SCHOOL OF BUSINESS AND ECONOMICS

DEPARTMENT OF ECONOMICS
DETERMINANTS OF PRIVATE INVESTMENT
(IN CASE OF SEBETA TOWN)
A Research Paper Submitted to the Department of Economics in partial Fulfillment of the
Requirement for Bachelor of Arts and Degree in Economics
PREPARED BY: 1. Alemayehu korsa……………….……..006\08

2. Idilu Amanuel.....................................037\08

3. Amin Abdi...........................................008\08

4. Aboma Amensisa…………..................004\08

5. Midega Abdurahman……….………...046\08

6. Beshatu Belis…………………........…..010/07

Advisor: Genet Ejeta (MSc)

June, 2018

Woliso, Ethiopia
Abstract
Investment is a crucial variable, which uses to accumulate capital and increases specialization of
market efficiency. In general to the least developed countries regulate a policy that gives a palace
for either private and public investment or foreign investment.
Ethiopia has great potential for private investment sector because of its favorable conditions. Its
land fertility, minerals, forest resources, different climatic conditions, water resources and human
resources are some of the factors that make Ethiopia desirable for private investment, despite
these resources there are very few private investment activities in the country.

This study initiates to explore the factors that affect private investment and their consequences
on the overall economic development of Sebeta town. For this purpose data was collected from
primary and secondary sources. The result was processed and analyzed by using different and
appropriate statistical tools like table, percentage and figures.
The study clearly identified and underlined that the main factor of the low level of private
investment of the town are lack of sufficient investment area, high price of raw materials,
shortage of power supply, high tax levied on their generated income, reduced consumers’
numbers, low purchasing power of the society, and lack of promotion efforts to attract investors,
lack of skilled man power. In addition to those, the investment officers listed those factors such
as lack of knowledge from the investors’ side, lack of access to finance, and infrastructural
problems. Based on those foundations, we forwarded important recommendations in order to
minimize those problems and speed up the economic growth of the town.

I
 ACKNOWLEDGMENT

First and for most we give thanks and praise to our lord and savior God for being our road during
this entire process. Secondly, our heartfelt grateful thanks to our advisor Inst.Genet Ejeta for her
close supervision of the paper, valuable assistance in providing us with her genuine professional
and technical advice, constructive comments and useful suggestion which made the completion
of this paper possible by devoting her precious time.

II
Acronyms
GDP : Gross Domestic Product
LDCs : Least Developing Countries
WB : World Bank
BFI : Business Fixed Investment
RI : Residential Investment
II : Inventory Investment

III
Table of Content

Abstract............................................................................................................................................I
ACKNOWLEDGMENT................................................................................................................II
Acronyms.......................................................................................................................................III
Table of Content............................................................................................................................IV
List of tables....................................................................................................................................V
CHAPTER ONE..............................................................................................................................1
1. INTRODUCTION...................................................................................................................1
1.1 Background of the study....................................................................................................1
1.2 Statement of the Problem...................................................................................................3
1.3 Objective of the Study.......................................................................................................4
1.4 Research Questions............................................................................................................4
1.5 Significance of the Study...................................................................................................4
1.6. Scope of the Study............................................................................................................5
1.7 Limitation of the Study......................................................................................................5
1.8 Organization of the Study..................................................................................................5
CHAPTER TWO.............................................................................................................................6
2. LITERATURE REVIEW........................................................................................................6
2.1 Theoretical Literature Review...........................................................................................6
2.2 Empirical Literature Review............................................................................................11
CHAPTER THREE.......................................................................................................................14
3. RESEARCH METHODOLOGY..........................................................................................14
3.1 Description of Study Area...............................................................................................14
3.2 Data Source......................................................................................................................14
3.3 Method of data collection................................................................................................14
3.4 Sample Size and Sampling Technique............................................................................15
3.5 Method of data analysis...................................................................................................16
CHAPTER FOUR.........................................................................................................................17
4. DATA ANALYSIS AND DISCUSSION.............................................................................17
4.1 Investors Background Information..........................................................................................17
4.2 Area of Business Activities that investors participate in the town........................................20

IV
4.3: Investors Satisfaction on their Business.................................................................................22
4.4: Source of initial Investment Capital and Availability of raw Materials.................................24
4.5: Purchasing Condition of the People.......................................................................................25
4.6 Information about opportunities of privet investment from town investment promotion center
.......................................................................................................................................................25
4.7: Investment incentives from town investment office...............................................................26
4.8: Problems faced by investors during their engagement...........................................................28
4.9: Administrative constraint faced by investors.........................................................................29
4.10: Financial constraints faced by investors...............................................................................31
4.11: Availability of market...........................................................................................................32
4.12: Administrator’s action to tackle Constraints........................................................................34
CHAPTER FIVE...........................................................................................................................36
5. Conclusions and Recommendation........................................................................................36
5.1 Conclusion.......................................................................................................................36
5.2 Recommendation.............................................................................................................37

V
List of tables
Table4.1 Sex Distribution of Respondents....................................................................................17
Table4.2 Age Distribution of Respondents...................................................................................18
Table4.3 Marital Status of the Respondents..................................................................................18
Table 4.4 Area of Business Activities that Investors Participate in the Town..............................21
Table4.5 Reasons to set up their Investment in the town..............................................................21
Table4. 6 Accessibility of Investment License for interested Investors........................................22
Table4. 7 Types of difficulty that investors face to get investment license..................................22
Table4. 8 Profit generation by investors........................................................................................23
Table4. 9 Reasons for getting normal profit..................................................................................24
Table4. 10 Source of investment initial capital.............................................................................25
Table4. 11 Availability of sufficient raw materials.......................................................................25
Table4. 12 Purchasing condition of the people to investor's product............................................26
Table4. 13 Provision of information to the investors before they start their investment..............27
Table4. 14 Methods to disseminate the information to investors..................................................27
Table4. 15 Investment incentive before they start their investment..............................................28
Table4. 16 Investment incentive after they started their investment.............................................28
Table4. 17 Existence of different types of problems.....................................................................29
Table4. 18 Factors that affect private investment..........................................................................29
Table4. 19 Existence of administrative constraint before their engagement.................................30
Table4. 20 Existence of administrative constraint after their engagement....................................31
Table4. 21 Types of administrative constraint..............................................................................31
Table4. 22 Existence of financial constraint..................................................................................32
Table4. 23 Types of financial constraint.......................................................................................33
Table4. 24 Availability of market for their product......................................................................33
Table4. 25 Types of market problems...........................................................................................34

VI
 CHAPTER ONE

1. INTRODUCTION

1.1 Background of the study

Investment is the main hope of most poor countries, trying to increase their level of income,
because it increases the living standard of the people. Currently the federal as well as the
regional government of Ethiopia devote much of their efforts on accelerating the growth of
investment and its diversification. Private investment is a recent history for Ethiopia because of
fluctuation of different political regimes with different economic policy. The most significant
time in relation to investment was from imperial regime of Hailesselassie to the current federal
government. During the era of Haileselassie (1923-1974), investment was belied to be a starting
point in the sector. But by the time it was owned either by foreigners especially by Britain’s or
by imperial families or by the government. (Asfaw, 2006).

After imperial regime, Dreg comes to power in 1974 with command economic policy. During
this time investment was relatively better than the imperial regime. It limited the participation of
private sectors in the economy in which public enterprise is mostly dominant. The development
of public sectors was seems as an appropriate policy response to bring about improvement in the
economy. There appeared to be an economic consequence around the world. Accepting the
public enterprise is an inevitable part of Ethiopia. While the public sector contributed
significantly to the development process, the low rate of return on such investment and the
inability of the government to finance the growing demand for such industries changed the
consensus in favor of economic liberalization and privatization which forced the government to
introduce mixed economic policy in 1980’s. in the context of significance changes in fiscal,
monetary, trade and industrial policies, the need for review of the continued presence of the
public sector in wide range of activities was felt.(ibid, 25)

A new strategy for encouraging private sector was adapted when the transitional government of
Ethiopia (TGE) come to power in 1991, with new economic policy, it marked a turning point in

1
policy guidelines. The philosophy of a new economic policy was the state should leave for
private sector and concentrate on those areas where it had especial or unique responsibility.
Since 1991, to enhance the role of private investment in the development process, various policy
measures have been taken by the government. And investment code of the country had been
established and also revised several times. In may 1992 investment code number 15/1992 was
issued, it was revised by investment code number 37/1996 with the objective of eliminating
discrimination against the private sector and creating conducive environment in the economy of
private investment(Kinfe Abraham, 1998 ).

The investment code number 116/1998 in 1998, gives special attention for native Ethiopian with
having foreign citizenship to invest in Ethiopia. The government believed that opening more
sectors to private investment was important to promote the overall economic development. And
it contributes to the flow of capital, technology and knowhow in the country. So encouraging
them to return to Ethiopia ensures the flow of foreign direct investment (FDI) in to the country
and allows foreign investors to hire expatriate staff in top managerial position (IBID, 202).

The private sector response seems to be promising compared to the pre-reform period when
private investment was extremely low, the participation of private investors and approves rate
projects shows dramatic change. The problem, however, is the implementation of projects.
Although many challenges might have contributed to the low level of private investment, one
possible factor can be the limited experience and skill of the investors especially the domestic
investors in identification and study of production and profitable projects. Identifying viable
projects and managing and implementing them required good entrepreneurial skill. In addition to
this, other challenges such as infrastructural, marketing, financial challenges are contributes for
private investment retried from investment and its growth (Asfaw, 2006).

There has been a major positive change over the past ten years in the municipal government of
the town towards private investment. The municipal government of the town recognizes the vital
role of investment in the town economic development process especially by bringing capital
technology and knowhow to the town and strengthening linkages and promoting the town’s
development. The town has potential investment opportunities in areas like trade, industries,

2
social services, livestock production (i.e. milk, meat, eggs) and tourism are among the potential
investment opportunities which is open for private investors (Sebeta Town Investment Office,
2018).
Although the town has investment opportunities, the magnitude of investment activities in the
town in number of projects and investment capital is very small. The problems of policy
operation inherited from the past had a negative impact on private enterprises; however in past
starting from 2008 GC various measures were taken by municipal government of the town. Thus,
infrastructure were improved, measure to avoid bureaucratic were also introduced (Sebeta Town
Investment Office, 2018).

1.2 Statement of the Problem

Investment has a paramount importance in the process of bringing rapid economic development
of nation. Most developing countries are going to private investment to run or facilitate their
economic growth. Private investment is one of the main determinants for growth and
development of nation. However, less developed countries are characterized by low level of
saving (World Bank, 2006).
Currently the federal as well as the regional government of Ethiopia devoted much of its effort
on identifying problems and correcting them, searching potential investment areas, conducting
continues reforms in policy and proclamation to increase the participation of private investors
(Annual Report of Ethiopian Economy 200)
According to Sebeta town investment office 2018, the town has the potential to be favorable for
investment. Investors, on the other hand faced problems in running their business and
participation, Such as marketing problem, lack of accessible development of infrastructure, lack
of advertising and promotion, lack of giving enough land size to investors, financial problem,
policy related problems, problem related to license, technological related problems, problem of
taxation and human resource problems. These problems hinder the growth of private investment
in the town and reduce the contribution of investment to economic development of the town.

In this paper the researcher mainly focuses on filtering out those problems that hold back the
growth of private investment in the town and try to give a direction how to overcome those

3
problems. By doing so, the researcher also try to identify what policy should the government use
to sustain private investment contribution in economic development of the country.

1.3 Objective of the Study

1.3.1 General Objective

The general objective of this study is to examine the major determinants of private investment in
Sebeta town.

1.3.2 Specific Objectives of the Study

1. To examine the major factors that affects privet investment in the town.
2. To assess the general attitude of investors and the government towards private
investment.
3. To draw conclusions and policy recommendations based on the empirical
findings.

1.4 Research Questions

This study tried to answer the following questions.
1. To identify the problems which hinders the expansion of private investment in Sebeta
town?
2. What is the general attitude of the investors and the government toward private
investment?

3. How to improve the challenges of private investment?

1.5 Significance of the Study

Private investment is the primary engine to promote a country’s economic growth. This study
initiates to explore the factors that affect private investment in Sebeta town. In doing so, we hope
that the study was add knowledge in the area of private investment and it has its own
contribution for future research work. In general, the results of this study will benefits potential
researchers, policy makers, planners redesigning appropriate policies and strategies. The study
expected that, it has a benefit to the public in general and potential investors in particular.

4
1.6. Scope of the Study
This study focused on the major determinants of private investment in Sebeta town which is
located at the central part of Ethiopia. All private investments (agriculture, industry and service
sector) in Sebeta town are included in the study.

1.7 Limitation of the Study

In doing this research, the researcher faced many difficulties to accomplish its objectives such as:
1. Inability to obtain sufficient information from investment bureau officials at the right
time.
2. Difficulty to access and get required private investors address during data collection
period.
3. Unwillingness of investors to give full information.
4. The distance of study area from the researcher.
5. Resource limitations, which includes, money and materials.

1.8 Organization of the Study

The study consist five chapters. The first chapter deals with an introduction part. The second
chapter deals with review of literature which includes theoretical and empirical literature review.
The third chapter deals with research methodology and chapter four deals with the data analysis
and presentation. Finally chapter five deals with conclusion and recommendation of the study.

5
 CHAPTER TWO

2. LITERATURE REVIEW

2.1 Theoretical Literature Review

2.1.1 Definition
For many years investment has been raised and be defined in different ways by different authors,
but with the same concept. The term investment can have more than one meaning. In economics
it refers to the purchase of a physical asset such as, a firm’s acquisition of plant, equipment or
inventory or an individual purchase of any home, which are used in the further production of
goods and services. However for a lower the word dents purchase of an asset for storing value
and hopefully increasing that value over time. ( Her Bert B. Mayo, 1997.pp.6)
 Fredrick Ambling and William G.Forms, 1994 also define as, “The purchase of an asset
that will provide income or further capital growth or both.”
 Gateman (1997) defines investment as sizable outlays of funds that commit a firm to
some course of action, the firm lies on specific procedures to analyze and select that
investment policy.
 Investment is the use of money to earn income. The term also refers, to the expediter of
funds for capital goods such, factors, farm equipment, livestock and machinery capital
goods are used to produce other goods or services (world book encyclopedia, 1994)
 Hulbert (1997) has defined investment has a fix and initial operating resources used for
the production of goods, the provision of service and the development of science and
technology capability. He also advise investors that when he/she evaluate investment
he/she should invest internally (within its activity)before considering external
investment(investing outside its activity) before starting an investment activity, an
investor must know and analyze in what area he/she is going to invest, the availability of
funds he/she has for investment, the economic and political situation of the country,
availability of raw materials for running its activity and fully he/she must put standard of
evaluating the profitability of the investment.

6
2.1.2 Classification of Investment

According to Alexander (1993) the complexity and difficulties of choice in process of

analysis and evaluating investment that ability of manager and decision maker arise much
due to the existence of different kinds of investment with different nature such as;
1. Real investment generally involves some kinds of tangible asset such as land, machinery,
or factories.
2. Financial investment involves contracts written on pieces of paper, such as common
stock and bonds.

In primitive economics most investment is of the real variety however, in a modern economy,
much investment is a financial variety. Largely the two forms of investment are complementary,
not competitive.

According to Dr.Mankiew, investment spending classified in to three main categories

A) Keynesian Model of Investment
The theory of investment behavior goes back to Keynes (1936) general theory he was the first to
call attention to the existence of an independent investment.
He observed that investment depends on the prospective managerial efficiency of capital relative
to some interest rate that is relative of opportunity cost of the invested funds. So that, investment
can be increased, either by managerial efficiency of capital or by reducing interest rate. He
further pointed the private investment was interracially volatile since any rational assessment of
the return on. Investment was bound to the highly uncertain. The annual sprit of the private
investors would be the main driving force in investment decision, in addition expectation of
future demand for firm output, velocity of investment, uncertainty and another non economic
readable i.e. political, social and economic variables are possible determents of private
investment in general.
B) Accelerator Model of Investment
After Keynes the evaluation of investment was linked to simple growth model. This model gives
rise to the accelerator, popular in 1990s and early 1960s and widely used even today in practical
growth exercise. The accelerator growth theory makes investment a line or proportion of chance

7
in output. It extremely simplicity explains its popularity; given all incremental output ratios. It is
easy to compute the investment requirement associated with a given target for output growth.
Perfect completion and exogenously determine output. The theory also disregard dynamic
expectation with regard to further price, interstate and capital cost.
C) Neo Classical Investment Theory
The restrictive assumption behind the accelerator model theory led Jorgenson (1971) and Hail
Jorgenson (1971) to formulate the neoclassical approach. In this approach, the desired capital
stock depends on the level of output and the user cost of capital (which in turn depends on the
price of capital goods, real interest rate and the depreciation rate). This theory indicates the fact
that firm will invest as a rental cost capital falls down but as output in the economy goes up. In
addition, firms would like to have more capital stock when they expect higher level of output.
Logs in decision making and delivery create a gap between the current and desired capital stock,
giving rise loan investment equation i.e. an equation or the change in capital stock.
The foundation of this approach have are inconsistent; that the assumption of static expectation
about future price output, and interest rate is inappropriate. Since involvement is essentially of
forward looking progress, and that the legs in delivery are introduced in labor manner ( Serven &
Solimano, 1992)
In economics, there are three types of investment spending; business fixed investment,
residential investment and inventory investment (Mankiw, 1992 pp 463-82)
1 Business Fixed Investment
Thus include the equipment and stricter that business by to use in production. The largest price
of investment spending, accounting for about three quarters of the total is business fixed
investment. The term business means that thus investment goods are bought by firms for use in
future production. The term fixed means that this spending is for capital that will stay put for a
whole, as opposed to inventory investment, which will be used or sold shortly later. Business
fixed investment includes everything from fix machines to factories, computers to company cars.
The standard model of business fixed investment is called in the neoclassical model of
investment. The neoclassical model examines the benefits and costs of firms owning capital
goods. The mode shows how the level of investment the addition of stock of capital is related to
the marginal product of capital, the interest rate and the tax rules affecting firms.
2 Residential Investments
8
Residential Investment includes the purchase of new housing both by people who plan to live in
themselves and by land lords who plan to rent it to others.
The stock equilibrium and the flow supply
There are two parts to the model first: the market for the existing stock of houses determines the
equilibrium housing price, second, the housing price determinants the flow of residential
investment .This model of residential investment is similar to the theory of business fixed
investment. According to this model of the housing market, residential investment depends on
the relative price of housing. The relative price of housing, in turn, depend on the demand for the
housing, which depend on the imputed rent the individual expect to receive from there housing.
Hence, the relative price of housing plays much the same role for residential investment as
Tobin’s q does for business fixed investment.
Changes in housing demand
When the demand for housing shifts, the equilibrium price of housing changes , and this change
in turn affects residential investment. The demand curve for housing can shift for various
reasons. An economic boom raises national income and the demand for housing. A large increase
in population perhaps of immigration, also raises the demand for housing. One important
determinant of housing demand is real interest rate. Many people take loans mortgage to buy
their homes. The interest rate is the cost of the loan. A reduction in the interest rate raises
housing demand, housing prices and residential investment.
3. Inventory Investment
Inventory investment the goods that business put aside in storage is at the same time negligible
and the great significance. It is one of the smallest components of spending averaging about one
present of GDP. Yet its remarkable volatility makes it central to the study of economic
fluctuations. In recessions, firms stop replenishing their inventory as goods are sold and
inventory becomes negative. In typical recession, more than half the fall in spending from a
decline inventory investment. Higher output raises the stock of inventories firms to hold,
stimulating inventory investment.

9
2.1.3 Determinants of Investment
A) Interest Rate
The level of planned investment depends on the market interest rate, because in order to invest
individual must either borrower or uses its own funds ( Branson, 1989).
All types of investment spending are inversely related to the real interest rate. Higher interest rate
raises cost of capital to firms that invest in plant and in equipment raises the cost of borrowing to
home buyers and raises the cost of holding inventories ( Mankiw, 1992)
B) National Income
This also another measure influence on investment is believed to be the change in national
income .Low level of income causes low demand for capital and low level of saving. This too
again cause low level of investment leading to low level of output which inter brings low level of
income i.e. vicious circle low level of income (Claran and Paul,1990)
C) Financing Constraints
Sometimes faces financing constraints limits on the amount they can raise in financial market.
Financing constraints can prevent from under taking profitable investment. When a firm is
unable to rise funds in financial market, the amount it can spend on new capital goods is limited
to determine their investment based on their current cash flow rather than expected portability
( Mankiw, 1992)

D) The stock Market and Tobin’s q

Many economics see a link between fluctuations in investment and fluctuations in stock market.
Stock prices tend to be high, when firms have many opportunities for profitable investment,
since these profit opportunity mean higher future income for the households. Thus, stock price
reflect the incentives to invest (Mankiw, 1992). The Nobel Prize winner economist James Tobin
proposed that firms base their investment decisions on the following ratio, which is known called
Tobin’s q.
market value of installed capital
Q=
replacment cost of installed capital
Tobin reasoned that net investment should depend on whether of greater or less than one. If q is
greater than one, then the stock market value installed capital at more than its replacement cost.
In this case, managers can raise the market value of their firms stock by buying more capital.

10
Conversely, if q is less than one the stock market values capital at less than its replacement cost.
In this case, managers will not replace as it wears out.

2.2 Empirical Literature Review

A World Bank report (1991) indicated that there is a positive relationship between higher level
of private investment and higher GDP growth rate for developing countries. This report also
should that countries that have kept low inflation, low interest rate and allowed sufficient credit
to the private sector have been likely to high level of private investment as share of GDP. The
report added that macroeconomic stability increase confidence, there by faster private
investment.
Buffy (1986) and Branson (1986) noted that areal depreciation increase the real cost of new
capital goods, relative to domestic goods, depressing investment in non tradable activities. In the
tradable good sector the cost of new capital goods relative to the price of output falls and
investment rises. The result for aggregated investment is uncertain. Preferment and Madarssay
(1993) studied the determinants of private investment in developing countries. They classified
the determinants of private investment in to positive, negative and uncertain factors. The study
should that budget deficit is one of macroeconomic determinants that affect private investment
negatively. This is because when there is budget deficit government tried to find different means
of financing the deficit line that borrowing from local banks, international institutions and
monetary expansion. However, each of this form of financing the deficit has negative effect on
private investment when government finances deficit from local banks it will depress private
investment by extracting most financial resources from the source and allocate towards
government budget financing. Hence it will reduce credit availability to the private investors
more over if the government tries to finance the budget deficit by printing money. It leads to
inflation and affect private investment negatively. Along with the above variables extra
indebtedness, volatility of inflation and exchange rate are classified as certain factors i.e. their
effect cannot be predetermined.
Oshikya (1994) studied macroeconomic determinants of private investment in Africa using a
sample of seven countries to the period 1970-1988. The result tends to confirm that increase in
real output (GDP) growth rate have positive impact on private investment particularly, for low
income countries. On the other hand, the effect to the real exchange rate is negative, small and

11
insignificant in low income countries. The study also showed that inflation rate has a strong
negative impact on private investment in low income countries. In contrast, the impact of
domestic inflation rate on private investment behavior in middle income countries is positive.
The study adds domestic credit availability to the private sector is a major determinant of private
investment for both middle income and lower income countries. However, the effect of change in
terms of trade on private investment for both groups of countries is positive.
Green and Villanueva (1991) examined the effect of various macroeconomic variables on the
private investment activity. The study confirmed the restrictive monetary and credit policies
includes in stabilization packages affects investment activities by rising real cost of bank credit
and by raising interest rate they increase the opportunity cost of retained earnings. Both
mechanisms raise the user cost of capital and leads to reduction in investment. In addition, the
study found that the rate of private investment is positively related to the real GDP growth, the
rate of public investment and negatively related to real interest rate, domestic inflation, the debt
service ratio and the ratio of debt to GDP. The study under lined the importance of examined the
interaction among investment, saving and growth in general equilibrium model. Akplau (1997)
researched on determinants of private investment in Ghana. He found that in the end private
investment in Ghana on real GDP, real interest rate, public investment and the availability of
credit, positively affected by private investment, while increase public investment has negative
impact on private investment.
According to, Befekadu Degfe and Berhanu Nega, (1999/2000), the main constraint to private
investment in Ethiopia and the poor performance of this sector is not lack of liberalization.
Instead, it is all the factors that domestic investors have been complaining about shortage of
demand, inability to complete with cheap imports, shortage of capital, difficult in obtaining land
at reasonable cost, bureaucratic in competence, unfair competition etc. that need serious and
quick attention. If the investment atmosphere improves and domestic investors are to plant the
role they expected in developing the national economy.
On the other hand, research made by Ethiopian economic association (1992) indicate that non-
economic factors like political instability uncertainty and risk are extremely importance factors
in determining the extent of private investment in Ethiopia. Such factors make private
investment or relevant to commit large expenditure on investment and results in to land level of
investment in the country. According to Girma (2004) in his paper “Distribution of private

12
investment makes study on the factors that have a bearing impact on regional and sectorial
distribution of private investment projects. According to this study and biased special and sect
oral distribution of investment projects in Ethiopia could be associated with initial conditions of
development of region and/or sect oral as well as with pessimistic or optimistic expansions of
individuals’ investors.

13
 CHAPTER THREE

3. RESEARCH METHODOLOGY

3.1 Description of Study Area

Sebeta is one of Oromia Town that emerged before Italian invaded Ethiopia in 1935. It is found
in Oromia special zone around Finfine situated about 24km to the south west of Finfine along
Jima Road. According to master plan prepared in 1999, Sebeta has 99KM2 reserved total area.
The total population of this town for the year 2004.E.C was 136,368 from which 70,988 are male
and 65,380 are females.
Sebeta town extends from 530,38.51N-80,59.171N latitude and 380,35.111E-380,39.751E longitude.
Sebeta area has an altitudinal range of 2060 m to 2670m.a.s.l (Sebeta Town Economic
Development and Finance Bureau Report, 2013).

3.2 Data Source

The study was used both primary and secondary data for its successfully accomplishment. The
primary data were collected from the selected investors and officers from investment office in
the town.
Secondary data is also obtained from personal and public documents related to the case. In
general, investors and the investment office of the town are the main source of primary and
secondary data relatively concerning the private investment activity of the town.

3.3 Method of data collection

For this study, sample survey was used to collect the required information. Sample is chosen
because it can save time and money, and it can provide accurate information if it is carefully
selected.

3.3.1 Primary data collection

Primary data was collected using questionnaire to obtain information from the investors in the
town that are included in the sample. The form of questionnaire developed in both open-end (to
get different information from different respondents) and close-ended (to get uniform answer).

14
Beside, to obtain primary data from investment office of the town, the so-called personal
interview method of the data collection was employed.

3.3.2 Secondary Data Collection

Secondary data was collected from published and unpublished materials of investors and
investment office of the town to give comprehensive conceptual and empirical foundation of the
study.

3.4 Sample Size and Sampling Technique

The study population includes all sectors of private investment in Sebeta town. According to
Sebeta investment office (2018), the total population of private investors currently found in the
town with different business activity is total of 200 investors. Since investors participate in
different economic sectors, stratified random sampling technique will be used for the selection of
typical sample out of the total population of investors. To include investors in the sample size,
samples are taken from the three sectors i.e. agricultural, industrial, and service sector. In line
with these 33 investors from industrial sector, 14 investors from service sector and 4 investors
from agricultural sector were included in sample size, which together sum up to a total of 51
sample investors.
The sample size determination formula (by Kothar; 2004)
2
Z pqN
n= 2 2
e ( N−1 ) + Z pq
Confidence level = 90%
Error = 10%
Z=1.64
N= 200
n= sample size
p= probability of success
q= probability of failure
z= level of confidence
N= total population
e= error
p+q=1

15
p=0.5
q=0.5
2
Z pqN
n= 2 2
e ( N−1 ) + Z pq
( 1.64 )2 ( 0.5 ) ( 0.5 ) 200
n¿ 2 2
( 0.1 ) ( 200−1 ) + ( 1.64 ) ( 0.5 ) ( 0.5)
134.48
n=
2.6624
n=50.51

n1=number of sample from agricultural sector, n1=51 ( 200

14
)=3.57 ≈ 4
134
n2=number of sample from industrial sector, n2 =51( )=33.405 ≈ 33
200

n3=number of sample from service sector, n3 =51 ( 200

55
)=14.025 ≈ 14
3.5 Method of data analysis
After the relevant data are collected, descriptive method of data analysis was
used. The analysis indicates the transformation of raw data in to a form that
makes easy to understand and interpret it. This method of analysis is
extensively employed for the matter of easy understanding of interpretation.
The common forms of descriptive analysis used are tabulation, percentage and
figures.

16
 CHAPTER FOUR

4. DATA ANALYSIS AND DISCUSSION

This research assessed the determinants of private investment in case of Sebeta town. The
findings of the research have been assessed through questionnaire from private investors and
through interview from investment bureau of Sebeta town.

4.1 Investors Background Information

Table4.1 Sex Distribution of Respondents
Sex Frequency Percent
Male 34 66.7
Female 17 33.3
Total 51 100
Source: Own survey, 2018
The sex distribution table shows that, out of the total 51 respondents 34 (66.7%) of them are
male, and 17 (33.3 %) of the respondents are female. From this, we infer that the majority of the
respondents are male. This shows males are more engaged in investment and support economic
growth of the town rather than females. In addition to this it shows females are engaged in
investment activities by small percentage.
Table4.2 Age Distribution of Respondents
Age Category Frequency percent

15-40 6 11.8
40-60 32 62.7
>60 13 25.5

Total 51 100

17
Source: Own survey, 2018.

Table 4.2 shows that from the total respondents of 51, 32 (62.7%) of them are in the age
between 40-60 years, followed by greater than 60 years and the age between 15-40 years 13
(25.5%) and 6 (11.8 %) respectively. This implies that, the majority of investors engaged in the
town are matured adults (i.e. between 40-60 years).They are active population and actively
participate in investment area more than population of age greater than 60 years and between 15-
40 years in the town. Furthermore they are stimulating the investment activities better than the
others.
Table4.3 Marital Status of the Respondents
Marital status Frequency Percent
Married 24 47.1
Single 6 11.8
Divorced 6 11.8
Widowed 15 29.4
Total 51 100
Source: own survey, 2018

As the above table shows, out of the total 51 respondents 24(47.1%) of them are married,
6(11.8%) of them are single, 6(11.8%) of them are divorced and 15(29.4%) of the respondents
are widowed. Therefore this shows that majority of the respondents are married. This infers
married are more participated in investment followed by widowed

18
Figure4. 1Educational level of Respondents

Source; survey 2018 by the researcher

The above bar graph indicates that three(3) of the respondents are illiterate( have no education),
nine(9) of them have attended primary school, twenty one(21) of them are attended secondary
and preparatory school and the graduates of diploma and above consists eighteen(18) of the total
51 respondents. This, in general, indicates that majority of the investors attended secondary and
preparatory school followed by those who have diploma and above.

19
4.2 Area of Business Activities that investors participate in the town
Table 4.4 Area of Business Activities that Investors Participate in the Town
Sectors Frequency Percent
Industry 32 62.7
Service 14 27.5
Agriculture 5 9.8
Total 51 100
Source: Own Survey and Sebeta Town Investment Office, 2018
As indicated in table 4.4 the most portion of the investors are involved in industrial sector. The
sector constitutes 62.7% of the total investment activities in the town. This is because of most of
the investors participate in this sector prefer to invest in this area due to its nearness to the capital
city of the country. This position of the town has its own advantage for investors to export their
products quickly with small cost of transportation and get imported inputs and machineries
quickly with small cost of transportation. Service sector followed industry in this town. This is
because it needs small capital and labor force to establish and run. Agricultural sector took the
least stage .In general all economic sectors are essential and each contributes for the economy in
this town.
Table4.5 Reasons to set up their Investment in the town
Motivation to invest in the Frequency Percent
region
Access to infrastructure 8 15.7

Favorable weather condition 8 15.7

Availability of cheap labor 13 25.5

Excess demand for products 15 29.4

20
 Availability of inputs 6 11.8

Others 1 2.0

Total 51 100

Source: Own survey, 2018

Table 4.5, According to data obtained from 51 respondents, 8(15.7%) of them prefer to establish
investment in the town because of access to infrastructure, other 8(15.7%) due to favorable
weather condition, 13(25.5%) due to availability of cheap labor, 15(29.4%) due to excess
demand for products, 6(11.8%) because of availability of inputs and only 1(2%) due to other
factors. From this the researcher infers that, there is high demand in the town for different goods
and services which attracts investors to invest in the town followed by availability of cheap
labor.
Table4. 6 Accessibility of Investment License for interested Investors
Accessibility of license Frequency Percent
Easily accessible to get license 13 25.5
Difficult to get license 38 74.5
Total 51 100
Source: Own survey, 2018
Table 4.6, according to the data obtained from the total 51 respondents 38 (74.5%) of them face
difficulty to get investment permission and licenses from investment office when they started
their business. but 13(25.5) respondents not face difficulty. This implies that, the investment
office did not give much concern to provide license within short period of time because of high
degree of bureaucratic problem.
Table4. 7 Types of difficulty that investors face to get investment license
Types of difficulty to get Frequency Percent
license
Lack of professionals 16 41.1
Corrupt behavior of officials 8 20.5
Religious problem 5 12.8
Disintegrated management 9 25.6

21
 system
Total 38 100

Source: own survey, 2018

For any democratic country, economic activity should have a legal license to run. Among the
sample investors only 13 (25.5%) of the respondent suggested investment license in the Sebeta
town is given without any anxiety, but 38 (74.5%) of respondents suggested that the license
policy in the town is not given to investors at the time investors interested to invest in the town.
Problems related to license are presented by 38 respondents as;
 Lack of professionals who study the income of each individual in the town responded by
16(41.1%) of the respondent.
 Corrupt behavior of officials in the town responded by 8(20.5%) of the sample.
 Religious problem in the town suggested by 5(12.8%) of sample investors.
 Disintegrated management among each sectors give license responded by the investor
responded by 9(25.6%) of the sample respondent.

4.3: Investors Satisfaction on their Business

Table4. 8 Profit generation by investors

Profit generation Frequency Percent
Getting positive profit 27 52.9
Getting normal profit 24 47.1
Total 51 100
Source: Own survey, 2018
Table 4.6 shows that 27 (52.9%) of the respondents point out that engage in investment activity
made them profitable, whereas 24 (47.1%) responded that they do not get a profit from their
investment activity. From this, the researcher infers that the majorities of the investors are
profitable in their investment and had interest to engage in investment activity. The respondent
said that we are satisfied on our work and we continue for future in every well condition. The

22
remaining respondents are not satisfied on their investment because of the condition of
investment is not favorable for them, such as tax levied on their generated income, purchasing
power of the society, price of raw materials and the likes.

Table4. 9 Reasons for getting normal profit

Reasons Frequency Percent
Technological problem 1 4.2
Marketing problem 6 25.0
Financial problem 6 25.0
Lack of incentive, advertising 7 29.2
and promotion
Problem of taxation 4 16.6
Total 24 100
Source: Own survey, 2018
As table 4.10 clearly shows, out of total 51 respondents, 24(47%) are unsatisfied with their
investment profit or they get a normal profit. The reason behind this is as follows;
 7(29.2%) because of lack of incentive, advertising and promotion
 6(25%) due to marketing problems
 6(25%) is due to problems related to finance
 4(16.6%) because of the problem of taxation and the left 1(4.2%) is due to technological
problems.

This shows that there is lack of incentive, advertising and promotion by the administrative body
of the town which affects the profit of the investors followed by marketing problem and financial
problems and also problem of taxation and technological problems with a smaller effect on the
profit of the investors.

23
4.4: Source of initial Investment Capital and Availability of raw Materials

Table4. 10 Source of investment initial capital

Source of initial capital Frequency Percent
Borrowing from Banks 17 33.3
Farm income 7 13.7
From trade 19 37.3
From investment project 7 13.7
Others 1 2.0
Total 51 100
Source: Own survey, 2018
As clearly indicated in table 4.9, out of 51 respondents 17(33.3%) of the private investors obtain
their capital from borrowing from banks, 7(13.7%) of the investors obtain from farm income,
19(37.3%) from trade, 7 (13.7%) from investment project and only 1(2%) of the private investors
get their investment capital from other sources. This shows that the majority of the respondent’s
initial investments come from trade income, followed by borrowing from Banks, whereas the
income from farm and investment project constitutes smaller equal share. The least share is
covered by income from other sources like gifts from family and relatives, borrowing from local
lenders and the like.
Table4. 11 Availability of sufficient raw materials
Availability of raw materials Frequency Percent

Sufficiently available 30 58.8

Erratically available 21 41.2

Total 51 100
Source: Own survey, 2018

24
As we can see from table 4.1; 30(58.8%) of the investors responded that, they can obtain
sufficient and quality raw materials and 21 (41.2%) of the investor’s said that they cannot get
sufficient raw materials.
This implies that, the majority of private investors can get sufficient raw materials due to central
position of the town to get both domestic and imported raw materials in time.

4.5: Purchasing Condition of the People

Table4. 12 Purchasing condition of the people to investor's product
Demand for their product Frequency Percent

Very low 1 2.0

Low 15 29.4
Average 19 37.3
High 16 31.4
Total 51 100

Source: Own survey, 2018

As it is shown in table 4.12, out of 51 respondents 19(37.3%) of the private investors said that
the number of people interested in their product is average, 16(31.4%) of them said that the
number of people interested in their product is high, followed low and very low 15(29.4%) and
1(2%) respectively. This implies that majority of the investor’s products are interested by the
people and they do not face lack of customer.

4.6 Information about opportunities of privet investment from town

investment promotion center

25
Table4. 13 Provision of information to the investors before they start their
investment
Availability of information Frequency Percent

Existence of perfect information 28 54.9

Lack of information 23 45.1

Total 51 100

Source: own survey, 2018

Table 4.13 shows that 8(15.69%) of the respondents did not got any information from the
investment office, whereas 43(84.31%) of the respondents got information, and most of them
mention that they get information directly from the investment office.
Table4. 14 Methods to disseminate the information to investors
Methods Frequency Percent

Seminars 8 28.6

Media 13 46.4

Meetings 7 25.0

Total 28 100

Source: own survey, 2018

According to the above table among 51 total respondents, 28(54.1%) responded that they had got
information about opportunities of private investment from the town promotion center before
they started their investment. Among them 13(46.4%) had got information through media,
followed by through seminars and different meetings by 8(28.6%) and 7(25%) respectively.

4.7: Investment incentives from town investment office.

26
Table4. 15 Investment incentive before they start their investment
Provision of incentive Frequency Percent
Yes 31 60.8

No 20 39.2
Total 51 100

Source: Own survey, 2018

As table 4.15 shows 31(60.8%) of the respondents got investment incentives from investment
office of the town before their engagement, whereas 20(39.2%) of respondents not got any
incentives. Most of the respondents are got investment incentive from investment office of the
town, like land related support, free from import duties, and professional support before
engagement. From this the researcher infers that, the town investment office is well functioning
by giving different investment incentives to the investors in the town before they engaged in
investment activities.
Table4. 16 Investment incentive after they started their investment
Provision of incentive Frequency Percent
Yes 31 60.8
No 20 39.2
Total 51 100

Source: Own survey, 2018

As table 4.16 shows 31(60.8%) of the total 51 respondents, got investment incentives from
investment office of the town after their engagement, whereas 20(39.2%) of respondents not got
any incentives. Most of the respondents are got investment incentive from investment office of
the town, like land related support, free from import duties, and professional support after
engagement. This implies that most of the investors have got investment incentive from the town
investment office both before and after their engagement. But there are also many investors who
responded that they didn’t get any investment incentive both before and after their engagements.

27
4.8: Problems faced by investors during their engagement
Table4. 17 Existence of different types of problems
Existence of problems Frequency Percent

Yes 40 78.4
No 11 21.6
Total 51 100
Source: Own survey, 2018
Table 4.17 indicates that among the total 51 investors, 40(78.4%) responded that they faced
different problems during their engagement and only 11(21.6%) responded that they do not face
a problem during their engagement. From this the researcher infers that large number of the
investors face different problems like lack of work place, high price of raw material, power
related problems, high tax levied on generated income, reduced customer number, low
purchasing power of the society, lack of skilled man power and others.
Table4. 18 Factors that affect private investment
Problems Frequency Percent
Lack of work place 9 22.5
High price of raw materials 5 12.5
Power related problem 15 37.5
high tax levied on generated 5 12.5
income
reduced customer number 2 5
low purchasing power of 2 5
society
lack of skilled man power 2 5
Total 40 100
Source: Own survey, 2018
As it is clearly indicated in table 4.18, out of 51 respondents 9(22.5%) of private investors face
lack of sufficient investment area, 5(12.5%) of investor’s face problem of high price of raw
materials, 15(37.5%) of investor’s face shortage of supplies, 5 (12.5%) of investors face high tax

28
levied on generated income, 2(5.0%) reduced customer numbers, 2(5.0%) face problem of low
purchasing power of society ,and 2(5.0%) face lack of skilled human power . These factors
influence or decreases expansion of the investment activities and at same time reduces the
production quality and quantity.
As most of private investors indicated that insufficient investment area hinder expansion plan of
their activities and it restricts them to stay at the present level. High tax levied on investors
reduce their Profitability and discourage their reinvestment plan through higher price of raw
materials and shortage of supplies affect the quality and quantity of products.

In addition to these, reduced number of customer’s, low purchasing power of the society and
lack of promotional effort to attract investors are additional problems that affect the investment
activities in the town.

4.9: Administrative constraint faced by investors

Table4. 19 Existence of administrative constraint before their engagement

Existence of administrative Frequency Percent
constraint
Yes 33 64.7
No 18 35.3
Total 51 100
Source: Own survey, 2018
As table 4.19 clearly shows, out of total 51 respondents 33(64.7%) of them responded that they
faced different administrative constraints before they engaged in investment activities, while
18(35.3%) of them are responded that they were not faced an administrative constraints before
their engagement. This shows most of the investors faced different constraints before they
engaged in investment activity.

Table4. 20 Existence of administrative constraint after their engagement

Existence of administrative Frequency Percent

29
 constraint
Yes 28 54.9
No 23 45.1
Total 51 100
Source: Own survey, 2018
According to table 4.20 above, among total respondents of 51, 28(54.9%) responded that they
faced different constraints after they engaged in investment activities, while 23(45.1%)
responded that they do not face a constraint during their engagement. This clearly shows
majority of the investors faced administrative constraint both before and after they engaged in
investment activity. But in contrast, the administrative constraint becomes minimized after their
engagement than before their engagement. This implies that the administration of the town gives
much concern to those investors who already started their investment activity in the town than
the new comers.

Table4. 21 Types of administrative constraint

Constraints Frequency Percent
Problem of taxation 10 35.7
Lack of credit 7 25.0
Land policy 6 21.4
Property right 3 10.7
Others 2 7.1
Total 28 100
Source: Own survey, 2018
As the above table shows among all investors included in the sample, 28(54.9%) responded that
they faced different constraints after they engaged in investment activity. The constraint they
faced is listed as follows;
 10(35.7%) faced the problem of taxation,
 7(25%) faced lack of credit,
 6(21.4%) faced problems related to land policy,

30
  3(10.7%) faced problem of property right and the left 2(7.1%) faced other different
problems

From this the researcher infers that majority of investors faced the problem of taxation, followed
by lack of credit and problems related to land policy. Those problems constitute the large share
of administrative constraints faced by the investors; especially investors responded that tax
highly reduces their income.

4.10: Financial constraints faced by investors

Table4. 22 Existence of financial constraint
Existence of financial Frequency Percent
constraint
Yes 35 68.6
No 16 31.4
Total 51 100
Source: Own survey, 2018
Table 4.22 clearly shows that from 51 total respondents 35(68.6%) responded that they faced
financial constraint after they started their investment and only 16(31.4%) responded that they
hadn’t face any financial problem after their engagement. This implies majority of the investors
faced financial constraint like high interest rate for loan, limited number of private Banks,
shortage of finance to operate the investment and other problems after they started their
investment.

Table4. 23 Types of financial constraint

Types of financial Frequency Percent
constraints

31
 High interest rate for loan 14 40.0
Limited number of private 5 14.3
Banks
Shortage of finance to operate 16 45.7
the investment
Total 35 100
Source: Own survey, 2018

The access of finance is an important factor in the accumulation of capital and get loan to any
kinds of investment activities. Investors seek finance in the case of shortage in running their
business and they seek to expand production, to maintain and repair old machines and
equipments, to purchase new equipments, in the case of loss. This finance is obtained from either
their own saving or from loan obtained from financial institutions, like banks and credit unions.

The followings are problems related to finance;

 High interest rate for loan responded by 14 (40%) of the sample.
 Limited number of private banks around the area by 5 (14.3%) of the sample
 Shortage of finance to operate their investment project by 16 (31.4%).
4.11: Availability of market
Table4. 24 Availability of market for their product
Availability of market Frequency Percent
Yes 17 33.3
No 34 66.7
Total 51 100
Source: Own survey, 2018
As the above table shows among total investors included in the sample, 17(33.3%) of the
investors reply Yes for a question “Is there available market for your product to sale at the right
time and place?” while 34(66.7%) replay No. From this the researcher infers that majority of the
respondents face the problem of market for their product to sale at right time and place.

32
Table4. 25 Types of market problems
Types of problem Frequency Percent
lack of land(hinders to supply 2 5.9
their product)
lack of market place to sell 7 20.6
their product
lack of demand 6 17.6
existence of monopoly that 2 5.9
affect their profit margin
higher price of the product 1 2.9
lack of promotion 2 5.9
lack of infrastructure and 4 11.8
communication
lack of raw materials 3 8.8
sustainable rise on the price of 2 5.9
inputs
imperfect information 5 14.7
Total 34 100
Source: Own survey, 2018
Market is the core of investment decisions from feasibility study of investment projects after
analyzing future profitability and availability of its necessity. The markets of most developing
nations of the world are quit small compared with industrial nations. The inadequate size is
caused by low income level; market size may grow if income level rise, but a combination of
negative factors may prevent rapid growth of investment. Investment growth is constrained by
insufficient market according to the suggestion of investors in Sebeta town. Market related
problems are summarized as;
Lack of land (hinders to supply their product), responded by 2(5.9%), lack of market place to sell
their product7(20.6%), lack of demand by 6(17.6%), existence of monopoly that affect their
profit margin by 2(5.9%), higher price of the product by 1(2.9%), lack of promotion by 2(5.9%),
lack of infrastructure and communication by 4(11.8%), lack of raw materials by 3(8.8%),
sustainable rise on the price of inputs by 2(5.9%), and imperfect information by 5(14.7%) of the

33
investors those who face marketing related problems which accounts 72.5% of the total investors
included in the sample.

4.12: Administrator’s action to tackle Constraints

Interview was held at Sebeta town investment office

Ethiopia started to be ruled by the federalism system of government in the year 1992/93 G.C,
which changed the centrally common socialist economy in to developmental state market
economy. After this time that, oromia region established its own government as one among the
nine regions of the country. Besides the regions has established its own investment commission
and recently formed investment offices at town level. The secondary data obtained from the town
investment office can be discussed in the following section according to their relation with the
objective of the study.
As the officer said most investors have no idea even about their proposed project, like about the
profitability of the project, market competition, supply of raw materials and skilled man power
and so on. Because of this and other related problems they get fail on their project.
To solve these kinds of problems the office takes some measures like giving different advices to
investors before they implement their projects. And also the officers say investors certain
awareness from the office about the project before proposed.
According to the interview made with officers’ actions are taken by the administrator to tackle
investment related constraints. Among the constraints, lack of access to finance from the bank is
one of problem for private investors.
Before 2000 E.C to get loan from commercial bank of Ethiopia, it takes long time, needs high
collateral requirements and investors also cannot get loan using machinery as collateral. But after
2000 E.C. such problems were solved. Investors can get loans from Commercial Bank of
Ethiopia (CBE) within short period of time even by using machinery as collateral.
Bureaucratic procedure is another constraint. Even for many years investors were required to
search the land by themselves and they negotiate the rate they will have to pay.
Infrastructures problems such as roads, supply of water and electricity are other major problems.
Absence of sufficient human power is the other hindering factors that officers to accomplish their
activities.

34
According to the interview made with officers there are different incentives and supports
measures taken by the administrative staff;
 Land related support; this is given especially for industrial sector, If the investor
provide acceptable project proposal government gives or sell land/work place at very
much less price, that is up to 0.75cent per care meter.
 Free from imports duties; construction materials, vehicles, machines and so on…
 Tax holidays; based on different bases government gives tax off seasons to the investors.

And also there are different incentives given to the investors based on different criteria and steps
in order to increase the investment level of the town.

CHAPTER FIVE

5. Conclusions and Recommendation

5.1 Conclusion

35
Ethiopia has great potential for the private investment sector, because of its favorable conditions
its fertility of land, mineral, and forest, different climatic divisions and water resources are some
of the factor that makes the country desirable for investment.
Similarly, Sebeta town is endowed with vast human and natural gift that are potential for the
development of manufacturing, agriculture and services. Besides, vicinities to the central market
are enabling factors for operating private investment activities relatively at low cost in the town.
As compared to existing opportunities and advantages, the participation of investors in the town
are very low. The reason for such performance is due to low administrative efficiency of
investment office in attracting domestic and foreign investors through promotional works.

The study indicates that private investors, who want to engage in investment activities in the
town, face difficulties to get investment permission and license from the investment office when
they started their business. The investment office of the town has a weakness to provide license
with a short period of time.
The economic problem specified is that the shortage of initial capital, which faces investors to
operate at less than full capacity and hinders the use of modern technology to produce quality
products. This makes difficult to adopt marketing strategy based on lower price as well as quality
of the product.
The study clearly identified and underlined that the main factor of the low level of private
investment of the town are lack of sufficient investment area, high price of raw materials,
shortage of power supply, high tax levied on their generated income, reduced consumers’
numbers, low purchasing power of the society, and lack of promotion efforts to attract investors,
lack of skilled man power. In addition to those, the investment officers listed those factors such
as lack of knowledge from the investors’ side, lack of access to finance, and infrastructural
problems.

Finally, the study concluded that the low level of private investment activities has negatively
affected the level of economic growth of the town.

36
5.2 Recommendation
Investment has come to be widely recognized as a major potential contributor to growth and
development for many countries. The relationship between private investment and growth
suggests the need to promote policies to faster the benefits of this connection.
So far the study or the research under that there are some main factors that are affecting
(hindering) the level of private investment of the town. Hence, in order to speed up the economic
growth of the town, the problems should be solved appropriately as our role is concerned would
like to forward the following important recommendation in order to alleviate the problems.

 Allocation of infrastructural facilities must get emphasis to reduce its impact on investment
activity.
 Prepare land for investment and equipped with infrastructural facilities.
 Supporting and encouraging those investors who are on the phase of processing.
 Contacting those investors whose project are on pre- processing (on the stage of material
supply) and help in finding solution in cooperation.
 Provide investors with information regarding market, finance, technology, and policies.
 Initiating, advertizing, and promoting investors to participate in investment activity
individually or by group.
 Banks provide loan based on project performance and type of project.
 Organization and institutions should draw programs for the development of the economy
and training of investors to remove the bottlenecks for investment.
 Necessary to give attention for human resource development in technological capacity,
specific skills in the area of marketing, financing etc.
 Provide investors with training, and seminars on various issues.
 There is a need for government institutions to identify the opportunities that exist in
different sectors in the town.
 Searching means for the supply of machines and spare parts in the home to investors.
 Expanding private loan institutions to increase the financial activities.
 Tax should consider the individual’s ability to pay (amount of wealth that the investors
have).
 Coordination of management among each sector.

37
  The society must make market linkage to the other in order to improve the marketing
problem.
 Investors have to give awareness to their product in order to increase their market share.
 The society must struggle corruption as much as possible in coordination with government.
 Investors have to propose their project clearly before their engagement.

References
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University, Ethiopia.

38
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39