PART I

Executive summery
This document is a summarized profile of the business plan of Hailu Demeke Yimer which is
prepared primarily on the Chat, oilseeds, cereals, pulses and other agricultural raw materials
export capacity and market potential of the promoter's business established in 2012 E.C. With the
limitation of working capital, the promoter cannot satisfy the existing excess demand of Chat and
exploit the market to its fullest potential.
Therefore, holding enough stocks of these agricultural products is mandatory. To this effect, the
promoter has planned to borrow a total loan of Birr 40,000,000.00 (Forty million) from one of the
government or private owned banks. Using the fund the promoter has planned to boost the existing
sales income to Birr 117, 500,000 at the initial year and to surge up to birr 396,562,000 after four
years of operation.
The overall business objectives of the firm are:
✓ To increase its total sales volume:
✓ To maximize its profit margin by exporting quality dry chats and fresh chats;
✓ To generate foreign/hard/currency to the country;
✓ To create employment opportunity for many individuals.

Vision, Mission and Objectives

Vision
To be one of the leader exporters in Ethiopia by exporting quality dry chats and fresh chats to the
world market mainly to East African countries, middle East Countries and Some European
countries.
Mission
The business strives to create a positive of payment to the country by exporting high quality dry
chats and fresh chats to the world market. In addition, it has planned to minimize the
unemployment rate of country by creating employment opportunity for many individuals.
Objectives
✓Establishing and maintaining good business relationship with the local suppliers of dry chats
and fresh chats and international buyers mainly with that of East Africa Countries and the Middle
East countries;
✓ Utilizing its available resources at full capacity so that it will maximize its profit margin;

PART II
1. Introduction
Ethiopia is one of the least developed countries in the world despite its enormous potential for
agricultural development, agro-processing, mining, energy, construction & tourism. As other

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African and third world countries, its economy is mainly based on agriculture (primary goods).
This accounts for about 50% of GDP, 90% of exports and 80% of total employment. It also
supplies food to the urban areas and raw materials to the manufacturing sectors. Agriculture
productivity in Ethiopia is very low and because of its importance in the economy the Federal
Government of Ethiopia has designed an Agriculture-led Industrialization strategy with the view
to bring sustainable economic growth. As other African and third world countries, Ethiopian's
economy is mainly based on agriculture (primary goods). Agriculture remained a dominant sector,
its share in GDP slightly declined from 40.1% in 2018/19 to 38.8% in 2019/20. It accounts about
90% of exports and 80% of total employment. Moreover, it supplies food to the urban areas and
raw materials to the manufacturing sectors. Agriculture productivity in Ethiopia is very low and
because of its importance in the economy the Federal Government of Ethiopia has designed an
Agriculture-led Industrialization strategy with the view to bring sustainable economic growth.
The performance of industrial sector is not encouraging. The sector is still weak and dominated by
agricultural input processing and textile industries. Therefore, significant effort is expected from
both the government by providing incentives and private individuals to improve the performance
of the sector.
As per the government's economic strategies put forth in recent years, the economy is set to grow
by promoting export focused agricultural production and at the same time by implementing food
security programs for poor farmers. Promotion of export focused farming has a focus on two
policy
implementation: one, allocating as much as arable land as possible for agricultural investment
purposes and; two, by creating wealthy farmers who can efficiently supply the export traders with
the cash crops in the export value chain. Since the launching of the new market oriented economic
policy in 1992 E.C, the participation of the private businesspersons has now become dynamic with
sharp & continuous increase in export earnings. However, the revival in the private sector
participation has not been accompanied either by a significant increase in the volume nor in the
diversification of export. In general, the private investors have been playing the pivotal role in the
development of the country's economy. Currently, the Ethiopian government is creating conducive
investment environment for private investors in order to actively participate in various business
activities and contribute their share for the development of the national economy. Taking into
account this opportunity, Hailu Demeke Yimer has been actively participating in the export
business of Chat.
2. Background of the promoter
Ato Hailu Demeke is young, holding BA degree and a businessperson operating in export
business. So far he was working with his brothers who are among the top exporters in Ethiopia as
Export manager.
The promoter's business objective on establishment of the firm is creating a Well organized and
coordinated business by engaging in export and related business.
3. Objectives and Purpose
The main business objective of the promoter is to export quality dry and fresh chat to the
world market. In addition, he has following business objectives.
 To export quality dry and fresh chat to the international market;
 To engage in farming ; and
 To perform other profitable business activities.

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4. Market Overview
INTRODUCTION
Ethiopia is endowed with high quality of coffee, oilseeds, spices, long fiber cotton and large
number of live animals. These natural resources are the major contributors of foreign currency to
the nation. The country is the source of Coffee Arabica.
Agricultural commodities are the number one traded items in the international market. Every
country somehow imports food items from other country, even our country imports rice and wheat
from overseas. Ethiopia has the potential to dominate the agricultural products supply in the
international market.
Agriculture is one of the dominant sectors in the Ethiopian economy and its share of GDP is
36.3% and above 70% of Ethiopia’s population is employed in the sector (CSA, 2018). The chat
industry is one of the leading agricultural sectors. The industry constitutes 4% of the country’s
export earnings and shares 9.4% of total merchandise export (NBE, 2018). Chat (Catha edulis) is
an evergreen tree cultivated for the production of fresh leaves that are chewed for their euphoric
properties. The plant is well-known and controversial in the eastern part of Africa and the Arabian
Peninsula due to its adverse impact on the hand and preferred crop on the other (DEA, 2019). It
mostly grows in East Africa and southern Arabia and often known as chat but also goes by
different names such as Khat, Qat, Kat, Kus-es-Salahin, Mirra, Tohai, Tschat, Catha, Quat,
Abyssinian tea, African tea, and African salad (Al-Mugahed, 2008).In Ethiopia, there are also
other names given for chat such as Aweday, Beleche, Abo Mismar, Wondo, Bahirdar, Gelemso,
Hirna, etc., which based on the source of the plant.Globally, each day it is estimated around 5 to
10 million people consume chat, East African countries and southwestern Arabia are the utmost
users. (WHO, 2006). In Ethiopia, the habit of chewing Khatshows rises at radical change, most
importantly it changes in younger age population predominantly, in high school, college and
university students for whom the academic activity is high (Alemu et al., 2018). According to CSA
2017 report, 12% of women and 27% of men reported having ever chewed chat.Currently,
Ethiopia is the leading chat producer in Africa and worldwide. Most of the chat is produced in the
southeastern part of the country. Even if, the chat export in some countries is banned and
unpermitted to transact within and outside the country, Ethiopia constitutes one of the major
earnings from chat consumption within a country and its export.
The cultivation of chat is also growing rapidly. About 275 million kilograms of chat was cultivated
on 248,000 hectares in 2018-19, from this about 45 million kilograms were exported and 226
million kilograms was consumed domestically. Nearly 800 million ETB ($200 million) was spent
by a consumer annually to buy chat. Depending on the quality and type the price of chat ranges
between 35 and 1,000 ETB. (CSA, 2018).The demand for the plant is not only the domestic
market, but it also traded and consumed in some parts of Europe and North America. It also
consumed in the US, even if the plant seen as a drug of abuse. Humanitarian crises and conflict in
the world create a good market opportunity for illegal drugs including chat. (Lautze et al.,
2003).However, the market operation on Ethiopia chat trade has remained unsatisfactory for
farmers and the market. This is because there is no significant change in the form of production,
processing, and marketing for several years due to non-engagement of government through policy
rule and also the increasing ban of importing countries as an illegal drug. (Feyisa and Aune,
20016). Even though chat production is discouraged because of problems listed above in chat
production and marketing, the plant continues to be a chief cash crop in Ethiopia due to its high

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demand both in the domestic and foreign market. (Tesfa, 2019).Despite, this increase in the export
sector in the past few years currently it fluctuates or not as intended and data shows that the export
performance of chat in the country is unsatisfactory and also the addiction of the youngsters and
working labour force worrying society and government. In addition to these, the demand for the
plant is declining in some areas of the country especially in Tigray and Amhara regions. By
understanding these gaps this study was conducted on chat marketing and its export performance
on the country's economy.
Chat (Catha edulis, chat or Qat) is an evergreen plant used commonly for mastication and its
sympathomimetic actions (Cox and Rampes, 2003). Consumption of chat leaves is common in
Yemen, Madagascar, Saudi Arabia and East African countries (like Kenya, Ethiopia, Djibouti,
Somalia, Uganda, and Tanzania). Chat is chewed by almost everyone in Yemen and has become
part of the Yemeni way of life (Ward, 2000). Commercial viability of chat production and
distribution has elevated it to one of the most important commodities for export-import in some
African and Arabian countries. Once limited to the Red Sea Littoral, chat is now an international
commodity, traded and consumed in the cities of Western Europe and North America (Anderson,
2003). Chat acquires the status of cash crop in Ethiopia- the country thought to be the place-of-
origin of the use of chat (Cox and Rampes, 2003). In Ethiopia, chat is planted and chewed for
different purposes, occupies second place among export commodities after coffee, and is a major
source of foreign exchange (Survey of Ethiopian Economy-II, 20017).
AN OVERVIEW OF THE CHAT BUSINESS IN ETHIOPIA
History
Chat production and its sale have a long-standing history in Ethiopia. Thought to be originated
from Harar, it became popular, in due course, to Oromo and other tribal regions of Ethiopia.
However, the volume of the exported Chat was small that time due to the lack of rapid means of
delivery (Gebissa, 2004). Large quantities of Chat were imported from Ethiopia to Aden only after
the air route was setup across the Red Sea in 1949 (Ward, 2000). Following the development of
rail and road transport to Djibouti and Somaliland, it attained a significant surge (Gebissa, 2004).
In the decade after the Second World War and also between 1954 and 1961, a sizeable amount of
arable lands were devoted to Chat production in Harerge.
According to the NBE annual report (2018/19), the agricultural sector exhibited slower growth
rate of 2.3 percent compared with 8.2 percent target mainly due to contraction in grain crop
production largely on account of Rain effect. The total grain production reached 266.8 million
quintals, of which cereal production accounted for 86.7 percent, pulses 10.4 percent and oil seeds
2.9 percent.
Cereals production went down by 2 percentage point over the preceding year owing to 1.7 percent
reduction in cultivated land area. In contrast, the production of pulses and oilseeds improved by
3.6 and 3.3 percent while cultivated land area expanded by 6.1 and 0.4 percent, respectively
during the
same period. The total land cultivated for crop production slightly declined by 0.6 percent to 12.5
million hectares, of which cereals production covered 79.9 percent, 13.2 percent, percent and oil
seeds 6.9 percent.
According to the same report, total export proceeds including electricity declined by 5 percent
over the same period of last year due to lower export earnings from coffee (7.4 percent), oilseeds
(6.4 percent), gold (8.8 percent), chat (3.7 percent), live animals (0.5 percent), leather & leather

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product (12.4 percent) and electricity (26.5 percent).
Specitically, export earnings from coffee dropped by 7.4 percent owing to 14.3 percent decline in
international price despite 8 percent increase in export Volume. As a result, the share of coffee in
total merchandise export was 25.2 percent slightly lowers than 25.8 percent recorded last year
same period. Revenue from oilseeds was down 6.4 percent and reached USD 477.2 million
because of a 31.5 percent fall in international price despite 36.7 percent growth in export volume.
Hence, the share of oilseeds in total merchandise export was down to 16.6%. Export proceeds
from export of live-animals declined by 0.5% as a result of a 0.1% decrease in export volume and
0.4 percent in price. Hence, the share of revenue from live-animals in total merchandise export
increased to 5.2 from 4.9 percent a year ago. In contrast, earnings from pulses export increased by
5.7 percent to USD 232.4 million due to a 10.2 percent rise in export volume despite share of
pulses in total a 4.1 percent decline in price. As a result, the share of pulses in total merchandise
export earnings increased to 8.1 percent irom 7.3 percent a year earlier.
According to the NBE annual report-2019/20; Asia, Europe, Africa and America have continued to
become the main destinations for Ethiopian exports. Asia accounted for 37.2 percent of Ethiopia's
exports, of which, 32.2 percent was to China, 17.6 percent to Saudi Arabia, 8.4 percent to United
Arab Emirates, 6.7 percent to Israel, 6.6 percent to India, 5.6 percent to Japan and 5.3 percent to
Pakistan. Altogether, these countries accounted for 82.4 percent of Ethiopia's total exports to Asia.
The major exports to China constituted of oilseeds, leather & leather products, mineral products,
coffee, textile materials and natural gums. Saudi Arabia largely imported coffee, meat & meat
products, live-animals, flower, oilseeds, spices and cereals. While exports to United Arab Emirates
were meat & meat products, pulses, oilseeds, flower, food, live animals and coffee. Oilseeds,
cereals coffee, beverage and spices went Israel. The main exports to India were pulses, mineral
products, oilseeds, leather & leather products, spices and chat. Japan imported mainly coffee,
oilseeds, flower, leather & leather products, bees wax and textile & garment. While Pakistan
imported pulses, tea, Spices and vegetables. Europe accounted for 34.1 percent of Ethiopia's total
exports. Within Europe, Switzerland constituted 29 percent, the Netherlands 19.4 percent,
Germany 17.5 percent, Belgium 6.3 percent, Italy 5.1 percent, United Kingdom 4.4 percent and
France 3.9 percent. These countries together accounted for 85.6 percent of Ethiopian export to
Europe. The main exports to Switzerland were gold, oilseeds and coffee. On the other hand, the
Netherlands imported mainly flower, coffee, oilseeds, vegetables and pulses. Likewise, Germany
mainly imported coffee, textile & garment and flower. While coffee, flower, oilseeds, vegetables
and textile & garment were exported to Belgium.
Italy imported mainly coffee, leather & leather products, textile & garment, flower, pulses and
oilseeds. While the major Exports to UK constituted coffee, flower, leather & leather products,
oilseeds, vegetables and pulses. Ethiopian exports tom France were coffee, flower, textile &
garment, pulses and leather & leather products. About 20.8 percent of Ethiopia's exports went to
Africa, mainly Somalia (55.8 percent), Djibouti (21.5 percent), Sudan (12 percent), Kenya (4.9
percent) and Egypt (3.6 percent), which altogether accounted for 97.8 percent of the total exports
to Africa. The major exports to Somalia were chat, live-animals, fruits and vegetables while chat,
live-animals, electricity, vegetables and fruits went to Djibouti Sudan imported largely pulses,
coffee, spices, electricity and live-animals. The main exports to Kenya included pulses, leather &
leather products, textile & garment and tea while live animals, oilseeds, pulses, spices, coffee and
fruits were exported to Egypt. America accounted for 7 percent of Ethiopia's total exports, of

5
which 88 percent was destined to the United States and 6.5 percent to Canada. Coffee, oilseeds,
leather &
leather products, food, textile & garments and flower were the major exports to then United States
and coffee, oilseeds, leather & leather products and flower to Canada
Chat Supply Perspective
According to the Ethiopian Metrological Agency report, rain has been falling throughout the major
chat producing regions of the country adequately and consistently. The supply of chat is growing
year to year. Moreover, the land covered with these plant is increasing from year to year. Agood
number of commercial farmers are engaged in the production of chat. As a result, no major
problem is expected from the supply side.

5. Export Plan
The promoter has planned to export the following Chat

Fiscal year Type of Quantity Price per Total value Total value
commodities in k.g k.g in usd in birr
Dry chat 40,000 40 1,600,000 75,200,000

Fresh chat 60,000 15 900,000 42,300,000

Total 2,500,000 117,500,000

6. Market Strategies
6.1 Target Groups
The promoter has planned to export dry and fresh Chat to Yemen, Madagascar, Saudi Arabia, East
African countries (like Kenya, Ethiopia, Djibouti, Somalia, Uganda, and Tanzania) and Some
European countries.

6.2 Product and Competition

The promoter has planned to purchase dry and fresh chat from farmers to buyers or brokers who
visit their farms in search of the produce. It observed that the existing exporters of dry and fresh
chat are not seemed to be satisfactory to the international buyers in terms of quantity, quality, and
price and delivery service. Therefore, he has planned to fulfill the expected foreign buyers'
demand and satisfaction as much as possible.

6.3 Price
The promoter has planned to offer best and competitive price by maintaining his profit margin.

6.4 Sales Strategy

The promoter's sales strategy focuses on first meeting the existing excess foreign demand of dry

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and fresh chat successfully and maintaining his customers through fulfillment of their satisfaction
adequately. Through his uninterrupted effort in improvement of the capacity and quality of supply,
the promoter has planned to attract additional new customers and boost his sales volume.

7. Strength, Weakness and Opportunity

Strength
• The promoter's experience in line of the business;
• Smooth business relationship with the local businesspersons, financial
institution and international buyers;

Weakness
• Shortage of fund to purchase bulk volume of dry and fresh chat for export; and
• Lack of his own chat farm

Opportunity
• The growing economy of developed countries (Europe, Asia and America);
• The current government policy of the country, which encourages domestic exporters;
• Sustainable economic growth and political stability of the country;
• Adequate supply of dry and fresh chat in the local market;
• Adequate supply of credit facilities by banks; and
• The availability of cheap labor force in the country.

8. Financial requirement and purpose of the loan

In order to satisfy the existing excess demand of dry and fresh chat, the promoter has planned to
borrow a total loan of Birr 15 million from one of the government or private owned banks.
The loan is planned to be used for the purchase of dry and fresh chat, and for partial coverage of
selling and administrative expenses.

9. Financial projections
The promoter's business income and cash flow projections for the coming four
years are made under the following assumptions.

Sales
* Average export price is taken based on past trend.
* Export is assumed to be made throughout the year.
* Export sales are expected to increase by 50% per annum.

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 Fiscal Type of Quantity in Price per k.g Total value in Total value in
year commodities k.g usd birr
Dry chat 40,000 40 1,600,000 75,200,000

Fresh chat 60,000 15 900,000 42,300,000

Total 2,500,000 117,500,000

*exchange rate is assumed to be 1USD= Birr 47

Purchase
* Average purchase price is taken based on past trend.
* Cost of purchase is expected to increase by 20% per annum.
Type of Quantity to be Reject in K.g Net quantity Average Total purchase C
Commodity purchased in K.g For Export in Purchase (in Birr)
K.g Price per k.g (in
Birr)
Dry chat 40,000 - 40,000 1,410 56,400,000
Fresh chat 60,000 - 60,000 470 28,200,000
Total 84,600,000

Cost of sale
 Packaging costs is assumed to be birr 2 per kg
 Labor costs is assumed to be birr 1 per kg
 Transportation cost is assumed to be birr 1 per kg
 Tax, X-ray, quarantine and bank charges is assumed to be birr 3.5 per kg
 Other expenditure is assumed to be birr 1 per kg

Description Projected year

2014 3015 2016 2017
Packaging costs 200,000 360,000 324,000 600,750
Labor costs 100,000 180,000 162,000 300,375
Transportation cost 100,000 180,000 162,000 300,375

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 Tax,X-ray, quarantine and 350,000 637,500 1,111,500 2,025,000
bank charges
Other expenditure 100,000 180,000 162,000 300,375
Total 850,000 1,537,500 1,921,500 3,526,875

General & Administrative Expenses

 Salary and benefit expense is assumed to be Birr 80,000 and it is expected to
increase by 20% per annum
 Office rent expense is assumed to be Birr 60,000 and it is expected to increase by
20% per annum
 Telephone, postage, internet, etc expense is assumed to be Birr 30,000 and it is
expected to increase by 20% per annum
 Utility and stationery expense is assumed to be Birr 12,000 and it is expected to
increase by 20% per annum
 Audit fee is assumed to be Birr 5,000 and it is expected to increase by 20% per
annum
 Miscellaneous expense is assumed to be Birr 6,500 and it is expected to increase by
20% per annum
 Depreciation expense is assumed to be Birr 25,000.00 per annum
 Stationery expense is assumed to be Birr 5,000 per annum and it is expected to
increase by 20% per annum

Description Projected year

2014 2015 2016 2017
Salary and benefit 80,000 96,000 115,200 138,240
Office rent expense 60,000 72,000 86,400 103,680
Telephone, postage, internet, 30,000 36,000 43,200 51,840
Utility and stationery expense 12,000 14,400 17,280 20,736
Audit fee 5,000 6,000 7,200 8,640
Miscellaneous expense 6,500 7,800 9,360 11,232
Depreciation expense 25,000 30,000 36,000 43,200
Stationery expense 5,000 6,000 7,200 8,640
Total 223,500 268,200 321,840 386,208

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 Hailu Demeke Yimer
Projected Profit or loss statement
For the projected year ended June 30,2014,2015,2016,2017

2014 e.t 2015 e.t 2016 e.t 2017 e.c

Revenue

EXPORT SALES 117,500,000 176,250,000 264,375,000 396,562,000

TOTAL REVENUE 117,500,000 176,250,000 264,375,000 396,562,000
COST OF SALE

EXPORT 84,600,000 126,900,000 190,350,000 285,525,000

TOTAL COST OF SALE 84,600,000 126,900,000 190,350,000 285,525,000

OTHER INCOME

GROSS PROFIT 32,900,000 49,350,000 74,025,000 111,037,000

EXPENSE

SELLING & DISTRIBUTION 850,000 1,537,500 1,921,500 3,526,875

GENERAL& ADMINISTRATION EXP. 223,500 268,200 321,840 386,208

FINANCIAL CHARGES 3,900,000 3,900,000 3,900,000 3,900,000

TOTAL EXPENSE 4,973,500 5,705,700 6,143,340 7,813,083
PROFIT BEFOR TAX 27,926,500 43,644,300 67,881,660 103,223,917
PROVISION FOR PROFIT TAX (8,377,950) (13,093,290) (20,364,498) (30,967,175)
RETAINEDEARNING BEGINNING 19,548,550 50,099,560 97,616,722
RETAINED EARNING ENDING 19,548,550 50,099,560 97,616,722 169,873,464

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