect has greater opportunities for

aesthetic expression. A tall building without a skyline identity might be an impressive

stack of floors in space.

[Link]. | SGS Consulting Solution PLC 112

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

9.4 Generates Profit

As per the projection made indicated, the project is found to be financially viable and

is expected to earn on sound profit every year. Such result induces the project

promoter to reinvest the profit which, therefore, increases the investment magnitude in

Addis Ababa and other parts of the country.

[Link]. | SGS Consulting Solution PLC 113

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

[Link] and RECOMMENDATION

10.1 Conclusion
This study is conducted to evaluate a high rising multipurpose building project in which

Ethiopian Construction Works Corporation has planned to undertake. The study has

assessed the market condition for the project, the technical aspect of the project, and

Man power & management requirement of the project. Moreover, the financial

requirement and sources of finance for the project were also identified.

Prior to this study, the promoter has already passed a decision to build a G+20.

However, the promoter wanted to scale up the building to a height of G+40 for a

valid on its own side. Hence, this feasibility study is purely conducted to assess the

viability of the G+40 multipurpose building. The following few paragraphs summarize the

results of this study.

The project is planned to be established in Addis Ababa City, Kirkos Sub City around

Mexico Square, along the Mozambique Street.

Based on the market study conducted, there is sufficient market for multipurpose high

rising building in Addis Ababa. Moreover, it is understood that the competition in the

area is very minimal as there is no much high rising buildings in the area.

The project under discussion is planned to be financed from the promoter of which is

the sole sponsor of the project. The Total investment cost of the project is estimated

to be Birr 11,911,933,105.85. Out of which Birr 11,905,999,722.00 is for fixed

[Link]. | SGS Consulting Solution PLC 114

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

investment, Birr 933,383.85 is for working capital and Birr 5,000,000.00 is for pre-

operating costs.

The projected profit and loss statement shows a net profit of ETB 362,436,693 in the

1st year of operation which steadily increases to net profit of ETB 1,009,257,950 in

the 10th year. The cash flow projection also indicates a positive net cash inflow of

ETB 960,217,265 in the 1st year and ETB 1,607,020,298 in the 10th year. The

balance sheet projection also shows a steady capital build up from ETB 12,274,369,799

in the 1st year to ETB 19,011,868,472 in the 10th year. Accordingly, the Financial

Internal Rate of Return (FIRR) after tax is calculated to be 7.03% while the FIRR

before tax is 9.71%. The before and after tax NPVs of the project are ETB

2,041,858,353 and 21,552,905 respectively at 7% discount rate.

The project is found to be very sensitive to a decrease in revenue, an increase in

operating cost and a slight increase in investment cost.

10.2 Recommendation
The project is marginally viable and the promoter can proceed with its investment.

However, since the project is very sensitive to a decrease in revenue, an increase in

operating cost and a slight increase in investment cost a great deal of care should

be taken to avoid such circumstances. Otherwise, the project might end up in loss.

[Link]. | SGS Consulting Solution PLC 115

ECWC Head Quarter ,Addis Ababa Feasibility Study 2020

Hence, the project sponsor shall exhaustively search for a way to decrease the

investment cost of the project. Furthermore, the promoter shall increase the tenable

area of the project.

10.3 Viability Comparison of the G+40 and G+20 projects

Prior to this study, the promoter has already passed a decision to build a G+20

multipurpose building. However, the promoter wanted to scale up the building to a

height of G+40 for a valid reason of its own. Hence, this feasibility study is purely

conducted to assess the viability of the G+40 multipurpose building.

However, in order to support the promoter whether to scale up the building or not, the

consulting firm has undertaken a financial analysis for both the G+20 and G+40

buildings. The result of the financial analysis is summarized in the table below for

Comparison purpose.

Table 28: Comparison of the two alternatives

Financial Metric G+20 G+40 Better alternative

NPV before tax 951,255,845.47 2,041,858,353.28 G+40
NPV after tax (36,051,441.86) 21,552,904.89 G+40
FIRR before tax 9.53% 9.71% G+40
FIRR after tax 6.90% 7.03% G+40
BCR 1.06 1.07 G+40
The above table clearly shows that the G+40 alternative is a better option and the

Consulting firm recommends the project sponsor to pursue with the scale up of the

building. Furthermore, for the ease of the implementation of the project the promoter

had better implement the project phase-by-phase since the project requires huge

investment.

[Link]. | SGS Consulting Solution PLC 116