Investment Proposal for Dire

Dawa Free Trade Zone

Designation

Following the official opening of the Dire Dawa Free trade zone, we prepared this proposal to request a 3,000
meter square shed space for warehouse and 3 hectare open storage yard for containers storage at Dire Dawa
Free trade zone, for efficient operation of our Industrial Chemicals and Plastic Products Import Business.

By: Mr. Beka Nuradin Aliyi

Industrial Chemicals and Plastic Products Importer

Submitted to: Industrial Parks Development

Corporation, Addis Ababa
Project Proposal for Free trade zone Space Dire Dawa, 2023

March 2023
Table of Contents

1. Executive Summary:.......................................................................3

2. Introduction:..................................................................................4

3. Background....................................................................................5

4. The Project.....................................................................................7

4.1. Project Objective.........................................................................

4.2. Specific Objectives......................................................................
5. Regional Background:......................................................................7

6. Policy Environment and Incentives...................................................10

7. Background of the Promoter...........................................................12

8. Purpose of the plan........................................................................12

9. Availability of Infrastructure...........................................................13

10. Financial Considerations...............................................................13

Table: Past Performance.....................................................................13

Table: Sales Forecast.........................................................................13

Table: Personnel Plan.........................................................................15

Table: Operating expenses.................................................................16

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Project Proposal for Free trade zone Space Dire Dawa, 2023

Table: Fixed Asset.............................................................................16

Table: Depreciation............................................................................16

Table: Working capital Determination...................................................17

Table: Total Initial Investment.............................................................17

Table: Profit and Loss Statement.........................................................18

Table: Cash Flow Statement...............................................................18

Table: Balance Sheet Statement..........................................................19

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Project Proposal for Free trade zone Space Dire Dawa, 2023

1. Executive Summary

This project proposal is prepared by Mr. Beka Nuradin Aliyi, who is

currently operating an Import Business in various kinds of Chemical
Products including Basic Chemicals to be used for Industries. Further, the
Enterprise imports rubber plastics and plastic products.

Following the official opening of the Dire Dawa Free Trade Zone, the
promoter would like request a 3,000-meter square shed space for
warehouse operation and 3-hectare open storage yard for containers
storage at Dire Dawa Free Trade Zone.

The currently existing asset value of the Enterprise amounts to Birr

15,000,000.00. However, the total value of initial investment to be
incurred by the promoter in the free zone, including costs of imported
materials, shipping and other related expenses, is estimated to reach Birr
50,006,387.00.

The project will create job opportunities for 19 employees and among the
total job positions will be administrative, logistics, warehouse management
and technical workers including unskilled laborers.

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Project Proposal for Free trade zone Space Dire Dawa, 2023

2. Introduction

As the country inaugurates the first free trade zone in Dire Dawa, the
Council of Ministers ratify the first national special economic zone policy on
its 11th extraordinary meeting aimed to expand free trade zones in the
country. Dire Dawa Industrial Park has now been re-established to be the
first free trade zone under the name Dire Dawa Free Trade Zone with the
official opening ceremony held on August, 2022 in the presence of Prime
Minister Abiy Ahmed and other senior government officials.

The Corporation has finalized necessary preparations to establish the zone

including legal frameworks, working systems, and infrastructure in
collaborating with the different governmental stakeholder. To benefit from
the scheme, the corporation calls the private sector to invest in the free
trade zone. In addition, the free trade zone would offer customs duties
privileges and play a significant part in reducing the cost of logistics.

Dire Dawa was selected to be the first free trade zone due to its proximity
to ports, market potentials and huge cargo gravity as well as suitability for
multimodal transport and logistics operation. The free trade zone is 300
km far from Djibouti port, 500 km from Berbera port and 2.5 km from Dire
Dawa dry port. FTZ is integrated with the dry port and various service
providing institutions such as customs during operation.

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Project Proposal for Free trade zone Space Dire Dawa, 2023

The Free Trade Zone will be used as an export processing zone where
goods can be unloaded, handled, produced and assembled as well as
resent to the industrial park as a free trade park and export processing
zone. The zone is expected to provide support for the manufacturing,
importing, and exporting procedures by increase efficiency, trade
competitiveness, FDI, urbanization, industrialization to the economy. It is
also expected to decrease inflation and reduce logistics time and cost while
increasing import substitution and export revenue, job creation, and skill
transfer which are among the goals of the free trade zone.

The corporation has prepared 15 sheds for production and warehouses, 4

hectare of open storage ward, and also 48 hectares for private sectors who
want to build their production facility.

3. Background

Trade will play a key role in driving sustained poverty reduction in Ethiopia.
Abundant low-cost labour provides Ethiopia with a comparative advantage
in less skilled, labour-intensive sectors such as light manufacturing.
Previous analysis suggests that factory floor costs in Ethiopia in products
such as garments, footwear and other leather products and processed food
are lower than those in China and India.

These competitive advantages are complemented by the tariff preferences

that Ethiopia enjoys in key markets such as the US and EU. However,
studies conclude that the potential to export such products is constrained
by a number of key supply side factors. This lack of competitiveness is

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Project Proposal for Free trade zone Space Dire Dawa, 2023

reflected in the fact that despite the advantages of low labour costs the
unit value of Ethiopia’s exports of light manufacturing products at the point
of export are considerably higher than those of China and competitor
countries elsewhere in the world.
For detailed products categories such as knitted or crocheted dresses of
cotton that are exported by Ethiopia the unit value in 2015 was 47 percent
higher than that of China while those of Cambodia and Vietnam were 26
percent above those of China.

One of the key factors that has been identified as undermining

international competitiveness is poor trade logistics. A number of recent
reports have drawn attention to the trade logistics sector in Ethiopia as
being a critical constraint to current trade flows and a bottleneck to further
economic growth and development.

The logistics sector in Ethiopia faces 3 key opportunities:

(i) improving the efficiency with which trade traffic is processed and
adapting to the new intermodal (road-rail) transport system
(ii)increasing capacity to deal with the projected increase in trade in the
next 15 years (trade flows are expected to more than double under
GTP II) and
(iii) evolving to provide a wider range of higher quality services
that are demanded by modern export-oriented sectors.

In particular, to support export diversification, especially into

manufactured goods, requires significant improvements in the quality and
reliability of logistics services but also an increase in the scope of services

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Project Proposal for Free trade zone Space Dire Dawa, 2023

provided to include modern facilities for warehousing and consolidation

services including inventory management and order processing.

4. The Project

The envisaged Free Trade Zone space project is planned to be established

on a a 3,000-meter square shed space for warehouse operation and 3-
hectare open storage yard for containers storage at Dire Dawa Free Trade
Zone.
Therefore, the project is expected to potentially reduce transit time for the
promoter, reduce the amounts of demurrage payable to shipping lines for
containers; and also reduces some of the steps needed to clear transit
movements through the border between Ethiopia and Djibouti.

4.1. Project Objective

The objective of this project is to enhance the performance of the

promoter through the provision of warehouse and storage space for
handling the promoter’s cargo flows in the Dire Dawa.

4.2. Specific Objectives

• To increase foreign currency earning of the country by creating the

conducive condition for enhancing the export and import of products

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Project Proposal for Free trade zone Space Dire Dawa, 2023

• To improve the financial earning of the citizens engaged in the

import and export of products

5. Regional Background:

The Dire Dawa Administration is located between 9°27’N and 9°49’N

Latitudes, and between 41°38’E and 42°19’E Longitudes. In the north,
east, and west, the administration is bordered by the Shinile Zone of the
Somali National Regional State, and in the south and southeast by the by
the Eastern Hararghe Zone of the Oromia National Regional State.

Dire Dawa Administration is found in Southeast Ethiopia, and Dire Dawa

City, the seat (capital) of the administration, is located 505 kilometres to
the east of Addis Abeba, 55 kilometres to the north of the historic city of
Harrar, and 313 kilometres to the west of Port Djibouti.

The administration is a chartered city administration that consists of 9

urban and 38 rural Kebeles. In all, the administration is estimated to have
a total land size of 1288 square kilometres, of which 97. 73% accounts for
the size of the rural area, while the remaining 2. 27% covers the land size
of the urban areas found in the administration.

The range of altitude of the land in the administration is between

9602,500 meters above sea-level (masl). Dire Dawa City is located at
1202 meters above sea-level. The annual maximum and minimum air
temperatures of the administration are 31.4° C and 18.2° C respectively.
The administration has an average annual rainfall of 604 millimetres.

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Project Proposal for Free trade zone Space Dire Dawa, 2023

According to the result of the House and Population Census of May, 2008,
the administration is said to have at present an estimated population of
342, 827 people, out of which 171, 930 (50. 2 %) are male, and the
balance; that is, 170, 897 (49. 8 %) are female. Out of the total number
of the population of the administration 232, 854 or (67. 5 %) people live
in urban areas, while the remaining 109, 973 people or (32.5 % of the
total) reside in the rural areas of the administration.
The livelihood of the people of the administration residing in urban areas is
mostly based on trade, manufacturing, and industry; while that of the
rural population is based on farming and/or animal husbandry.

Dire Dawa is a city that came into being in 1902 to serve as a midway
terminal on the railway line constructed to link Addis Abeba with Port
Djibouti, and as the closest urban center to this port handling most of the
import-export trade of Ethiopia, it has played crucial role to the
development of the nation by serving as its gateway to the outside world
since then. The station thus established 111 years ago has grown to
become the second most populated urban area in the nation by serving, in
the main, as a transshipment place for the country’s import-export trade.

The importance of the city as a transshipment place is growing by the

year. Most importantly for this project profile, the city continues to be a
transshipment place for the fruits and vegetables, and other horticultural
products exported to the Djibouti Republic on weekly basis. Despite its
long service in this regard, the city does not have any cold storage

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Project Proposal for Free trade zone Space Dire Dawa, 2023

facilities now. The exporting of perishable food stuffs seek to be handled

with care as they could easily sustain serious damages which could render
them useless easily.

Though it is not easy to quantify the amount of wastages incurred by the

exporters so far, it will not be difficult to imagine how much they lose by
putting into consideration the following facts:
1. The hot climatic condition of Dire Dawa City, and Port Djibouti, the
final destination for the exported agricultural products.

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 Project Proposal for Free trade zone Space Dire Dawa, 2023

2. The way the agricultural products are packed in wooden crates.

3. The products are transported especially nowadays by ordinary
trucks.(not refrigerated trucks)
4. The 313-kilometer-long road between Dire Dawa City and Port
Djibouti is an all-weather road with bumpy, potholed surface.
What is more, the road passes through dry area that is extremely
hot.

These seem to be the favourable conditions for wastage resulting

from enzymatic reactions by microorganisms. It is clear that,
apart from the wastage, the exported products will have incurred
additional physical damages by the time they reach their
destination from the way they are packed.

The implementation of the project envisaged by this profile will

not only enhance the market competitiveness of these agricultural
produces in Djiboutian market with those brought from Yemen
and other countries but also enable Ethiopia to earn more foreign
currency by reducing the huge wastage resulting from the lack of
cold storage facility.

6. Policy Environment and Incentives

The rapid economic progress attained by the country in the last

nine years is the outcome of the favourable economic policy
focusing on liberalization of prices and markets, removal of
subsidies, reduction of tariffs and liberalization of external current
account convertibility. What is more, these measures have also

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 Project Proposal for Free trade zone Space Dire Dawa, 2023

been supported by favourable fiscal and monitory policies adopted

by the government.
Similarly, the newly formulated trade policy, embracing measures
like the devaluation of the Birr, introduction of weekly foreign
exchange auction, suspension of taxes and duties on most
exportable items, and liberalization of the trade, improved the
competitiveness of the country’s economy in the world market.

The conducive environment created for the development of

export, the various export incentives offered by the government,
and the fact that Ethiopia offers access to producers and
manufacturers to larger markets by virtue of its being a member
of the Common Markets for Eastern and Southern Africa
(COMESA) – an economic bloc consisting of 23 member countries
with a total population of over 300 million people, and the fact
that it is well placed to benefit from “Everything But Arms” trade
opportunity offered by European Union, and the fact that the
country is, moreover, a beneficiary of the ‘African Growth and
Opportunity Act” (AGOA) - which offers it a privileged access to
the large U. S. market – all of these factors have contributed to
the country’s success in attracting more and more investors from
different parts of the world.

The above-mentioned steps taken by the government to create

the favorable investment conditions, and the wide ranging
adjustments and reforms it has made several times so far to the
existing laws, regulations, and directives so as to incorporate
changes and timely improvements deemed necessary, are

outcomes of the conducive economic policy it has put into place

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 Project Proposal for Free trade zone Space Dire Dawa, 2023

from the outset. Briefly speaking, the policy environment in

Ethiopia for the project under consideration is suitable and
attractive. .

The Dire Dawa Administration has a suitable investment friendly

environment by virtue of its being the second chartered city after Addis
Ababa, which has the mandate to legislate laws, rules, and
regulations. The administration has, therefore, got the legal and
policy framework it seeks for the implementation of this project.

As the construction of a multifunctional cargo handling terminal

for servicing transit cargo flows in the Dire Dawa Railway Station
is intended to add value to products destined for export purpose,
the project has the support of all the relevant policies. It is,
moreover, entitled to receive land related incentives, and of
course, to import capital goods, and equipment it seeks for
setting up the cold store free of any customs duty.

7. Background of the Promoter

The owner of the proposed project, Mr. Beka Nuradin Aliyi, is an

experienced businessman, currently operating an Import Business
in various kinds of Chemical Products including Basic Chemicals to
be used for Industries. Further, the Enterprise imports rubber
plastics and plastic products.

8. Purpose of the plan

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 Project Proposal for Free trade zone Space Dire Dawa, 2023

The purpose of this project proposal is to 3,000 meter square

shed space for warehouse operation and 3 hectare open storage
yard for containers storage at Dire Dawa Free Trade Zone.

9. Availability of Infrastructure

The area has well-developed infrastructures. It has internally got

local road networks which links Dire Dawa City with every rural
Kebele in the administration. The area has also got road
connection with the main urban centers in the city.

10. Financial Considerations

The currently existing asset values of the Enterprise’s current
investments are depicted in the following table.

Table: Past Performance

Current Asset
Cash 100,000,000.00
Inventory 1,768,246,387.17
Total Current Asset 1,868,246,387.17
Fixed Asset
Furniture & fixture 991,806.41
Other equipment 761,806.42
Total Fixed Asset 1,753,612.83
Total Asset 1,870,000,000.00

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 Project Proposal for Free trade zone Space Dire Dawa, 2023

Table: Sales Forecast

Unit Sales Year 1 Year 2 Year 3
Basic Chemicals used for 9,000.00 9,900.00 10,890.00
Industries (metric ton)
Chemical Products (metric 7,000.00 7,700.00 8,470.00
tons)

Total Unit Sales

Unit Prices Year 1 Year 2 Year 3

Basic Chemicals used for 10,000.00 11,000.00 12,100.00
Industries (metric ton)
Chemical Products (metric 8,000.00 8,800.00 9,680.00
tons)

Total Unit Sales

Sales Year 1 Year 2 Year 3

Basic Chemicals used for 90,000,000.00 108,900,000.00 131,769,000.00
Industries (metric ton)
Chemical Products (metric 56,000,000.00 67,760,000.00 81,989,600.00
tons)

Total Unit Sales

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