DEBRE BIRHAN UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

DETERMINANTS OF PRIVATE MANUFACTURING INVESTMENT

IN NORTH SHOWA ZONE: ETHIOPIA

MSc. Thesis

BY
ANEMUT BIADEGELEGN

JULY, 2020
DEBRE BERHAN, ETHIOPIA

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 DEBRE BIRHAN UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF ACCOUNTING AND FINANCE

DETERMINANTS OF PRIVATE MANUFACTURING INVESTMENT

IN NORTH SHOWA ZONE: ETHIOPIA

A Thesis Submitted to the Department of Accounting and Finance,

College of Business and Economics, Debre Berhan University

In Partial fulfillment of the requirements for the degree of masters in

Accounting and Finance.

By
Anemut Biadegelegn

Advisor: Sisay Mulate (PhD).

JULY, 2020
DEBRE BERHAN, ETHIOPIA

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STATEMENT OF APROVAL FOR DEFENCE

DEBRE BIRHAN UNIVERSITY

COLLEGE OF BUSINESS NAD ECONOMICS
THESIS SUBMITTED FOR DEFENCE APPROVAL

This is to certify that the thesis entitled: DETERMINANTS OF PRIVATE

MANUFACTURING INVESTMENT IN NORTH SHOWA ZONE: In Case Of
Medium and Large Scale Manufacturing Investment. Submitted in partial fulfillment of
the requirements for the degree of Masters of Science with specialization in Accounting
and Finance of the Graduate Program, College of Business and Economics, Debre Berhan
University and is a record of original research carried out by Anemut Biadegelegn
(PGR/238/11). Under my supervision, and no part of the thesis has been submitted for any
other degree or diploma. The assistance and help received during the course of this
investigation have been duly acknowledged. Therefore, I recommend that it to be accepted
as fulfilling the thesis requirements.

Approved by
_Sisay Mulate (PhD) _______________, _________________.
Name of advisor Signature Date

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STATEMENT OF APPROVEL

DEBRE BIRHAN UNIVERSITY

COLLEGE OF BUSINESS NAD ECONOMICS
THESIS FINAL SUBMISON

We, the undersigned members of the boarded of the examiners of the final open defense
by Anemut Biadegelegn have read and evaluated his thesis entitled DETERMINANTS
OF PRIVATE MANUFACTURING INVESTMENT IN NORTH SHOWA ZONE; In
The Case of Medium And Large Scale Manufacturing Investments, and examined the
candidate. This is therefore to certify that the thesis has been accepted in partial fulfillment
of the requirements for the degree of Master of Science in Accounting Finance.

Approved by

_______________________, ________________ , _____________

Name of Chairperson Signature Date

Sisay Mulate (PhD) ________________, ______________

Name of Advisor Signature Date

Yalemselam Worku (Asst.Prof.) ________________, ______________

Name of Internal Examiner Signature Date

______________________, ________________, ______________

Name of External Examine Signature Date

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AUTHOR’S DECLARATION STATMENT

The researcher declares that this thesis is my genuine work, and that all sources of
materials used for this thesis have been profoundly acknowledged. This thesis has been
submitted in partial fulfillment of the requirements for Master of Science (MSc) in
Accounting and Finance at Debre Berhan University and it is deposited at the University
library to be made available for users under the rule of the library. The researcher declares
that this thesis is not submitted to any other institution or anywhere for the award of any
academic degree, diploma or certificate.

Brief quotations from this thesis are allowable without special permission, provided that
accurate acknowledgement of source is made. Requests for permission for extended
quotation from or reproduction of this manuscript in whole or in part may be granted by
the head of the department or the Dean of College of Post Graduate when in his/her
judgment the proposed use of the material is in the interest of scholarship. In all other
instances, however, permission must be obtained from the author and advisors of this
thesis.

Name of Author: Anemut Biadegelegn

Signature: _______________________

College of business and economics, debre Berhan University

Submission date:____________________

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ACKNOWLEDGMENTS
First of all, I praise the almighty God for his blessings, with his mother S.t Mary, S.t
Mikael and all the best things happening in my life. I would like to express my extreme
indebtedness and sincere appreciation to my Advisor Sisay Mulate (PhD) for his
constructive comments in all phases of the study. His, tremendous guidance and support,
deep and detail response helped me in all the time of research and writing of this thesis.
My gratitude then goes to north showa zone investment bearo staffs, and management
members and supportive staff members of medium and large scale private manufacturing
companies that participated in this study for their cooperation in providing the necessary
data that help me. I would like to thank all my friends, for their moral support and
encouragement all along. Finally, besides this, several people have knowingly and
unknowingly helped me in the successful completion of this thesis. Thank you all for
your insights, guidance, and support!

Thank you all!

July,2020
Anemut Biadegelegn

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LIST OF (ABERIVIATION) ACKRONOMY

AA-Addis Ababa
AC-Access of Credit
ANOVA- Analysis variance
CH- Human capital
CR-Collateral requirement
EPW-Electric power
EXR-Exchange rate
GOE-Government of Ethiopia
IC- Incentives
INF- Inflation rate
INR- Interest rate
INV- Investment
LDC- low developed country
NBE- National bank of Ethiopia
OLS- Ordinary list square
PMI-Private manufacturing investment
RD-Road
SSA-Sub-Saharan Countries
TGE-Transitional government of Ethiopia
VIF-Variance inflation factor
WR-Water

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 Table of Contents
Contents page
STATEMENT OF APROVAL FOR DEFENCE ........................................................................................................ i

STATEMENT OF APPROVEL ................................................................................................................................. ii

AUTHOR‘S DECLARATION STATMENT ............................................................................................................ iii

ACKNOWLEDGMENTS ......................................................................................................................................... iv

LIST OF (ABERIVIATION) ACKRONOMY ........................................................................................................... v

LIST OF TABLES ..................................................................................................................................................... ix

LIST OF FIGURES .................................................................................................................................................... x

ABSTRACT............................................................................................................................................................... xi

CHAPTER ONE ........................................................................................................................ 1

1. INTRODUCTION ................................................................................................................. 1
1.1. Background of the Study ................................................................................................ 1
1.2. Back Ground of the Case Area ....................................................................................... 4
1.3. Statement of the Problem ............................................................................................... 6
1.4. Research Questions ...................................................................................................... 10
1.5. Objective of the Study .................................................................................................. 10
1.5.1. General Objective ...................................................................................................... 10
1.5.2. Specific Objectives .................................................................................................... 10
1.6. Hypothesis of the Study ............................................................................................... 11
1.7. Scope of the Study ........................................................................................................ 12
1.8. Significance of the Paper .............................................................................................. 12
1.9. Limitation of the Paper ................................................................................................. 13
1.10. Organization of the Paper ............................................................................................. 13
CHAPTER TWO ...................................................................................................................................................... 14

LITERATURE REVIEW ........................................................................................................ 14

2. INTRODUCTION ............................................................................................................... 14
2.1. Definition of Investment .............................................................................................. 14
2.1.1. The Imperial Regime (Upto-1974) ............................................................................ 15
2.1.2. The Dergue Regime (1975 - 1991) ............................................................................ 15
2.1.3. The Regime of EPDRF (post-1991) .......................................................................... 16
2.2. Ethiopia Investment Proclamations .............................................................................. 16
TABLE OF CONTAINT (Continued)

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 2.2.1. Industrial Policy ........................................................................................................ 18
2.2.2. Monetary Policy......................................................................................................... 19
2.2.3. Fiscal Policy............................................................................................................... 19
2.3. Theoretical Literature Review ...................................................................................... 19
2.4. Investment Theories ..................................................................................................... 21
2.4.1. Keynes Investment Theories ...................................................................................... 21
2.4.2. Flexible Accelerator Model ....................................................................................... 21
2.4.3. Neoclassical Model .................................................................................................... 22
2.4.4. The Profit Theory of Investment ............................................................................... 23
2.4.5. The Lewis Theory of Development ........................................................................... 23
2.4.6. Patterns of Development ............................................................................................ 24
2.4.7. Tobin‘s Q and Profit Models ..................................................................................... 24
2.5. Investment Theory and Developing Countries: ............................................................ 25
2.6. Empirical Literature ..................................................................................................... 26
2.7. Determinants of Private Manufacturing Investment .................................................... 27
2.8. Research Gap ................................................................................................................ 32
2.9. Conceptual Frame Work .............................................................................................. 33
CHAPTER THREE .................................................................................................................................................. 34

METHODOLOGY OF THE STUDY ..................................................................................... 34

3. INTRODUCTION ........................................................................................................ 34
3.1. Research Approach ....................................................................................................... 34
3.2. Research Design ........................................................................................................... 34
3.3. Type and Source Data .................................................................................................. 35
3.4. Target Populations ........................................................................................................ 35
3.5. Sample Size Determination Technique ........................................................................ 36
3.6. Sample Size .................................................................................................................. 36
3.7. Data Collection Technics ............................................................................................. 37
3.8. Questionnaire Design ................................................................................................... 37
3.9. Data Analysis Techniques ............................................................................................ 37
3.10. Description and Measurement of Variables ................................................................. 38
3.10.1. Measurement of Dependent Variable ........................................................................ 38
3.10.2. Measurement of Independent Variables. ................................................................... 38
3.11. Model Specification ..................................................................................................... 40
3.12. Model test ..................................................................................................................... 41
3.13. Reliability and Validity Test ........................................................................................ 43

TABLE OF CONTAINT (Continued)

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 3.1.5.1. Reliability Tests ........................................................................................................ 43
3.1.5.2. Validity Test ............................................................................................................. 45
3.14. Ethical Considerations .................................................................................................. 45
CHAPTER FOUR ..................................................................................................................................................... 47

4. INTRODUCTION ............................................................................................................... 47
4.1. Descriptive Statistics .................................................................................................... 47
4.1.1. Introduction ................................................................................................................ 47
4.1.2. Private Manufacturing Investment Trends (Inflow) In North Showa Zone. ............. 47
4.1.3. Analysis of Respondent Rate of Response ................................................................ 52
4.1.4. Reliability test.......................................................................................................................................... 52

4.1.5. Average Response Questioners‘ For Each Variable .................................................. 53

4.1.6. The Variables‘ Mean Score Value Analysis. ............................................................... 57
4.1.7. Challenges and Opportunities of Private Manufacturing Investment. ....................... 59
4.2. Inferential Stastics ........................................................................................................ 61
4.2.1. Introduction ................................................................................................................ 61
4.2.2. Testing Assumptions of Classical Linear Regression Model (CLRM) ..................... 61
4.2.2.1. Multicollinearity Test ......................................................................................... 62
4.3.2.2. Pearson Correlation Coefficient ......................................................................... 62
4.3.2.3. Correlation Analysis ........................................................................................... 63
4.3.2.4. HETROSCEDASTICITY TESTS ..................................................................... 65
4.3.2.5. Normality Test .................................................................................................... 66
4.4. Results of Regression Analysis .................................................................................... 67
4.4.1. Model Summary test ................................................................................................... 67
4.4.2. Analysis Of Variance (ANOVA) ............................................................................... 68
4.4.3. Regression Analysis ................................................................................................... 69
4.4.4. Interpretation of Hypothesis Testing Result .............................................................. 71
4.4.5. Hypothesis Summary ................................................................................................. 78
CHAPTER FIVE ...................................................................................................................................................... 79

5. NTRODUCTION................................................................................................................. 79
5.2. Summary of Finding ..................................................................................................... 79
5.3. Conclusion .................................................................................................................... 82
5.4. Recommendation .......................................................................................................... 83
5.5. Suggestions For Further researchers ............................................................................ 86
6. REFERENCE.................................................................................................................................................... 88

7. APENDEX1 .......................................................................................................................................................... 95

10. Biographical sketch ........................................................................................................................................... 100

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LIST OF TABLES
Table 3 1: Pilot Test .................................................................................................................... 43
Table 3 2: Rule of Thumb of Cronbach‘s Alpha ........................................................................ 44

Table 4 1: Response Rate ............................................................................................................ 52

Table 4 2: Test for Data Reliability and Validity Using Cronbach‘s Alpha Coefficient ............ 52
Table 4 3: Avarege Respondent Stastic For Each Variable ........................................................ 53
Table 4 4: Summary Statistics of Continuous Variables ............................................................ 57
Table 4 5: Respondent Stastics For Each Question Of Chalenge And Opportunity................... 59
Table 4 6: Multicollinearity Test ................................................................................................ 62
Table 4 7: Pearson correlation coefficient .................................................................................. 63
Table 4 8: Breusch-Pagan / Cook-Weisberg Test for Heteroskedasticity................................... 65
Table 4 10: Model Summary....................................................................................................... 67
Table 4 11: Analysis of Variance (ANOVA) .............................................................................. 68
Table 4 12: The Regression Coefficients .................................................................................... 69
Table 4 13: Summary of hypothesis ........................................................................................... 78

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 LIST OF FIGURES

Figure 4 1: Figure 1number of firms by cluster .................................................................. 47

Figure 4 2: Number of Firms by Size (Medium and Large) ............................................... 49
Figure 4 3A: Trend of Investment by investors and Figure 4 3B: Trend of investment by
capital .................................................................................................................................. 50

Figure 4 4: normality test .................................................................................................... 66

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 ABSTRACT
Private manufacturing investment is the dominant and influential instrument towards
economic development. However, many private investors in less developed countries
(LDC) ‟s have not good participants in the manufacturing sector. Since Ethiopia is one of
these LDC‟s. Its Economy depends on Agriculture. Therefore, private manufacturing
investment is essential for the local as well as for the whole economy. The general
objective of this study was to investigate the determinants of privet manufacturing
investment in, North Showa Zone by micro and macro-level variables. The study used a
cross-sectional data type, both primary and secondary data, both quantitative and
qualitative research approaches and again both descriptive and explanatory research
design. The sampling technic was judgmental sampling technics and sample size of 200,
which were management members and supportive staff departmental members, from each
of 10 privet manufacturing companies that have five and more than five years of
operational life (experience). Primary data were collected through both the Likert scale
and open-end questioners. The Secondary data were 12 years‟ general information about
privet manufacturing investors‟ annual inflows. The researcher conducted various tests,
such as a multicollinearity test, model adequacy test, heteroscedasticity test, and normality
test. Thus, the policy implications to boost investment in the manufacturing sector were
clear and recommend depending on the regression results for the development and
expansion of privet manufacturing investments in the north showa zone. The regression
results revealed that government incentives, human capital, access to credit, availability of
electric power, and investment policy have a significant positive effect were as, the
collateral requirement, general inflation rate, lending interest rate, and average exchange
rate have a significant negative effect on private manufacturing investment. Hence, to
improve private manufacturing investment in the north showa zone, it is important to take
measures to alleviate the private manufacturing investment constraints and encourage the
sector. Finally, event Hugh the water availability and road access have negative beta
coefficient but their effect on private manufacturing investment are insignificant at 5%
level of precious.

Keywords: private investment, manufacturing investment, manufacturing investment

trends, private manufacturing investment cluster.

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 CHAPTER ONE

1. INTRODUCTION
Under this chapter the researcher discussed about the background of the study, statement
of the problem, objectives of the study, research hypotheses, scope and limitation of the
study, the significance of the study and organization of the paper.

1.1. Background of the Study

The word investment can be defined in many ways and can be conceived in line with
different theories and principles. Even though investment is described in different ways,
the meanings are more similar to each other than dissimilar (Bayai & Nyangara, 2013).
The term investment‟ is essentially ambiguous; and also, the definitions tend also to
vary from one geographical area to the other. The UK defines investment as, every kind of
asset‟, and then introduces a list of specific forms of investment with the indicative
phrase like real estate or other property, tangible or intangible, acquired in the
expectation or used for the purpose of economic benefit or other business purposes
(Legum, 2005).

The French definition states that all assets, such as property, rights, and interest of every
nature whilst the US adopts, any asset that has the characteristics of an investment as the
definition of an investment, So Investment is the current commitment (scarification) to
generate positive return in the future as the form of interest, dividend, or capital gain, or
profit, or rent, or by other form. Investment spending generally relates to the creation and
acquisition of capital goods, financial security with the intent of using them to try to
stimulate economic production (Bayai & Nyangara, 2013).

Capital goods are products that are needed to create other goods, like equipment,
machinery, buildings and roads. Individuals, businesses, and governments try to use
investment spending to make certain types of expenditures work in their favor by
producing long term benefits (links the present and the future), and spending determine;
fluctuations in investment account for much of the movement of GDP in the business
cycle and the rate at which the economy adds to its stock of physical capital, and thus
helps to determine the economy‘s long-run growth and productivity performance And

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also the creation and acquisition securities are like bonds and stocks are investment on
financial assets to generate interest and dividends (Dornbush, 2007).

The role of investment to the development of the world (for both developed and LDCs)
is very large. Investment increases the productive capacity of an economy and it is an
essential in promoting economic growth. It is important to create job opportunity for
citizens, to accelerate the economic development of the country and to improve the
living standards of the citizens of the nation. It also facilitates the mobilization of
resources to be more productive, effective and efficient utilization of available resource
by allocating them in investment activity (MoFED, 2012).

In General, there are two types of investment; those are private investment and public
investment. Thus, realizing the different productivity performance of public and private
sector investment to the economic growth of countries, different situations are attached to
the marginal returns of the two investment components. In light of this, the marginal
benefit from private sector investment has an enormous role in the countries‟ economic
growth and development (Esubalew, 2014).

Private investment is treated as an engine to economic growth and development due to its
sustainability nature and efficiency allocation of resources which forms the basis of study
of its determinants to warrant improvement (Economic Survey, KNBS-2012), A good
investment climate provides opportunities and incentives for firms to invest productively,
create jobs, and expand, therefore promoting economic growth and poverty reduction
(World Bank, 2005). Private investment have an important role in making the growth
process more socially and geographically inclusive and successful mobilization is thus
increasingly important in job creation, growth expansion and poverty reduction
(Frimpong, 2010).

Private manufacturing investment is one of Private investment that is a basic for the whole
economy, especially in LDC‘s including Ethiopia. Therefore, private manufacturing
investment is essential for the local as well as for the whole economy. Many developing
countries including Ethiopia want and need private investment; they often fear that
individuals or companies from other countries will become too economically and
politically powerful within their country. If this happens, the nation‘s employment, wages
and even social conditions might be greatly influenced by foreign investors. Private

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investment is an investment in production facilities by private firms. Not all foreign aid is
given in the form of money, of course some aid is sent in the form of capital goods, such
as: machineries, technical assistance is a kind of foreign aid (International Journal of
Business and Social Science, 2012).

In many LDCs, including Ethiopia their socio political and economy characterized
by unstable politic, low productivity, inadequate finance, weak technological base, and
lack of skilled man power, lack of market opportunity, poor infrastructure, initial capital
requirement, results poor performance of their investment practice‘s. Though those
countries unable to exploit such investment opportunities because of the above problem
even though many LDCs look investment is crucial for their desire for development and to
overcome these constraints. When deciding upon which sectors to invest, the investor has
a multiple of choices to invest in to many sectors. One of them is manufacturing sector,
which are the sub-sectors of investment (Lawrence, 1982).

Manufacturing is the production of merchandise (i.e. goods) for use or sale using labor
and machines, tools, chemical and biological processing, or formulation. The term may
refer to a range of human activity, from handicraft to high tech, but is most commonly
applied to industrial production, in which raw materials are transformed in to finished
goods on a large scale Manufacturing sector includes many fields and sub fields under it,
(Wikipedia, 2015). The Ethiopian manufacturing sector includes: clothing and textile,
food and beverage, cement, wood, leather, plastic and paper, metallic and non-metallic,
petroleum, chemicals, oil cakes, electronics, computers, transport, tiles, sugar and
molasses (Ayele, 2006).

Private manufacturing Investment is essential for Economic Development because

effective private investment utilize the economy in terms of employment, raw material
domestically, income generation and for the extra investment. The activity is powerful for
the sake of economic growth. Depending on the importance of investment, the government
updates the articles in order to encourage investment. Whereas the encouragement and
expansion of investment especially, in the manufacturing sector, has become necessary
so as to strengthen the domestic production capacity and there by accelerate the economic
development of the country and improve the living standards of the people (Proclamation
No 769/2012).

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In many African countries including Ethiopia, Agriculture is characterized by traditional
technology and low productivity, while manufacturing continues to depend on
imported capital, technology, inputs and skilled labor in some instances and very few
countries have progressed beyond mere assembly and light industries. Manufacturing
sector was before 1957 dominated by cottage and handcrafts industries which met most of
the population need for manufactured goods. Thus, the level of investment in the country
during the last two decades (1975-1994) was fluctuating. Private investment during the
period 1975-1989 declined sharply and started to increase slightly 1990 and 1991 as the
previous government started reform in 1989, the rate of private investment continued
substantially from 1992 (Workie, 1996).

One that shall be take note is low private investment in manufacturing sector and the
heavy involvement of the public sector in investment, but now a time Ethiopia is
most important investment destinations in the continent for the fast paced economic
progress it has been experiencing, for lucrative business opportunities it provides, and for
its attractive investment incentives (Seid A, 2014). The liberation of the Ethiopian
Economy in 1992, the government has provided various incentive packages to encourage
domestic investors as well as attract foreign investors. So Numbers of macroeconomic
reforms have been implemented with the objective of achieving macroeconomic
stabilization and economic growth. The macroeconomic reforms include privatization of
state owned enterprises, liberalization of trade policy, reduction of import tariff rates,
elimination of non-tariff barriers, devaluation of price and exchange rate controls
(UNCTAD, 2002).

1.2. Back Ground of the Case Area

North Showa zone is one of 15 zones. These are (9 administrative, 3 ethnics and 3
metropolis Zones) in the Amhara Regional state that contains 22 woredas and 6
administrative towns. The capital city of North Shewa Zone is Debre Berhan town and
has a Total Area of 15,936.13 km2 (6,152.97 sq mi). The Zone is bordered on the south
and the west by the Oromia Region, on the north by South Wollo, on the northeast by the
Oromia Zone, and on the east by the Afar Region and located on 10000’0.00” N latitude
and 39029’59.99” E Longitude. In North Showa Zone 2,263,097 population are alive,
these are 1, 101,932 female and 1,161,165 male. Among the total population, 18.7% has

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lived in towns and 82.3 % has lived in the countryside (North showa zone Development
Plan Monitoring & Evaluation Team annual report, 2018/19).

In North Showa Zone 1,000 registered investors take license to invest in medium and large
scale manufacturing sectors from 2000 up to the end of 2011 with total capital of birr
63,312,024,903 and 110,123 expected job opportunities. Among them, 59 companies
were on operation at the end of 2011 e.c. with total capital of 20 billion birrs and 15, 000
permanent job opportunities including 6 companies that invested before 2000. So there are
65 industries (companies). These companies clustered into four, like chemical, food and
beverage, metalwork and wood processing, and textile.
According to the inflow (trend) of investors, North Showa Zone, become as one of
Ethiopia‘s emerging destinations for local and international companies due to its proximity
to the capital city [AA] and accessibility to the international market via the port of
Djibouti, due to access of Amhara regional state investment branch office in Debre Berhan
town, it is one of the preferred industrial hubs (North Showa zone investment bearo report,
2011 e.c.).

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 1.3. Statement of the Problem
Private investment has an important role in the economic growth of developing countries
and it determines the rate at which physical capital is accumulated (Jongwanich &
Kohpaiboon, 2006). Private investment is a driver for economic development and is one
of the most important weapons to reduce poverty. It improves the productive capacity of
the countries and also creates job opportunities for many people (Muhammed, 2016).

The manufacturing sector is one part of Private investment which is a very essential over
the other sector of the economy in many world countries because of the manufacturing
sector‘s capability to provide important material support for the national economy, huge
potential for employment creation, to create a wealthy economy, to encourage and
development of other sectors and to help developing nations to alleviate their balance of
payments problems by generating more foreign currency as compared to the other sector
(McMillan and Roderick 2011).

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In addition, if manufacturing industrial development is directed to use local resources like
(raw material and human capital), it can create strong linkages among the different sectors
of the domestic economy and utilize domestic resources. But many LDCs lack this
opportunity because of low-level income, capital deficiency, less access loan opportunity,
market cases, poor infrastructure, and poor management of raw materials, technological
backwardness, and lack of skilled manpower to exploit their resource and many socio-
economic and political-related problems (Wikipedia, 2015). Private manufacturing
investment is vital for Economic Development because effective private investment uses
the economy in terms of employment, income generation and for the extra investment. The
activity is powerful for the reason of economic growth (MOFED, 2010/11).

Depending on the importance of investment, the government updates (amend) the articles
(investment policy) in order to encourage investment. Whereas the encouragement and
development of investment especially, in the manufacturing sector, has become important
so as to strengthen the domestic production capacity and accelerate the economic
development of the country and improve the living standards of its people, but now a time
The Ethiopian economy was dominated by the agriculture and services sectors
(Proclamation No. 769/2012).

Exports are highly concentrated on primary commodities. The location of Ethiopia is land
located. This is difficult to provide international market linkages for private manufacturing
exporters and, having an industrial export share much less than the already minuscule
median for Africa. The economic structural change is limited, especially with regard to
manufacturing sector, is too low levels of investment flows and the slow growth of the
private sector that was very little to affect its historically low share in labor-intensive
manufactures rather than capital. Indeed, even after more than a decade of reforms by the
current GOE private economic activities in the Ethiopian manufacturing sector remain
very small and stagnated, even by African standards (Investment climate assessment
reports, 2004).

The stagnation of the manufacturing sector was attributed to less than optimal investment
levels in the manufacturing sector. The reason for this is credited to the Ethiopian business
environment being suitable for investments in the service sector. Both the government and
the private sector invest in the service sector. The reason for the low concentration of
investment in the manufacturing sector can be attributed to lack of access to finance due to

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bank policy, in prices and exchange rates which make it less attractive to prospective
investors (Berihu, 2010).

Private investment has a large direct effect on economic growth than that of public
investment. They also affirmed the indirect effects of public investment on growth through
raising the profitability of private investment and the absorption capacity of the economy,
(Khan and Reinhart 1990). An increase in the demand for finished goods tends to increase
inventories more than proportionally to increase in sales, except when the manufacturing
firm is limited by inadequate funding due to high-interest rates and As we know it‘s the
main profit that derives investment in rich capitalist nations (Hanibal, 2005).

Despite the importance of manufacturing sector in sustainable economic growth, the sector
encountered with a series growth problem that leads to insignificant contribution to GDP
due to the immediate results of this challenge is severely constrained supply and poor
quality raw materials and technology, low level of investment, financial constraints (i.e.
loan, saving and others), and low capacity utilization, facility provision related problem
(i.e. area), lack of skilled manpower, and other policy and social-related factors limit the
investment in the sector (Industrial Development Report, 2013).

Private manufacturing sectors are affected by various factors that affect projects to
promote from the first situation to the next situation and so on (Gizachew,2017). On the
Other hand, private investment in developing countries is determined mainly by both
microeconomic and macroeconomic variables (Khan, 2007). Due to its importance of the
manufacturing sector, the researcher was investigated the determinants of private
manufacturing investment.

In this study, the researcher was focused on both micro and macro-economic determinants
(variables), Because private manufacturing investment is highly affected by micro-
economic and macro-economic factors like human capital, credit access, collateral
requirement, infrastructure (electric power, road and water), government incentives,
investment policy inflation rate, exchange rate, interest rate, and others, so it was very
essential to study whether these variables have a significant effect on private
manufacturing investment or not on private manufacturing investment in north showa
zone.

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Even though there was no accessed previous research (study) that conducted on the north
showa zone regard to privet manufacturing investment determinants on cross-sectional
data, there were same research results regard as continental and national level on time
series or cross-sectional model (data). The labor force has a positive influence on
economic growth, and increase productivity and sustains competitive advantage (Schultz,
2003). Human capital was a significant determinant of manufacturing by managing
(Glaeser, 2005). ―Poor education status of managers is a special human resource problem,
especially in technology adoption and selection (Maunda, 2005), less educated managers,
face the difficulty of considering consumer needs/preferences especially oversea markets
(Maunda, 2005) and the main source of output growth in the medium and large scale
industries is labor (Admit and Getnet, 2002).

Access to finance was a major constraint (Mazanai & Fatoki, 2012). The main source of
output growth in the medium and large scale industries was capital (Admit and Getnet,
2002), Credit availability to the private sector was positively significant (Erden, 2005), and
the growth of real credit to the private sector has a positive effect on private investment
(Asante, 2000). Investment incentives of tax holidays, preferential tax rates, grants,
preferential loans, and monopoly rights stimulating investment (Blomström and Kokko,
2003). The infrastructure of power, transport, and poor infrastructures are the major factors
for industrial development (WB, 2003).

Preferential infrastructure access has a positive influence (Blomström and Kokko, 2003).
The absence of infrastructure service is constraints of Private Manufacturing Investment
(Getu, 2014). Infrastructural projects has a positive effect on private investment (Asante,
2000). The poor state of electricity supply imposed significant costs on the business sector
in Nigeria (Adenikinju, 2005). Firms in developing countries suffer largely from a
shortage of finance (Mahmood, 2006). Lack of external sources of finance is a major
constraint for investment (Saibal, 2007). Collateral values and loan approval processes
were the main constraint on private investment (Biggs, 2007).

Inflation rate affects negatively (abate eyesight, 2016). Inflation rate, public investment,
and interest rate affect negatively (washing demeke, 2010), real exchange rates affect
manufacturing investment negatively (Habibur and Ismail, 2003) Inflation rate and interest
rate affect negatively (Gebremariam M. 2019). Exchange rate and public investment affect
positively, (abate Y. 2016), exchange rate and interest rate affect positively (Ambachew,

9|P age
2010). The inflation rate, exchange rate, and interest rate affect positively (Esubalew,
2014), public investment affect positively (Gebremariam M.2019).

As indicated in the results of previous studies some results are inconsistent, and some
variables are not tested in Ethiopia's business environment by cross-sectional, analysis
regard to the determinants of private investment in the manufacturing sector. In addition to
this there is not any accessed research that conducted on the north showa zone regard to
privet manufacturing investment determinants on cross-sectional data, Such
inconsistencies, no conducted research that tested all variables included this study under
the case area and other factors show a clear need for an investigation. Therefore, this study
was focused on both micro and macroeconomic factors that affect private investment in
the private manufacturing sector in the north showa zone.

1.4. Research Questions

Under this study the researcher was address the following questions.
1. What Lock like the trends (inflow) of privet manufacturing investment?
2. What are the challenge and opportunities of privet manufacturing investment?
3. What are the impacts of macro-economic variables on privet manufacturing
investment?
4. What are the impacts of micro-economic variables on privet manufacturing
investment?
5. Is any policy hole that header privet manufacturing sector?

1.5. Objective of the Study

1.5.1. General Objective

The General objective of the study was to examine the main determinants of private
manufacturing investment in the case of north showa zone.

1.5.2. Specific Objectives

In order to address the general objectives that stated above, the researcher developed
(formulated) the following the specific objectives
1. To assess the trends of privet manufacturing investment.
2. To assess the challenges and opportunities that private manufacturing investors
faced.

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 3. To examine the impact of macro-economic variables on privet manufacturing
investment.
4. To examine the impact of micro-economic variables on privet manufacturing
investment.
5. Finally to provide policy recommendations for the purpose of strengthening of
investors in the manufacturing sector.

1.6. Hypothesis of the Study

Based on the literature and articles' point of view, Human capital, Government incentives,
credit accesses, availability of electric power, access of road, availability of water and
investment policy, have a positive significant impact on privet manufacturing investors.
On the other hand exchange rate, Inflation Rate, interest rate, and collateral requirement
have a negative significant effect on investors invest in the sector. From this basis and on
the basis of the objectives of the study and the literature reviewed the researcher developed
the following alternative hypothesis and tested whether they have negative, or positive or
no impact on private manufacturing investment.

 H1: Credit accesses for investors; affected privet manufacturing investment

positively and significantly.
 H1: Government incentives for investors, affected privet manufacturing
investment and positively significantly.
 H1: Availability of Human capital, affected privet manufacturing investment
positively and significantly.
 H1: Access Road Infrastructure, affected privet manufacturing investment
positively and significantly.
 H1: Availability of Power Infrastructure, affected privet manufacturing
investment positively and significantly.
 H1: Availability of Water Infrastructure, affected privet manufacturing
investment positively.
 H1: Investment policy affected privet manufacturing investment positively
and significantly.
 H1: Collateral requirement for loan provision, affected privet manufacturing
investment negatively and significantly.

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  H1: General Inflation Rate, affected privet manufacturing investment
negatively and significantly.
 H1: Average Exchange rate affected privet manufacturing investment
negatively and significantly.
 H1: Lending interest rate affected privet manufacturing investment negatively
and significantly.

1.7. Scope of the Study

As indicated in the objective, the aim of this study was to identify important variables that
affect the medium and large scale private manufacturing investment in the study area. In
order to identify the important variables that constrain the sector, the researcher tested
(examined) 11 explanatory variable at the micro and macro level, on north showa zone by
using both Likert scales and open end questionnaire. The study population for this study
was medium and large scale private manufacturing companies (investors) who started
operation up to 2007 E.C. and on operation at the end of 2011 E.c. Investors who started
operation after 2007 are excluded because they have no five years of operational life
(experience).

1.8. Significance of the Paper

It is not new for all that investment in manufacturing sector that provide an important role
for economic growth which further leads to development.
 The primary significance of this study was for partial fulfillment of MSc degree
in Accounting and finance.
 In addition to this the need of this study was to provide current and relevant
information about the determinants of Investment in manufacturing sector in the
north showa zone for the investors to know the current condition to invest or
expand the existing companies.
 For farther researchers and academicians, this study helped to as reference and
guidance, especially for MSc students in accounting and finance.
 It helped the government and policy maker to amend (revaised) policies in
order to facilitate the investment in the manufacturing sector, attracts investors
from domestic and foreign, to find some solutions regard to investment
constraints, and in view of the fact that the problem is wide and needs multi-
disciplinary survey.

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 1.9. Limitation of the Paper
There were constraints that faced when the researcher conducted this study. That was the
first and difficult challenges were covid 19 that hinder data collection. Private
manufacturing companies were not polite to participate due to covid 19, problem. In north
showa zone investment agency, there was no updated data regard to investors. And also
there is no material data about north showa investment on internet.

1.10. Organization of the Paper

The paper was organized into five chapters. The first chapter focused mainly on the
background, statement of the problem, objectives of the study, research questions,
hypothesis, and significance of the study, the scope of the study, limitation of the study
and organization of the study. Relevant literature reviews related to the study were
reviewed in chapter two. Research methodologies, types and sources of data, techniques of
data collection, sampling technique, and methods of data analysis and description of
variables were included in chapter three. Chapter four provided descriptive analysis,
econometric estimation results, and discussions. Finally, in chapter five, the study
provided a summary, conclusions, and recommendations.

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 CHAPTER TWO

LITERATURE REVIEW

2. INTRODUCTION
This chapter was deal on some studies related with investment in manufacturing sector
regard to theoretical literatures, empirical literature and conceptual frame work.

2.1. Definition of Investment

Investment is an act of current spending for expected future returns. It has a great role in
expanding the production capacity of a nation and for economic growth (UNCTAD,
2002). Investment is the source of manufactured goods that will be used to produce other
goods and it is the major foundation of enhancement in the level of literacy, improvement
in technology, and an increase in the capital stock (Hashmi, 2012).

Private investment is treated as a driver to economic growth and development due to its
sustainability nature and efficient allocation of resources which forms the basis of the
study of its determinants to warrant improvement (Economic Survey, KNBS-2012). A
good investment climate provides opportunities and incentives for firms to invest
productively, create jobs, and expand, therefore promoting economic growth and poverty
reduction (World Bank, 2005). Private investment has an important role in making the
growth process more socially and geographically inclusive and successful mobilization is
thus increasingly important in job creation, growth expansion and poverty reduction,
(Frimpong, 2010).

The manufacturing sector is one of Private investment that is the physical or chemical
transformation of materials or components into new products and the assembly of the
component parts of manufactured products is also considered a manufacturing activity
(ISIC, 2007/08). It is commonly and widely thought that an engine of economic growth
and the major constituting factor to economic growth, that implicitly, and sometimes
explicitly, supported substantial elements of government policy in developing countries in
influencing the determinants of investment (UNCTAD, 2002). History of Private
Investment in Ethiopia, In this section, the trends of the investment in Ethiopia will be
reviewed during three distinct periods.

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 2.1.1. The Imperial Regime (Upto-1974)
The imperial era during No 60/1944 and 107/1949 was enacted to promote foreign
investment in Ethiopia, and a conscious move to stimulate industrial growth began in the
mid-1950s with the formulation of the First Five-Year Plan between, 1958-1962. The
Second Five-Year Plan between 1963-1967 and the Third Five-Year Plan between 1968-
1973, was launched. The implementation of these actions attracted foreign investors and
gave a boost to the manufacturing sector in Ethiopia. However, by the end of the plan
period, the overall industrial base of the country remained weak (World Bank, 1985). Even
it is a weak industrial base, during the 1960s, the rate of private investment (both domestic
and foreign) relatively increased. Private investment was expected to play a leading role in
mining and housing while investments in infrastructure, education, health, and social
welfare were undertaken by the public sector as part of various development plans
between 1968 and 1973 (Investment Proclamation 769/2012).

2.1.2. The Dergue Regime (1975 - 1991)

The military government nationalized most of the private enterprises and introduced
various restrictions on the private sector and the market, (Socialist economic policy, ‟
PMAC 1975). Private investment was restricted to not exceed half a million Birr
(approximately, 500,000 US$) and entrepreneurs may participate in only one venture
(World Bank, 1985).The manufacturing sector exhibited a sharp decline particularly in the
first few years following the revolution. In 1977/78 the government initiated a successive
production campaign locally known as „zemecha‟ to improve productivity mainly through
increasing capacity utilization and have partly reversed the declining trend. The first
central planning body was established in 1984 and a Ten-Year Perspective Plan (TYPP)
was formulated (World Bank, 1985).

Proclamation No 26/1977 heralded the start of nationalization and clearly stated that it was
necessary to transfer to government ownership all resources that were crucial for economic
development. As a result, the government had controlled all private investments and the
private sector was restricted to small industrial activities since the share of the government
could grow from 51-99% while that of private investors could fall from 49-1%.

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 2.1.3. The Regime of EPDRF (post-1991)
After the Dergue was replace by the Transitional Government of Ethiopia (TGE) in
1991, most of the policy distortions of the Dergue were rectified. The new economic
policy of Ethiopia adopted by the TGE pursued a market-oriented economy by rational
insights role and encouraging greater participation of the private sector. In this period the
government implemented three phases of IMF/WB sponsored reform programs.

The first phase of the structural and economic reform program took place during,
1992/93-1994/95. Measures undertaken during this period include:- Liberalization of the
foreign exchange market starting with a massive devaluation of the, Birr by about 150
percent in October 1992, Rationalization of public expenditure, Introduction of a new
investment code, labor, and public enterprise laws, Removal of subsidies and export tax
rebate, Liberalization of prices except for petroleum, Reduction of the maximum import
tariff from 230 percent to 80 percent, Liberalization of payments for invisible
transactions, and easing of market entry for privately-owned banks and insurance
companies (MoFED, 2008).

The second phase of the economic reform program (1994/95-1996/97) aimed at limiting
the role of the state in the economic activities and promotion of greater private capital
participation, (NBE, 1998). In 1998, the Ethiopian government adopted an export
promotion strategy in an effort to address the lack of progress in export diversification. A
comprehensive industrial policy was formulated in 2002/03. The industrial policy was
more concretized into action by various sub-sector strategies such as Sustainable
Development and Poverty Reduction Program (SDPRP) 2002/03-2004/05, the Plan of
Action for Sustainable Development and Eradication of Poverty (PASDEP) 2005/06-
2009/10, and the Growth and Transformation Plan (GTP) 2010/11-2014/15. Various
policy instruments were introduced to support and guide industrial development (MoFED,
2008).

2.2. Ethiopia Investment Proclamations

The investment proclamation No. 769/2012 stated the Investment incentive and investment
areas reserved for domestic investors. The council of ministries amendment regulation by.
Proclamation No. 312/2014. Thus, the amendment was made through the aim of
introductory more investment areas to the private sectors and to providing additional

16 | P a g e
incentives, (World Bank, 2002). The public sector proclamation implied not only the
privatization of state-owned enterprises but also the reorientation of the organizations of
the remaining state-owned enterprises to make them more efficient and profitable. The
nine-state corporations that dominated the industry were dissolved to stimulate domestic
and private investments. A new investment code was released and a privatization agency
was set up. The financial sector (banking and insurance business) was liberalized to
stimulate investment in the private sector. Thus, we can conclude that the various
liberalization measures meant positive changes along all economic system dimensions.
The Ethiopian economy after the war with Italy was described as a mixed economy in
which the private and public sectors worked hand-in-hand to achieve economic progress.
The private sector was having good ground during this period since there was not any law
that limited the private business (Mofed, 2012).

Proclamation No 37/1996 was enacted to rectify the minimum capital required from
foreign investors. So minimum capital required from foreign investors reduced from
500,000 USD to 300,000 USD to establish a joint venture with our government. The
minimum capital of retained profit and dividends reduced to 400,000 USD for expansion.
Further, the capital requirement for foreign investors to invest in engineering and
consultancy was reduced from 500,000 USD to 100,000 USD. Foreign investors were
relieved from the obligation to deposit 1258,000 USD in a blocked account. Foreign
investors were also allowed to invest in building construction equipment, and in hotels
whose standard was below the four-star and five grades. Foreign investors were allowed
to repatriate capital from sale, liquidation or transfer of residence to their home
country, in addition to profits, dividends, interests, and payments arising from the
technological transfer (Investment Proclamation769/2012).

It also provided for internationally accepted investment dispute settlement procedures

where it was not possible to solve the dispute amicably. Investment incentives were also
extended to additional sectors such as education, hotels, tourism, and health. Further, the
period of incentives was extended from 3 to 5 years Banking and insurance, electricity-
generating up to 25 MW, air transport with the capacity of up to 20 passengers, or 2,700kg
were reserved for Ethiopian nationals. Both domestic and foreign investors were allowed
to borrow money from abroad provided that they are registered with the NBE. It was also
provided under the proclamation that investors should be provided land within sixty days

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from the date of application for land. In general, despite its constraints and drawbacks, the
law seems to be attractive to the private investment when compared to the past regime's
restrictive policy (Investment Proclamation769/2012).

No 116/1998 provides that foreign nationals of Ethiopian treated as domestic investors or

foreign investors by their choice. If they choose considered as domestic investors they
must apply to the Ethiopian Investment Authority (EIA) and fill a form which is taken
as a promise not to be considered as a foreign investor. Thus, they are relieved from a
capital restriction on foreign investors and be able to take part in investment with a capital
of 250,000 Ethiopian Birr. Also, they will acquire a right to invest in areas exclusively
reserved for domestic investors by Regulations No 35/1998. But they will lose the rights
of foreign investors (Investment Proclamation 769/2012). Policy Impact on Manufacturing
Investment in Ethiopia

2.2.1. Industrial Policy

The industrial policy plan of a country is its official strategic effort to encourage the
development and growth of the manufacturing sector of the economy. Monetary and fiscal
policy is the principal economic management tools that governments use to shape
economic performance (Olweny and Chiluwe, 2012). The monetary policy objectives
were concerned with the management of multiple monetary targets, including the
promotion of growth, price stability, achieving full employment, preventing financial
crises, smoothing the business cycle, and stabilizing long-term interest rates and the real
exchange rate (Kahn,2011).

Economic Micro Small Enterprises Medium Large

Sector Enterprises Enterprises Enterprises

Number of <5 6-30 31-100 >100

Employees
minimum < 100,000 100,001-1,500,00 1,500,001-20,000,000 > 20,000,000
Capital [birr]
Source:-investment proclamation No 769/2012

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 2.2.2. Monetary Policy
Price stability and low inflation are among the key objectives of monetary policy. Since
high inflation rates have investment by increasing the risk associated with long-run
projects, inflation will lower productivity growth, as well as depressing output growth by
decreasing real investment (Fischer, 1993). The monitory policy has a positive effect on
private investment from restrictive monetary and credit policies can be expected if
inflation is reduced and price stability is achieved. In other words, a macroeconomic
environment in which the uncertainties associated with high and unpredictable inflation
are reduced may attract private investors (Abdou, 1997).

Monetary policy affects the private sector through the cost of capital, its effect on
investment decisions, and the internal rate of return. This implies that a monetary policy
that facilitates the provision of credit for private-sector investment will stimulate private
investment (Gaiotti and Generale, 2001). The restrictive monetary and credit policies lead
to an increase in the real cost of bank credit and thus the user cost of capital, in turn
causing a decrease in private investment (Todaro and Smith, 2009).

2.2.3. Fiscal Policy

The expansionary fiscal policies with high fiscal deficits cause a reduction in private
investment, either by pushing interest rates up or by reducing the availability of private funds
for financing investment or both (interest rate/credit effect) (Ndikumana, 2008). The
expansionary fiscal policies may lead to increases in public infrastructure that can benefit
economic growth by enhancing the productivity of private investment (Greene and
Villanueva, 1991, Oshikoya, 1994). an expansionary fiscal policy in the form of the provision
of public goods and services, such as power plants, roads, communication utilities, irrigation,
social services, etc., can provide the private sector with significant benefits (Montiel, 2011).
This encourage and expand the investment especially in the manufacturing the sector has
become necessary to strengthen the domestic production capacity and thereby accelerate
the economic development of the country and improve the living standards of its peoples.

2.3. Theoretical Literature Review

An investment can be defined generally as spending for the production and accumulation
of capital and addition to inventories. In economics, investment is the value of all goods
produced during a period for use in the production of other goods and services. So all the

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things that go into the production process of consumer goods, such as the manufacturing
equipment at a product factory or buildings that house business along with the equipment
that businesses use to supply goods and services to consumers (JonNash,2015).

Investment has four components: private domestic investment, public domestic

investment, FDI, and portfolio investment. Private domestic investment refers to gross
fixed capital formation plus net changes in the level of inventories, the public investment
is an investment that investments made by the government and public enterprises. Foreign
investment is on a tangible asset, that referred to as a direct foreign investment from
abroad; and portfolio investment is an investment to invest in verity, like shares, bonds,
securities etc (Bakare, 2011).

Private investment is an investment which is invested by individuals or group of

individuals and it plays its own role in the economic growth within a state. Here, there are
different factors applied for the purpose of economic growth which is the act by the
government but the performance of the government is very limited and it cannot achieve
the growth independently. Private investment can be getting the opportunity in order to
play its own role in the economic growth and manufacturing sector is the physical or
chemical transformation of materials or components into new products, and the assembly
of the component parts of manufactured products is also considered a manufacturing
activity (ISIC, 2007/08).

Ethiopia Manufacturing investment is undeveloped; especially the private manufacturing

sector is at a low stage. In addition, the manufacturing sector remains by far the least
attractive sector to indigenous investors. Although there is no sufficient data, some
researchers have been done on the aspects of investment in the manufacturing sector and
also In addition to the government economic activities, the contribution of the private
sector is high and this helps the economy by creating employment opportunities,
income generation, market stability, and in general on poverty reduction. Sustained
economic growth and in terms of employment opportunities and income generation is
necessary for poverty reduction and require enhanced private sector investment resulting
in economic growth, reduction in poverty and improved quality of life for the majority
of the population (ISIC, 2007/08, MoFED, 2008 ).

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 2.4. Investment Theories
There are a number of theoretical perspectives which are used in explaining the
determinants of private investment performance. The most important theories are the
Keynes,(1936); flexible accelerator model, the Jorgenson (1971neoclassical model
associated, and Tobin, (1969).Tobin‘s Q model.

2.4.1. Keynes Investment Theories

As Keynes stated in his book, entitled as ―the general theory of employment, interest, and
money, (Keynes, 1963) he was the first to call attention to the existence of independence on
the prospective marginal efficiency of capital which is the expected yield from new
investment and some interest rate reflecting the opportunity cost of investment funds. He
suggested that investment could be raised either by increasing the marginal efficiency of
capital or by reducing the rate of interest (encyclopedia of economics, 1982).

2.4.2. Flexible Accelerator Model

Accelerator models postulate the investment decision of a firm is determined by the
demand for the firm‘s finished product is growing and expected to grow, such that if the
level of demand is expected to increase, then capital stock levels have to be increased to
meet the anticipated demand, In the accelerator model, expectations, profitability, and
capital costs play no role. A more general form of the accelerator model is the flexible
accelerator model (Ghura & Goodwin, 2010). The basic notion behind this model is that the
larger the gap between the existing capital stock and the desired capital stock, the greater a
firm‘s rate of investment. The hypothesis is that firms plan to close a fraction, of the gap
between the desired capital stock, K*, and the actual capital stock, K, in each period.
This gives rise to a net investment equation of the form of I = j (K* - K_1)
Where I = net investment,
K* = desired capital stock,
K_1 = last period‟s capital stock and
j=partial adjustment coefficient.
Within the framework of the flexible accelerator model, output, internal funds, cost of
external financing, and other variables may be included as determinants of K*. The flexible
accelerator mechanism may be transformed into a theory of investment behavior by
adding a specification of K* and a theory of replacement investment. Alternative
econometric models of investment behavior differ in the determinants of K*, the

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characterization of the time structure of the investment process, and the treatment of
replacement investment. In the flexible accelerator model, K* is proportional to output, but
in alternative models, K* depends on capacity utilization, internal funds, the cost of
external finance, and other variables (Mankiw, 2007).

The flexible accelerator model the rate of investment is determined by the size of the gap
between the existing capital stock and the desired stock needed to raise output to the desired
level required to meet a demand shock. Thus the larger the gap between the existing capital
stock and the desired capital stock, the greater will be the firm‘s rate of investment. The
value of the unit must exceed the purchase and installation cost, by an amount equal to the
value of keeping the investment option active (Pindyck, 1991). Introduces another element
of uncertainty, i.e. Policy uncertainty, as a determinant of private investment. When a
policy reform is introduced, it is very unlikely that the private sector will see it as one
hundred percent sustainable. Some reasons may be adduced, among them the expectation
that the political-economic configuration that supported the earlier policies may resurface,
(Rodrik, 1991). In it‘s the simplest form, the rigid accelerator theory of investment, that
investment is proportional to the increase in output which is peroxide by changes in
demand in the coming period. The theory‘s basic underlying assumption are that firms‟
desired capital-output ratio is roughly constant and net investment takes place when
the output is expected to increase. In effect, the theory implies that the level of output or the
changes in aggregate demand determine investment or the change in capital stock (Clark,
1917).

2.4.3. Neoclassical Model

Neoclassical investment theory has also hypothesized that private investment is affected
positively by income level. This means if there is a high level of income, the saving will be
high and investment will be promoted highly (Greene &Delano, 1991). Maximizing profits
in each period will yield an optimal capital stock, (Jorgenson, 1963). Account for
uncertainty and also assumes that depreciation for tax purposes is a constant fraction of the
replacement cost of the firm‘s assets. These assumptions have tended to limit the
application of the neoclassical model to developing countries. One attempt to apply the
model to developing countries was made by (Sundararajan & Subhash, 1980).

Reports that in the neoclassical approach, the desired or optimal capital stock is
proportional to output and the user cost of capital (which in turn depends on the price of

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capital goods, the real rate of interest, the rate of depreciation, and the tax structure).
Therefore an investment equation results from the gap between desired capital and the
actual capital stock (Chirinko, 1993). The neo-classical theory also suggests that, as high-
interest rates discourage investment by raising user cost of capital, private investment is
negatively related to the interest rate.

Since the real interest rate has become positive only very recently, mainly because of
financial sector reforms, the interest rate can have a negative effect only on investment
through the saving channel (Seruyatu & Jayaraman, 2001). Theoretically, interest rates
should be a crucial variable (Shafik, 1992). The sign of the real interest is an empirical
issue and depends on whether the data supports the McKinnon-Shaw hypothesis or the
neoclassical view. The neoclassical view is that real interest rates are expected to affect
private investment negatively since higher interest rates raise the user cost of capital and
therefore reduce investment (Ndikumana, 2000).

2.4.4. The Profit Theory of Investment

The central theme of the Profit Theory of Investment is, ―greater the gross profits, greater
will be the availability of internal funds for investment‖. Some empirical studies have
found a significant correlation between profit and investment. They conclude profit as a
major determinant of investment. They found that there exists a positive relationship
between profitability and investment. As we know it‘s the main profit that derives
investment in rich capitalist nations (Suresh, 1997 as cited in Hanibal, 2005).

2.4.5. The Lewis Theory of Development

One of the best known early theoretical models of development that focused on the
structural transformation of a primarily subsistence economy was that formulated by Nobel
laureate W. Arthur Lewis in the mid-1950s and later modified, formalized, and extended by
John Fei and Gustav Ranis. In the Lewis model, the underdeveloped economy consists of
two sectors: a traditional, overpopulated rural subsistence sector characterized by zero
marginal labor productivity; a situation that permits Lewis to classify this as surplus labor
output and a high productivity modern urban industrial sector into which labor from the
subsistence sector is gradually transferred. The primary focus of the model is on both the
process of labor transfer and the growth of output and employment in the modern sector.
The speed with which this expansion occurs is determined by the rate of industrial
investment and capital accumulation in the modern sector (Todaro, 2012).

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 2.4.6. Patterns of Development
This model was developed by Hollis B. Chenery. Like the earlier Lewis model, the
patterns of development analysis of structural change focuses on the sequential process
through which the economic, industrial, and institutional structure of an underdeveloped
economy is transformed over time to permit new industries to replace traditional
agriculture as the engine of economic growth, However, in contrast to the Lewis model
and the original stages view of development, increased savings and investment are
perceived by patterns of development analysts as necessary but not sufficient conditions
for economic growth. In addition to the accumulation of capital, both physical and human,
a set of interrelated changes in the economic structure of a country are required for the
transition from a traditional economic system to a modern one (Todaro, 2012).

2.4.7. Tobin’s Q and Profit Models

Another theory of investment is Tobin's q model advanced by (Tobin, 1969). Tobin argues
that firms'‟ investment level depends on the ratio of the present value of installed capital to
the replacement cost of capital. Net investment depends on the ratio of the market value of
business capital assets to their replacement value of a ratio known as Tobin‘s q. In line
with this model, a higher market value of assets relative to replacement costs would provide
investment incentives. In other words, when the increase in the market value of the
additional unit exceeds (or is less than) the replacement costs, firms will want to increase
(decrease) their existing capital stock (Serven, 1992).

It can be argued that there exists a positive correlation between asset prices and
investment. This model, however, ignores the limited investment impact of portfolio
inflows, which may inflate business assets with no impact on the underlying productivity of
the assets. Stock markets around the world are currently trading at elevated levels and yet
private investment is declining in most of the world economies (Serven, 1992). Profit and
investment relationship has several variants, one of which is that investment is affected by
current profits, the amount of retained profits, or by other variables like output, price
and sales, which reflect profits (Chirinko, 1993).

Also, there is the disequilibrium approach, which views the investment as a function of
both profitability and demand for output (Chirinko, 1993). In this instance, investment
decisions have two stages: the first is the decision to expand the level of productive
capacity; the second is the decision about the capital intensity of the additional capacity.

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The first decision depends on the expected degree of capacity utilization in the economy
and it provides an indicator of demand conditions. The second decision depends on relative
prices such as the cost of capital and labor. Therefore, investment depends on both
profitability and the prevailing sales constraints which in turn determine the rate of capacity
utilization (Serven, 1992).

Generally: It is clear from the discussion in this section that private investment depends on
the broad categories of variables as Keynesian traditional determinants of private
investment include the internal funds (for example, change in credit to the private sector)
capacity utilization and interest rate. Flexible accelerated determinants of private
investment are the cost of both internal and external funds. The neoclassical determinants
of private investment include real interest rate and income level. Tobin‘s Q, determinants of
private investment include the cost of capital and public investment ratio. The Lewis
determinants of private investment include labor and price change. The profit theory of
determinants of private investment includes the availability of internal funds and the pattern
model determinants of private investment in human capital.

2.5. Investment Theory and Developing Countries:

They appear to be less successful in modeling the case of developing countries, whose
economies operate considerably different from those of developed countries. A number of
deficiencies in the characteristics of developing countries deter the application of such
models in their entirety. The key factors that limit the successful application of these
models to developing countries are as follows:

The absence of well-functioning financial markets, active stock exchanges, the free
exchange of domestic and foreign currencies restriction and slow down the inflation rate
(Aysan et al., 2005). The government has a strong role on the economy, which aim to be to
increase the level of private investment in manufacturing, by interest rate is often kept
much lower than the market rate and Economic data, such as on international debt, the
capital stock, nominal wages, and the marginal efficiency of capital, along with other data
and information, do not exist or are irrelevant or difficult to calculate (Khan 2007).
There are many conceptual differences between the economies of developed and
developing countries, such as expected returns, optimal profit and marginal efficiency
for cost and product (Khan, 2008, Malik, 2012) and Since the 1980s, the IMF and the
WB have been examining the determinants of private investment in developing countries,

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aiming to make the private sector the engine of growth. IMF and WB point out How does
private investment respond to changes in government policy, not only in designing long-
term development strategies but also in implementing short-term stabilization programs
(Blejer and Khan, 1984).

If it can be supposed that increasing private investment will increase output, what factors
most influence private investment in developing countries? Economists from these
international organizations have further studied the restrictions on investment in such
countries and have suggested several economic policies aimed at stimulating the private
investment decision (Everhart and Sumlinski, 2001). In recent times, another stream of
theoretical literature, focusing on the rather complex issue of irreversible investment under
uncertainty, has led to an adjusted and extended account of the determinants of investment.
In contrast to the traditional theories, this approach has led to the emergence of a new view
of investment, emphasizing three important features of most investment decisions that are
neglected by the conventional approaches (Pindyck, 1994).

The theoretical expectations about how the element of uncertainty affects investment differ
but most studies assume a negative relationship. Various forms of uncertainty have been
used, such as economic, social, and political instability (Pindyck, 1991 and Serven, 2002).
In the case of developing countries, uncertainty can be measured in terms of volatility of
inflation, the exchange rate, and output. Therefore, empirical studies of the determinants of
private investment in developing countries have used a much more eclectic model of
private investment, initially based on the neoclassical flexible accelerator model, in order
to capture the characteristic institutional and structural features of those economies, in
which uncertainty often prevails (Asante, 2000; Atukeren, 2005; Aysan et al., 2005).

2.6. Empirical Literature

Under this the researcher will deal about private manufacturing sector investment and its
findings. Several hypotheses are assessed in order to explain variations in private
investment in economics. The determinant factors of private manufacturing sector
investment in developing countries, in Ethiopia are explained. Investment is defined as all
additions to the stocks of assets or purchases and own-account gross capital formation, less
any sales of secondhand and scrapped assets (Asnate, 2000), From this, the study will infer
that capital formation is the best measurement for private investment. Capital formation is

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a concept used in macroeconomics, national accounts and financial economics (OECD,
2006).

2.7. Determinants of Private Manufacturing Investment

The main determinants of private manufacturing investment in a given is at a different
level. However, the study has been focused on micro and macro-economic variables; it
was presumed to affect private manufacturing investment as found to have an effect in
different kinds of literature.
General Rate of inflation: High inflationary pressures are associated with a substantial
reduction in investments (Fischer, 2013). The inflation was the main factor negatively
affecting the success of businesses in four in SA especially manufacturing sectors; they
argued that higher rates of inflation tend to reduce the real rate of return on investments,
leading to lower rates of investment. While evidence continues to expound the inflation-
growth nexus for Nigeria, there is growing concern over the virility of the manufacturing
sector in Nigeria (Li, 2006).

Lending Interest rates: when the interest rates too high, they may induce adverse
selection problems because high-risk borrowers are willing to accept these high rates
(Chris, Ibor & Arikpo, 2015). Once these borrowers receive the loans, they may develop
moral hazard behavior or so-called borrower moral hazard since they are likely to make on
highly risky projects or investments (Chodecia, 2004). The interest rates were the main
factors negatively affecting the success of businesses in South Africa especially
manufacturing sectors (Venter, 2003). The interest rates do not have any impact on long
and short-run private manufacturing investment (Habibur and Ismail, 2003). Bangladesh
confirms that firms were affected by a high level of interest rates (Khar, 2008).

Average exchange rates: the real exchange rates in Bangladesh had a negative effect on
the private manufacturing sector; in both the long-run and short-run (Habibur and Ismail,
2003). The exchange rate has a negative and significant impact on the manufacturing
sector in Nigeria (Ayinde, 2014). The uncertainty in exchange rate volatility and
appreciation of the real exchange rate will affect manufacturing firm productivity
(Caglayan and Demir, 2014). Exchange rate movement can influence the performance of a
firm in a number of ways, such as through the cost of imported input, export price in
comparison with foreign competitors, or the cost of external borrowing (Dhasmana,
2013).

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Collateral requirement: The higher the specificity of the collateral asset or the less liquid
it is, the higher are the costs imposed on the lender. The costs of evaluating, processing,
and liquidating collateral strongly depend on the legal and institutional environment. As
has been shown by the recent literature on law and finance, variables and the efficiency of
the judicial system are important determinants of loan supply, affecting the protection of
creditor rights. The housing wealth was an important factor in the decision to start a new
firm, as well as a determinant of growth, investment, and employment of new firms
(Schmalzet et al, 2013). In Bangladesh confirms that firms were affected by loans backed
up by sound collateral (Khar, 2008).

Infrastructure: Infrastructure has a significant positive impact on income, demand for

private production, and product delivery (Demetrius‘s and Mamuneas, 2000).
Infrastructure is one of the major factors for industrial development (WB, 2003). The
constraints of Private Manufacturing Investment include high land lease rate, bureaucratic
hurdles to secure land, and absence of infrastructure service (Getu Hailu, 2014). Most
African countries, many of which are LDCs, are characterized by poor infrastructure and
are found in all periods to be poor export performers (UNCTAD, 2002). The public
infrastructure reduces costs in most manufacturing industries, boosting resource
productivity growth (Arrow Mamatzakis, 2008). Public infrastructure provides a
geographic concentration of economic resources and a deeper and wider market for the
growth of output (Gu & Macdonald, 2009).

 Electric power: Infrastructure of electricity has an impact on the development of

manufacturing industries. Infrastructure is one of the major factors for industrial
development especially Power is key elements (WB, 2003). The poor state of
electricity supply imposed significant costs on the business sector in Nigeria
(Adenikinju, 2005). The electricity, energy power, has a significant impact on
manufacturing productivity growth because it attracts the investors for investment
in those areas where infrastructure is well designed (Dash and Nataraj, 2010).
Electricity is the main driver of industrial development. Thousands of industries in
Ghana use hydro-electric power for production, storage, and distribution.
Electricity is an essential service that enjoys protection from competition and
consumers really have little or no choice (Chau, 2009). Public investment could
encourage private investment when the government invested specifically in

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 infrastructure for the economy, for instance, in increasing electricity output by
building new power plants (Ramirez and Nazmi 2003).

 Road: Infrastructure of roads has an impact on the development of manufacturing

industries. Infrastructure is one of the major factors for industrial development;
transport is its key element (WB, 2003). Most African countries, many of which
are LDCs, are characterized by poor road (transport) infrastructure (UNCTAD
2002). Transportation infrastructure influences economic development in two
ways, as an independent factor of production and through its impact on total
productivity progress and therefore on economic development (Martinkus and
Lukasevicius, 2008, Kim, 2014). The road has a significant impact on
manufacturing productivity growth because it attracts the investors for investment
in that area where infrastructure is well designed (Dash and Nataraj, 2010). Public
investment could encourage private investment when the government invested
specifically in infrastructure for the economy, for instance, is building the new
highway (Ramirez and Nazmi, 2003).

 Water: The impacts of water shortages are also having an effect on investment
generation resulting in increased load shedding. https://www.unilever.com/. Water
infrastructure supports economic productivity. From semiconductor
manufacturing, water-dependent businesses represent a broad range of
sectors from universities, to hotels and restaurants, to pharmaceutical
manufacturers for pharmaceutical manufacturers; water acts a critical raw
input and solvent in the pro- diction process. For every manufacturing job
added by the pharmaceutical industry, water utilities must deliver
approximately water. Water infrastructure is fundamental to economic
health. When the consumption is considerably high, separate sources (or intakes)
are arranged. In urban areas where there is a public water supply, generally the
industries tend to use the water from these, but in many cases where large
quantities of water is required, it was observed that they maintain a separate
supply too, usually from a dug well. Such cases are more prominent where the
public water supply is subject to curtailments (Sri Lanka, 2000).

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Human capital: Human capital, as measured by educational attainment, plays a crucial
role in determining a firm‘s performance such as output, productivity, and profit (Honig
2001). Human capital plays an important role in changing the efficiency in which existing
input factors are used and despite Ethiopia‘s abundant human resources, the quality of the
labor force is generally low. This is due to inadequate education, lack of practical, targeted
worker training programs, and implementation methods that can improve workers‘
Production efficiency and productivity in the companies (Hailu & Tanaka, 2015). The
human capital that is knowledge-based is determinant of manufacturing (Glaeser, 2005).

Human Capital‖ is a key element in improving firm assets to increase productivity as well
as sustain competitive advantage (Schultz, 2003). The human capital enhancement will
result in greater competitiveness and performance of a firm (Agrawala, 2003). Poor
education status of managers is a special human resource problem, especially in
technology adoption and selection (Maunda, 2005), less educated managers, face the
difficulty of considering consumer needs/preferences especially oversea markets (Maunda,
2005) and the main source of output growth in the medium and large scale industries are
labor and capital respectively (Admit and Getnet, 2002).

Credit access to the investor: when the availability of finance increases, people can have
the finances required and invest which increases the volume of private investment. Health
financial sector improves access to finance and by then allows expanding production as
per the expected potential but Firms in developing countries suffer largely from a shortage
of finance (Mahmood, 2006). Lack of external sources of finance is a major constraint for
investment (Saibal, 2007). Collateral values and interest rates are very high constraint and
loan approval processes are an inefficient constraint on private investment (Biggs, 2007).
Investment policy: The Investment policy is an instrument that directed the investment,
that is level of investment depend on the nature of investment policy. That is investment
proclamation No. 769/2012 stated the Investment incentive and investment areas reserved
for domestic investors and others. The industrial policy plan of a country is its official
strategic effort to encourage the development and growth of the manufacturing sector of
the economy. The monetary and fiscal policy is crucial for private investment to encourage
or discourage. Why because Monetary and the Fiscal policy are the principal economic
management tools that governments use to shape economic performance (Olweny and
Chiluwe, 2012).

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Investment incentives: Investment incentives are measurable economic advantages that
governments provide to specific enterprises or groups of enterprises, with the goal of
steering investment into favored sectors or regions or of influencing the character of such
investments and Investment Areas Reserved for Domestic Investors. These benefits can be
fiscal (as with tax concessions) or non-fiscal (as with grants, loans, or rebates to support
business development or enhance competitiveness (Sebastian, 2009).

Incentives especially fiscal incentives have been associated with higher investment in
several countries, including Ireland, Mauritius, and Singapore. But while some
governments vouch for the effectiveness of incentives, many others have failed to attract
expected investments (Green and Villanueva, 1991). The study will distinguish, with
reference to investment, between a statutory and an economic tax incentive. The latter is
defined as ―a special tax provision granted to qualified investment projects that have the
effect of lowering the effective tax burden measured in some way on those projects,
relative to the effective tax burden that would be borne by the investors in the absence of
the special tax provision (Stotsky and Ley, 2002).

Tax Incentives: specifically tax Incentives for investors are, Exemption income tax for
new enterprises, such as food industry, processing of meat and meat products, Fish and
Fish products, Fruit and/or Vegetable manufacturing of edible oil and others can be
exempted from income tax for 5 years. Vehicles, Trailers and Semi-Trailers industry such
as manufacturers of bodies/ Components for motor vehicles, trailers, manufacturing parts
and accessories for motor vehicles and others can be an exemption from income tax to 4
years (Tax exemption Regulation No 270/2012). The common exemptions of income tax
for investors who are exporting products/services have additional incentives. When
investors export at least 60% of their products/services, they can take additional two years
exempt from income tax and investor imported capital goods, construction materials, and
raw materials (Tax exemption Regulation No 270/2012).

Generally, Countries with high infrastructure quality usually entail a developed network
of roads, the supply of water and electricity as well as internet networks and telephones
with these characteristics countries would usually attract investment (Oniyewu and
Shareshta, 2005).

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 2.8. Research Gap
Private investment was positively influenced by the level of economic growth and public
investment while it is negatively affected by increases in the price level, government
investment outlines the significant role of government in laying down infrastructure to
crowd in private investment. Instability negatively impacts private investment in Lesotho
(Senei Molapo and, Moeti Damane, 2015). Factors that affected private investment are
public investment, exchange rate, credit for private investor and interest rate affect
positively. In the short run, exchange rate has significant positive contribution to private
investment, while inflation has significant short run negative effect on private investment
after one lags (Abate Yesigat,2016) Public investment, inflation, and annual interest rate
are affecting private sector investment in Ethiopia negatively (Wasihun Demeke, 2018).

The independent variables of interest rate, and inflation were not found to have any
significant relationship with the manufacturing sector growth in SSA countries (JP Morgan
Chase, 2012). Public investment positively effects private investments (Frimpong &
Marbuah, 2010, Ouattara, 2004, and Siraj, 2014). Public investment and private
investments have negative and significant relationship (BIBI, et al. 2012).

The annual interest rate has a negative and significant impact on private manufacturing
sector investment in Ethiopia, the public investment has a significant and positive effect on
private manufacturing investment, the exchange rate and it has a significant and negative
impact on private manufacturing sector investment (Gebremariam M. 2019). As stated
above the results of same previous study was inconsistence regard to interest rate,
exchange rate, inflation rate, credit access

Whereas human capital and collateral requirement not nested previously by others. This
show that it need further investigation, so the researcher was tested the impact of
infrastructure (electric power, road and water), interest rate, exchange rate, inflation rate,
credit access, human capital and collateral requirement, investment incentive, investment
policy on privet manufacturing investment on north showa zone.

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 2.9. Conceptual Frame Work
The conceptual framework was a critical base for indicating logical flows of
assumption the study desire to attain in its objective. It shows conceptual foundation to
proceed with the research and indicates how concepts are related to each other. So, it
showed the relationship and expected sign between explanatory variables (independent
variables) and explained variable (dependent variables).
Independent variables Dependent variabl
Macro-economic variables

 Exchange rate(-)
 Inflation rate(-)
 Interest rate(-)

Micro-economic variables
Private
 Infra-structure of: Manufacturing
 Electric power availability (+) Investment
 Road access (+)
 Water availability (+)
 Investment incentive (+)
 Investment policy (+)
 Collateral requirement (-)
 Credit access to investors (+)
 Human capital availability (+)

Source: researcher own design, 2012 E.c

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 CHAPTER THREE

METHODOLOGY OF THE STUDY

3. INTRODUCTION
Under this chapter, the researcher was discussed the research design and approach,
sources, and type of data, sampling techniques, sample size determination, data collection
instruments, , data analysis technique, research validity, and reliability, and other aspects.

3.1. Research Approach

The researcher used both Quantitative and qualitative approach. Quantitative methods
gave a reliable, statistically verified result. The quality of work of the researcher in such
methods can be easily verified, the research was repeated with obtaining (subject to its
qualitative execution) the same result. On the other hand, qualitative methods were that
they allow you to understand what is difficult to isolate and compute with the help of
quantitative methods since they allow you to penetrate the essence of phenomena. They
provide you with the opportunity that used the sharpest and most effective tool of
knowledge, our mind. That was really the case since a person was endowed with the
ability not only to process information but to think creatively (Creswell, 2003).

3.2. Research Design

This study is employed both Descriptive and explanatory research design, to examine the
main determinants of private manufacturing investment in the north showa zone. The
reason for using these designs was that Descriptive design helped to describe the
determinants of privet manufacturing investment based on primary data and respondent
respond, challenges and opportunities and others whereas explanatory research design
helped to analyze primary data regression out pot (Kothari, 2004). In addition, descriptive
design help to analyses non-quantified topics and issues, The possibility to observe the
phenomenon in a completely natural and unchanged natural environment, The opportunity
to integrate the qualitative and quantitative methods of data collection, Less time-
consuming than quantitative experiments (Creswell, 2003).

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 3.3. Type and Source Data
The researcher was used mainly primary data and secondary data sources as supportive and
cross-sectional data type. The cross-sectional study is an observational study that assesses
exposure and the outcome at one specific point in time in a sample population. There is no
prospective or retrospective follow-up. The incidence and prevalence, important descriptive
measures, can be calculated from a cross-sectional study. The reason to use Cross-sectional
data was: it was inexpensive and fast. Cross-sectional studies were usually relatively
inexpensive and allow researcher to collect a great deal of information quite quickly. Data
was often obtained using self-report surveys and researchers were then able to amass large
amounts of information from a large pool of participants.

The reason to used primary data was gathered first hand, following careful
operationalization of variables and using carefully chosen procedures. Consideration is
given to what was being gathered in terms of data so that they're about 'real-life'. In general,
primary data should be valid because the study was designed and carried out for the main
purpose of the research. Might be considered to be more trustworthy, in that they have
greater validity than secondary data. If they're collected objectively, with careful planning
and sampling, controls in place and other features of methodology adhered to, then they're
likely to be scientifically gathered for the stated aim of the study (Asmelash and Abraham,
2013).

The importance of using the secondary data was very easy to collect (Ease of Access Time
and Cost-Effective) where researcher have to find the source of that data and then collect it
at all. Usually, secondary data can be used to show a trend (Fikirite, 2011).

3.4. Target Populations

Target population, as the name suggests, is the population that is of interest to the
researcher. Also known as the theoretical population, it serves as the main environment for
the researcher's hypothesis in a general term. On the other hand, the study population,
which is also known as the accessible population, is the population that is derived from the
target population for the smooth conduction of the research in a specific term. This
specific group of people is the study population, which is manageable, much easy to
sample. therefor there were two type populations, namely target population (theoretical
population) and the study population. The theoretical population (target population) of this
study was 44 medium and large scale privet manufacturing companies that are on operation

35 | P a g e
during the physical year 2011 E.c. The Study population was 21 medium and large scale
privet manufacturing companies that have five and more than five years‘ experience
(operational life). The reason to selected companies that have five and more than five years‘
experience (operation life) was in order to generated adequate, reliable and reasonable
information, because they have five and more than five years‘ experience on the sector
means, they have enough, detail, deep and sufficient knowledge regard to privet
manufacturing investment constraints and opportunities compere to other investors that
have less than five years‘ experience (operation life), And they are liable to full burdens,
especially tax related duties.

3.5. Sample Size Determination Technique

The researcher was used Judgmental (purposive) sampling, which was a non-probability
sampling technique in which the sample members were chosen only on the basis of the
researcher‘s knowledge and judgment. As the researcher‘s knowledge was instrumental in
creating a sample in this sampling technique, there were chances that the results obtained
were highly accurate with a minimum margin of error. The process of selecting a sample
using judgmental sampling involves the researcher carefully picking and choosing each
individual to be a part of the sample. The researcher‘s knowledge is primary in this
sampling process as the members of the sample were not randomly chosen.

The reason to use the Judgmental sampling technique was: it consumes minimum time for
execution and selects appropriate samples. In this sampling approach, researcher expertise
was important and there were no other barriers involved due to which selecting a sample
becomes extremely convenient. There are no criteria involved in selecting samples except
for the researcher‘s preferences. Due to this, he/she can communicate directly with the
target audience of their choice and produce desired results. A quick poll or survey could be
conducted with the sample using judgmental sampling since the members of the sample
were possessing appropriate knowledge and understanding of the subject.

3.6. Sample Size

A good sample sizes is usually around 10% of the population, as long as this does not less
than 100 and exceed 1000. Sampling more than 1000 people (respondents) won‘t add
much to the accuracy but lead extra time and money it would cost.
http://www.tools4dev.org/resources/how-to-choose-a-sample-size.

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Even though around 10% of the population is good simple size. To generate appropriate ad
sufficient sample size the researcher selected 50% of the study population (10 companies)
that have five and more than five years‘ experience (operation life), judgmentally. In order
to address each cluster and both size the researcher selected, five medium and five large
scale private manufacturing companies. Among this one textile company, two chemical
factories, three metal works and wood processing company, and four food and Beverage
Company. The researcher was selected 20 respondents from each company‘s management
members and support staff members that total of 200 respondents. The reason to used
judgmental sampling was. In order to select from each cluster (chemical, food and
beverage, metal and wood processing, textile) companies and from each type or size
(medium and large) scale companies. The total samples were 200, which were 20 from
each company.

3.7. Data Collection Technics

Primary data was collected through likert scale and open end questionnaires; secondary
data was collected 12 years‘ annual inflow of private investors in north showa zone.

3.8. Questionnaire Design

The layout of the questionnaire was kept very simple to encourage meaningful
participation by the respondents. The questions were kept as concise as possible with care
taken to the actual wording and phrasing of the questions. The type of questionnaire is
closed-end and five-point Likert scale type questions. The type of scales used to measure
the items on the instrument is continuous scales (strongly agree to strongly disagree). The
reason for the appearance and layout of the questionnaire is of great importance in any
survey where the questionnaire is to be completed by the respondent (John A. et al. 2007).
The literature in the study was used as a guideline for the development of the questions in
the questionnaire. Besides, some questions in the questionnaire were adapted from other
sources (Atenaf Y. 2019, Daniel T. 2016, Getu H. 2014).

3.9. Data Analysis Techniques

In achieving the objective of this thesis, the study was employed both descriptive and
explanatory techniques. The descriptive part helps to analyses primary data. The
explanatory part helps to show the relationship between investments in privet
manufacturing sector with different determinant relevant variables and help analyze
secondary data‘s. The model was multiple linear recreation method. The reasons why the

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researcher chose ordinary list square method of estimation is that the OLS Method was
less bias than other econometrics estimation methods.

3.10. Description and Measurement of Variables

3.10.1. Measurement of Dependent Variable

The dependent variables for this study were private manufacturing investment in the north
showa zone. It is measured by the questioners (items) of (INV1, INV2, INV3, INV4,
INV5, INV5, INV6, INV7, and INV8).

3.10.2. Measurement of Independent Variables.

General Inflation rate: Inflation is the first macro-economic explanatory variable used in
this study. Theoretically, inflation acts as a proxy for macroeconomic stability hence it‘s
expected that high inflation creates a disincentive for private investment. A prior
expectation was that high inflation harms private investments. High inflationary pressures
a substantial reduction in investments (Fischer, 2013). General inflation measured by the
questioners of ( INF1, INF2, AND INF3).

Lending interest rate: the real Interest rate is the second macroeconomic explanatory
variable use in this study. Since the real interest rate is already a rate, there is no need of
transforming it into a logarithm. For developed countries, the real interest rate can be used
as a proxy for user cost of capital thus it hurts private investment. However, in developing
countries, a higher real interest rate creates an incentive for banks to offer more credit thus
boosting capital formation ultimately increasing private investments. Therefore, the effect
of the real interest rate on private investment is theoretically ambiguous. Firms were
affected by a high level of interest rates (Khar, 2008). lending interest rate measured by
questioners of (INR1, INR2, AND INR3).

Average Exchange rate: The Exchange rate is the third macroeconomic explanatory
variable used in this study which measures the annual average exchange rate between
Ethiopian Birr and USD. In this study annual averages are transformed into real by
dividing the nominal exchange rate with inflation. Theoretically, the real exchange rate is a
proxy for the real cost of imports. It can have negative or positive effects on private
investment. Because it may have a ―crowed in‖ effect when public investment plays
a complementary role to private investment or ―crowed out‖ effect, when the opposite

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happens. Real exchange rates hurt private manufacturing investment (Habibur and Ismail,
2003). Average exchange rate measured by the questioners of (EXR1, EXR2, AND
EXR3).

Access of Credit (CR): it is the first microeconomic explanatory variable used in this
study which refers to the loans, treasury bills, and other monetary instruments granted by
the financial institution to the private sector. It is expected to have a positive relation with
private investment. This is because as the availability of finance increases, people can have
the finances required and invest which increases the volume of private investment. Firms
in developing countries suffer largely from a shortage of finance (Mahmood, 2006). The
access to credit for investors measured by (AC1, AC2, AC3, AC4, and AC5).

Collateral requirement: it is the second microeconomic explanatory variable used in this

study which refers to the loan provision Collateral that imposed on the private sector. It is
expected to have a negative relation with private investment. This is because access to
finance decreases, due to a lack of enough Collateral. In Bangladesh, firms were affected
by loans backed up by sound collateral (Khar, 2008). Collateral requirement measured by
the questioners of (CR1, CR2, and CR3).

Power Infrastructure: it is the third microeconomic explanatory variable used in this

study which is the investment made by the central government, and allocates through the
country accordance the country potencies that generate. The poor state of electricity
supplies heavily affected due to the poor financial position to deal with power
interruptions in Nigeria (Adenikinju, 2005). Infrastructure is one of the major factors for
industrial development; transport is its key element, (WB, 2003). Electric Power
availability Measured By The Questioners of (EPW1, EPW2, and EPW).

Road Infrastructure: it is the fourth microeconomic explanatory variable used in this

study which is the investment made by the central and regional governments.
Infrastructure is one of the major factors for industrial development; transport is a key
element (WB, 2003). Road infrastructure measured by questioners of (RD1, RD2, and
RD3).

Water Infrastructure: it is the fifth microeconomic explanatory variable used in this

study which is important to consider the full range of economic impacts, both positive and
negative, that a transport project may cause a manufacturing hub close to Johannesburg –

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to request industrial support to restrict operations. Secondary impacts of water shortages
are also affecting energy generation resulting in increased load shedding. Water
infrastructure measured by the questioners of (WR1, WR2, and WR3).

Human capital availability: it is the sixth microeconomic explanatory variable used in

this study which is the total available Human capital for private manufacturing investors in
the north showa zone in the labor market. The main source of output growth in the
medium and large scale industries in labor, (Admit and Getnet, 2002). Human capital
availability measured by the questioners‘ of (HC1, HC2, and CH3).

Investment policy: it is the seventh microeconomic explanatory variable used in this

study which is enacted by central and state government, Investment policy directed the
sector by directing investment proclamation the level of incentive, nature of monetary and
fiscal policy, investment policy measured by the questioners of (IP1, IP2, and IP).

Government incentives: it is the eighth microeconomic explanatory variable used in this

study which is the incentives provide by the central government and local governments for
private manufacturing investors. Investment incentives influencing the character of private
investments and Investment by Areas Reserved for Investors, (Sebastian 2009).
Government incentives measured by the questioners of (IC1, IC2, and IC).

3.11. Model Specification

Model specification inferred from the works reviewed in the previous sections
manufacturing investment is determined by the factors that stated on the hypotheses under
chapter one, the main issue is to investigate the relationship between explained and each of
explanatory variables that had been identified through literature and theories. That is
Credit accesses for investors, Government incentives, Availability of Human capital,
Access to Road Infrastructure, Availability of Power Infrastructure, Availability of Water
Infrastructure. Investment policy, -*Collateral requirement, General Inflation Rate,
General Inflation Rate, Average Exchange rate, Lending interest rate, and Other factors
that are not explicitly included in the model were captured by the error term in the model.
Therefore, the general model which incorporates all of the variables to test hypotheses of
the study was.

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 ( )
DEPENDENT VARIABLE
PMI = privet manufacturing investment
INDEPENDENT VARIABLE
EXR= exchange rate.
InfR= Inflation rate.
IntR=interest rate
EPw=Electric power
Rd=Road
Wr=water
Ip=investment policy
AC= access credit for investors.
IC=government incentives
HC= Human capital availability
CR= collateral requirement.

MATHEMATICALLY

Where Y was the dependent variable- Determinant of privet manufacturing investment, X2, X3,
X4, up to X11 were the explanatory variables (or the repressors), β0 was the intercept term-
it gives the mean or average effect on Y of all the variables excluded From the equation,
although its mechanical interpretation is the average value of Y when the stated
independent variables were set equal to zero. β1, β2, β3, β4, β5 up to β11 refers to the
coefficient of their respective independent variable which measures the change in the
mean value of Y, per unit change in their respective independent variables.

3.12. Model test

To examine the determinants of privet manufacturing investment truly, the researcher
was undertake various tests:

Heteroscedastic: Among the OLS assumptions, the first test which was conducted in
this study was heteroscedastic. This theoretically expressed as by Brooks (2008) ‗‘var

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(ut ) = σ2 < ∞; it has been assumed thus far that the variance of the errors is constant,
σ2 -this was known as the assumption of homoscedasticity. If the errors do not have a
constant variance, they are said to be heteroscedastic. For this study, the researcher was
employed bureaus pagan test.

A normality test: The second important test conducted in this paper is the normality
assumption (i.e the normally distributed errors). The normality assumption ‗(ut ∼ N (0,
σ2))‘ is required to conduct single or joint hypotheses tests about the model parameters.
One of the most commonly applied tests for normality is the Bera—Jarque (BJ) test. BJ
uses the property of a normally distributed random variable that the entire distribution is
characterized by the first two moments - the mean and the variance. In the case of this
study, the researcher used the BJ normality test to test the null hypothesis of normally
distributed error assumptions, (Brooks, 2008).

Multicollinearity: The third important test conducted in this paper was the
Multicollinearity test. Multicollinearity exists when the independent variables are
highly correlated with each other. The presence of multicollinearity reduces the
predictive power of the independent variable to the extent that it is correlated with the
other independent variable. To check for the presence of multicollinearity, Variable
Inflation Factors (VIF) is computed to ascertain the exact magnitude of
multicollinearity. VIF is defined as the extent to which the variance of the regression
coefficients is inflated or affected due to the presence of multicollinearity. A score
below 10 was considered to rule out any possibility of multicollinearity (Berman,
2002). The score for each of the variables forming a part of the study was found to be
less than 10, thus, ruling out the possibility of multicollinearity. This test is used to
compare the means of two different sets where the scores of one set are independent of
those of the other set. Thus, the essential condition for the application of an independent
sample, the t-test is the lack of a complete relationship between the two sets. In t-test,
the null hypothesis is that the means of the two sets are equal and the alternate
hypothesis is that there is a difference in the means of these two sets (Harris, 1995).
Regard to explanatory variables each other, when the variable inflated is below 0.9 may not
cause serious Multicollinearity problem (Hair, et al. 2006).

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 3.13. Reliability and Validity Test
Since these two research measurement characters' reliability and validity were
indicators of the quality of work in cooperating was important. The research validity
means that we were measuring what we want to measure. It measures the accuracy or the
extent to which a score truthfully represents a concept and to ensure the researcher's
questionnaire covered all areas of each variable and objectives of the study. reliability
indicates the consistency of a set of measurements used to describe a test and inversely
related to a random error. https://www.scribbr.com/methodology/types-of-
validity/02/20/2020

3.1.5.1. Reliability Tests

Table 3 1: Pilot Test

Variables No. of Items Frequency Alpha

Investment 8 30 0.8319
Investment Policy 3 30 0.7871
Incentive 2 30 0.7851
Human Capital 3 30 0.8001
Collateral Requirement 3 30 0.8300
Access to Credit 5 30 0.8026
General Inflation 3 30 0.7899
Lending Interest Rate 3 30 0.8391
Average Exchange Rate 3 30 0.8239
Electric Power 3 30 0.8277
Water 3 30 0.8344
Road 3 30 0.8356
Test Scale 0.8296
Source: Own Survey March, 2020 stat output.

Reliability is the degree of stability of the measure of variables or research instruments. A

test is said to be reliable if it measures the same variable at different times to the same set
of respondents and results which are consistently similar. The test-retest method involves
measuring the reliability of the test twice to the same individual sample at different times.
Thus the two scores obtained from the test are gathered together and correlated to

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determine the relationship that exists between the first test score and the retest score,
http://www.proftesting.com/test_topics/pdfs/test_quality.pdf/01/20/2020.

Table 3 2: Rule of Thumb of Cronbach’s Alpha

Cronbach’s Alpha Description

>= .9 Excellent
>= .8 but < .9 Good
>= .7 but < .8 Acceptable
>= .6 but < .7 Questionable
>= .5 but < .6 Poor
<= .5 Unacceptable
Source: Zikmund, 2010.
The reliability measured to consistency repeatability of the measurement the researcher
uses the questionnaires the data to be reliable, (Bryman Bell, 2007). Reliability indicates
the consistency of a set of measurements used to describe a test, (Coakest and Stees,
2007).

Reliability can be cheeked through Cronbach‘s Alpha if it normal ranges the coefficient
alpha value between 0.0 and +1.0 and the higher values reflect a high degree of internal
consistency. The alpha readings near 0.9 represent a highly consistent scale and 0.3 reflect
little. on the other hand according to the rule of thumb of Cronbach's alpha, as stated table
3.2, when the value of Cronbach alpha was 90% referee excellence, between 80% and
90% were good, between 70%and 80% were acceptable, between 60% and 70% were
questionable, 50% 60% were poor and below 50% was unacceptable.

For this study, the researcher conduct a pilot test by thirty questionnaires (30) being filled
and was returned on time and utilized for the pilot test in order to ensure the associated
scale reliability out of 200 questioners. Based on this some questionnaires were drop out
and also the researcher sends the questionnaires to private manufacturing investors
(companies) that have five and more than five years of operational life. The pilot study
showed instrument was reliable to measure the constructs under invitation with the overall
Cronbach alpha of 82.96% which lies in the above acceptable region that (Churchill,
1979). These were good. In addition, three variables scored were above 0.70 and nine
variables scored were above 80% as Cronbach alpha coefficient, So that, it assumed to be
reliable with their corresponding items. Having this in mind, all the scale items in the final
questionnaire retained guided.

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 3.1.5.2. Validity Test
Validity refers to the degree with which a research instrument measures what it purports to
measure as well as the population it is intended for. It refers to the truthfulness of the
instrument and population of study. It implies that it should measure the characteristics it
is intended to measure. The validity test will use in this research is content (face) and
validity construct validity. Content validity is the extent to which the instrument measures
the overall appearance and subject matter in line with the set of objectives of the study. In
carrying out the test, expert opinion will obtained from my advisor in evaluating the
relevance of the items to the characteristics being measured,
https://www.scribbr.com/methodology/types-of-validity/02/20/2020.

In order to assure the validity of the measurement instrument of the study is conducted
based on the literally accepted conceptual framework that clearly indicate the theoretical
construct and associated with the measurements valid to evaluate the effects of private
manufacturing investment determinants (independent variables) on private manufacturing
investment (dependent variable). Where possible this should be supported and
consideration given to practical things. So that pre-questionnaire were distributed to the
managers of private manufacturing companies to check the validity of questions to further
data collection process. As per the comments and the discussion with private
manufacturing company‘s top managements, the question prepared to primary data
collection for the research objective is found valid by researcher. Further, this
instruments or variables of, Investment Policy, Incentive, Human Capital, Collateral,
Requirement, and Access to Credit, General Inflation, Lending Interest Rate,
Average Exchange Rate, Electric Power, Water, Road and private manufacturing
investment were tested by previous studies for content validation.

3.14. Ethical Considerations

Ethical Considerations: The basic principle of ethical research was to preserve and
protect the human dignity and rights of all subjects involved in a research project. In this
regard, the researcher was assure that the respondents ‗information is confidential and use
only for the study purpose. Before the data collection, ethical issues are taking into
consideration when the study is conducted. Appropriate communication will undertake
with the firm‗s managers (Leedy and Ormrod, 2013). Moreover, a formal letter was
obtained from Debre Berhan University to inform them about the study.

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During data collection, respondents are informed the objective of the research is for
academic purposes. No research-related adverse event is expected in this study.
Furthermore, responses of participants have been treated with strict confidentiality and are
not going to be disclosed to any outside party. As a general rule, therefore the study would
not raise any ethical anxiety, (Leedy and Ormrod, 2013).

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 CHAPTER FOUR
DATA ANALYSIS, PRESENTATION AND INTERPRETATIONS

4. INTRODUCTION
Under this chapter, the researcher tried to provide (analyses) the raw data and discuss the
results of each one of them rigorously. All the variables, the challenge, and opportunities,
and the 12 years investment trends (inflow) discussed by analysis tools and all the
variables were explored using econometric means of data analysis. We have used
secondary data from the north showa zone investment agency to study (showed) 12 years
of investment trends (inflow) in the north showa zone. In the econometric analysis, the
researcher analyzed and discussed determinants that determine the private manufacturing
sector, depend on retrieved data through Likert scale questions. Statistical methods of
analysis were included descriptive, correlations, and regression analysis through STATA
version 13.

4.1. Descriptive Statistics

4.1.1. Introduction
Descriptive Statistics: Descriptive statistics give information that describes the data in
some manner. Some other measurements in descriptive statistics were representing by
histograms, and bar graphs. Using these methods, the data was described by compiling it
into a graph, table or other visual representation. This provides a quick method to make
comparisons between different data sets and to spot the smallest and largest values and
trends or changes over some time. The descriptive analysis tools of tables, means, and bar
graphs, were employed under this study.

4.1.2. Private Manufacturing Investment Trends (Inflow) In North

Showa Zone.
There are four Private manufacturing industry clusters in north showa zone. These are
chemical industry, food and beverage industry, metal work and wood processing and
textile industry. On the other hand, based on scale (size) they are four types of private
manufacturing industries. These are micro scale manufacturing enterprise, small scale
enterprise, medium scale industry and large scale industry. Under this study the researcher
concerned medium and large scale industries. Next to this the researcher discoursed the

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cluster wise distributed, type wised distribution and total trends of 12 years medium and
large scale private manufacturing industries.

Figure 4 1: Number of firms by cluster

100

90

80

70
NUMBER OF FIRMS

60

50

40

30

20

10

0
200 200 200 200 200 200 200 200 200 200 201 201
0 1 2 3 4 5 6 7 8 9 0 1
Chemical 3 1 1 2 2 5 6 23 57 74 49 75
Food and Beverage 10 9 5 9 5 12 16 30 61 62 76 95
Metal and Wood 1 1 0 0 1 2 6 6 53 27 51 69
Textile 2 1 0 0 0 0 3 6 19 20 30 13

Source: North Shewa Zone Investment Bureau and Own Computation, 2020

As displayed on figure 4.1: they are four types of private manufacturing investment
clusters. These are chemical industry, food and beverage industry, metal work and wood
processing industry and textile industry. Each clusters increase time to time as stated on
figure 4.1. Among them clusters food and beverage industry increase fastest than to the
other (10,9,5,9,5,12,16,30,61,76,and 95. ) from 2000-2011 consecutive years respectively.
The second faster grower industry is chemical industry ((3,1,1,2,2,5,6,23,57,74,49 and 75)
from 2000-2011 consecutive years respectively. The third faster grower industry is metal
work and wood processing industry (1,1,0,0,1,2,6,6,53,27,51 and 69) ) from 2000-2011
consecutive years respectively and lower grower industry is textile industry
(2.1.0.0.0.0.3.6.19.20.30 and 13) from 2000-2011 consecutive years respectively.

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This indicates that within 12 years 1000 investors were taken license to invest in medium
and large scale industry. Among these 39% were food and beverage, 29.85% were
chemical, 21.8% were metal work and wood processing and 9.45% were textile. So
incremental trend of food and beverage industry were excellent, chemical industry were
good compeer to the other. But metal work and wood processing, especially textile were
too law incremental trend. Therefor the north showa zone investment bearo leader as well
as officers should be give attention for metal work and wood processing, especially textile
industry cluster to incest accordance the others. Each cluster increase fastly since 2007
until 2011, but textile industry decrease on 2011 due to un known reason.
Figure 4 2: Number of Firms by Size (Medium and Large)

250

200
Number of Firms

150

100

50

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Medium 13 12 6 10 6 18 18 28 44 41 43 31
Large 3 0 0 1 2 1 13 37 146 142 163 221

Source: North Shewa Zone Investment Bureau and Own Computation, 2020

As stated table 4.2; the medium and large scale investors, that taken license to invest
annually from 2000-2011E.c. During this period there were 270 investors who taken
license in medium scale, and 730 investors on large scale industry. From this we can see
investors who taken license to invest large-scale private manufacturing investment were

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greater than the medium by 2.7 time. The inflow of large scale investors in north showa
zone increase dramatically since 2006 until 2011e.c. were as medium scale almost stable
since 2006 and decrease on 2011 E.c.

Figure 4 3A: Trend of Investment by investors Figure 4 3B: Trend of investment by capital

Number of Investors Series1

3E+10

252
2.5E+10

206
190184 2E+10

1.5E+10

1E+10
65
5E+09
31
16 12 19
6 11 8
0
2000

2009
2001
2002
2003
2004
2005
2006
2007
2008

2010
2011

Source: North Shewa Zone Investment Bureau and Own Computation, 2020
Figure 4.3A: indicates that the general trends of investment in north showa zone in terms
of investors annually that take license to invest since 2000 until the end of 201 E.c. That is
the increment of investors inflow as stated figure 4.3A were (2000 by 16, 2001 by 12,
2002 by 6, 2003 by 11, 2004 by 8, 2005 by 19, 2006 by 31, 2007 by 65, 2008 by 190,
2009 by 184, 2010 by 206 and 2011 by 252), totally by 1000. This showed that investors
inflow (trend) were decrease on the year 2001,2002 and 2008 and it started to increase on
2005 then after increase dramatically since 2007. This revealed that the inflow of medium
and large scale private manufacturing investment were increases dramatically since 2007
E.c.

Figure 4.3B: showed that general trends of investment in north showa zone in terms of
capital annually that take license to invest since 2000 until the end of 2011 E.c. That is the
increment of investment capital inflow as stated figure 4.3B (2000 by 2, 44,881185, 2001
by 92,466,494, 2002 by 95,897,487, 2003 by 254,177,974, 2004 by 144,200,000, 2005 by

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393,092,834, 2006 by 606,960,885.1, 2007 by 2,834,987,157, 2008 by 10,054,111,355,
2009 by 8,667,999,806, 2010 by 26,329,054,668 and 2011 by 13594195057) by total
capital of 63, 312,024,903 and in addition total expected permanent job opportunity of
110,123. This revealed that the inflow of capital increase time to time.

The reason that increase the inflow (trend) of private manufacturing investment in north
showa zone are: North Showa zone, become as one of Ethiopia‘s emerging destinations for
local and international companies due to its proximity to the capital city [AA] and
accessibility to international market via the port of Djibouti, due to access of amhara
regional state investment branch office in debre berhan town, it is one of the preferred
industrial hubs, north showa investment bearo officer have four internal departments to
administer the four private manufacturing investment clusters, since 2005|2006. This help
them to provide investment bearo used senior investors as promoters, there were forum of
(investment bearo leader, selected investors, zonal administrator), prompt by different
media, review the activity quarterly and take remedial action, and others commitments
attract the investors.(North Showa zone investment bearo report, 2011 E.c.).

The commitment of north showa zone investment bureau to attract investor was good.
These may considering as role model for other zonal administrators of investment bureaus
in amhara region as well as country level. According to their annual zonal report, they
were committed and their commitment attracts investor as stated on three figures before.
That were, the increment of investors in cluster wise in figure 4.1, the increment of
investors inflow by size, in figure 4.2, the general trend Investment by investors in figure
4.3A and the trend of investment by capital in figure 4.3B, with the reason why the inflow
of investors increased dramatically especially since 2007 E.c. Even though the inflows of
investors increase dramatically, the numbers of investors that are on operation were still in
stagnant. Because there are only 59 total medium and large private manufacturing
investors (companies) are join operation since 2000 until the end of 2011 E.c. The reason
why investors who have on operation did not increase as inflow level was answered by
respondent responds analysis and hypothesis result.

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 4.1.3. Analysis of Respondent Rate of Response
Table 4 1: Response Rate

No Item No Response rate

1 administered questionnaires 200 100%
2 Collected (retrieved) questionnaires 172 86%
3 Remain uncollected 28 14%
Sources: Own survey June, 2020, stata output
The study was conducted based on a survey of 200 respondents. 20 questionnaires were
administered to the respondents of each of 10 companies. So a total of 200 questionnaires
were administered. At the end of the fieldwork, a total of 172 of usable questionnaires
were retrieved, that was representing an 86% response rate and all were used in the
analysis. Regard to the respondent rate of response, 50% response rate is adequate, 60%
good and above 70% is rated very well, (Mugenda, 1999). And the response rate of 50% is
adequate, the response rate that greater than 70% is very good, (Kothari, 2004). Response
Rate showed in Table 4.1 As stated above the response rate of response is 86%. So the
response rate for this study, 86% is very well as well as very good.

4.1.4. Reliability test

Table 4 2: Test for Data Reliability and Validity Using Cronbach‘s Alpha Coefficient
Variables No. of Items Frequency Alpha
Investment 8 172 0.7820
Investment Policy 3 172 0.7929
Incentive 2 172 0.7327
Human Capital 3 172 0.7612
Collateral Requirement 3 172 0.7811
Access to Credit 5 172 0.8114
General Inflation 3 172 0.7340
Lending Interest Rate 3 172 0.7766
Average Exchange Rate 3 172 0.8332
Electric Power 3 172 0.7752
Water 3 172 0.7694
Road 3 172 0.7853
Test Scale 0.7979
Source: Own Survey, June, 2020, stata out put

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As display table 4.2: The reliability value for each variable are: Investment (0.7820),
Investment Policy (0.7927), Incentive (0.7327, Human Capital (0.7612), Collateral
Requirement (0.7811), Access to Credit (0.8114), General Inflation (0.7340), Lending
Interest Rate (0.7766), Average Exchange Rate (0.8332), Electric Power (0.7552), Water
(0.7694), Road (0.7853) . when we compared the reliability values with the standard value
alpha of 0.5 advocated by Cronbach‘s, then it can be safely assumed that the scales used
by the research were reliable for data analysis. On the other hand, the Cronbach alpha
coefficients of the model were 79.79%. This is acceptable and near to good. So, it
assumed to be reliable with their corresponding items.

4.1.5. Average Response Questioners’ For Each Variable

Table 4 3: AVAREGE RESPONDENT RESPONDS FOR VARIABLES

SCALES 5 4 3 2 1 SUM

Investment Policy 48%(83) 47%(80) 1%(2) 4%(7) 0%(0) 100%(172)

Incentive 30%(52) 40%(69) 4%(9) 25%(44) 1%(2) 100%(172)
Human Capital 37%(63) 49%(85) 8%(13) 5%(9) 1%(2) 100%(172)
Collateral Requirements 6%(10) 54%(92) 40%(70) 0%(0) 0%(0) 100%(172)
Access of credit 35%(60) 17%(30) 12%(20) 36%(62) 0%(0) 100%(172)
General Inflation Rate 38%(65) 46%(79) 4%(8) 11%(19) 1%(1) 100%(172)
Lending Interest Rate 9%(14) 57%(99) 34%(59) 0%(0) 0%(0) 100%(172)
Average Exchange Rate 15%(25) 30%(52) 10%(17) 33%(58) 12%(21) 100%(172)
Road 10%(18) 18%(31) 36(62) 14%(23) 22%(38) 100%(172)
Electric Power 33%(57) 40%(69) 16%(27) 8%(14) 3%(6) 100%(172)
Water 17%(30) 12%(20) 42%(72) 12%(21) 17%(29) 100%(172)

Note 5 4 3 2 1
Strongly Agree Neutral Dis agree Strongly dis agree
agree
Source: Own Survey, June, 2020.
As stated table 4.3: each variable are discussed as follow.

Investment policy: 3 questioners were distributed for 200 respondents and retrieve
average respondents of 172 responses from each questioner. From these the average
respondents of 163 (83 said strongly agree and 80 said agree) as investment policy
discourage private manufacturing investment, investment policy is uncertain for private
manufacturing investors. 7 (7said disagree) as investment policy did not discourage private

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manufacturing investment, investment policy is clear. Were as 2 average respondents were
neutral. This revealed that: investment policy discourages private manufacturing
investment, investment policy is discouraged or encourage as per its changing direction.

Government Incentive: 2 questioners were distributed for 200 respondents and retrieve
172 responses from each questioner. From these the average respondents of 121 (52said
strongly agree and 69 said agree) as an investment incentive not encourage private
manufacturing investment, investment incentive did not satisfy private manufacturing
investors. 46 (44 said disagree and 2 said strongly disagree) as an investment incentive to
encourage private manufacturing investment, investment incentives satisfy private
manufacturing investors. There were as 9 respondents are neutral. This revealed
investment incentive does not encourage private manufacturing investment; investment
incentive not satisfies private manufacturing investors in north showa zone. So that when
incentive changes it affects the investment positively and vice versa.

Human capital: 3 questioners were distributed for 200 respondents and retrieve 172
responses from each questioner. From these the average respondents of 148 (63 said
strongly agree and 85 said agree) as there is no enough manpower, there is no access to
literate manpower, there is no access to skilled manpower. 11 (9 said disagree and 2 said
strongly disagree) as there is enough manpower, there is no access to literate manpower;
there is the access of skilled manpower. Were as 13 average respondents were neutral.
This indicates that there were no enough human capital, trainable, and skilled manpower.
Manpower.

Collateral requirements: 3 questioners were distributed for 200 respondents and retrieve
172 responses from each questioner. From these the average respondents of 102 (10 said
strongly agree and 92 said agree) as collateral provision for credit access is the main
constraint, there is a high collateral requirement, and collateral requirement discourage
private manufacturing investment. Were as 70 average respondents were neutral. We can
conclude that according to majority responses‘: collateral provision for credit access is the
main constraint, there is a high collateral requirement, and collateral requirement
discourage private manufacturing investment on north showa zone private manufacturing
investors perspective.

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Access of credit: 5 questioners distributed for 200 respondents and retrieve 172 responses
from each questioner. From these the average respondents of 90 (60 said strongly agree
and 30 said agree) as there is no special credit access, there is not easy bank financing
access, there is uncertain interest rate, credits interest rate is too high and loan duration is
not conducive. 62 (62 said disagree) as there is special credit access, there is easy bank
financing access, there is certain interest rate, credits interest rate is to law, and loan
duration is conducive. Were as 20 average respondents were neutral. We can conclude that
there is no special credit access, there is difficult bank financing access, there is uncertain
interest rate, and high credits interest rate and loan duration is conducive for private
manufacturing investors on the north showa zone. This implies that accredit access have a
direct impact on privet investment, which means when access to credit improves, privet
investment also increases.

General inflation rate: 3 questioners were distributed for 200 and retrieve 172 responses
from each questioner. From there, the average respondents of 144 (65 said strongly agree
and 79 said agree) as the inflation rate is uncertain, high, and discourages private
manufacturing investment. There were 20 (19 said disagree and 1said strongly disagree) as
the inflation rate is certain, law, and not discourage private manufacturing investment. 8
average respondents were neutral. This reveled as per majority responses‘: inflation rate is
uncertain, high and discourages private manufacturing investment in north showa zone
private manufacturing investors.

Lending interest rate: 3 questioners distributed for 200 respondents and retrieve 172
responses from each questioner. From there, the average respondents of 113 (14 said
strongly agree and 99 said agree) as the interest rate is uncertain, high and discourage
private manufacturing investment. 59 average respondents were neutral. We can conclude
that according to majority responses‘: the interest rate is uncertain, high and discourage
private manufacturing investment in north showa zone private manufacturing investors.

Average exchange rate: 3 questioners distributed for 200 and retrieve 172 responses from
each questioner. From these the average respondents of 87 (35 said strongly agree and 52
said agree) as the exchange rate is uncertain, there is no currency exchange service on the
zone and currency devaluation affects the private manufacturing investment. 69 (58 said
disagree and 11 said strongly disagree) as the exchange rate is certain, there is currency
exchange service on the zone, and currency devaluation did not affect the private

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manufacturing investment. Were as 16 average respondents were neutral. According to
majority responses: the exchange rate is uncertain, there is no currency exchange services
on the zone and currency devaluation affects private manufacturing investment in the
north showa zone.

Electric power infrastructure: 3 questioners were distributed for 200 respondents and
collects 172 each questioner. From these the average respondents of 126 (57 said strongly
agree and 69 said agree) as there is not enough availability of electric power, there is high
electric power interruption, the government no provide special treatment for investor
regard to electric power, 20 (14 said disagree and 6 said strongly disagree) as there is
enough availability of electric power, there is law electric power interruption, the
government provides special treatment for investor regard to electric power. Were as 26
average respondents were neutral. As per majority responses‘: there is no enough
availability of electric power, high electric power interruption, the government no provide
special treatment for investors regards to electric power, for private manufacturing
investors in north showa zone.

Road infrastructure: 3 questioners distributed for 200 respondents and collects 172 each
questioner. From these the average respondents of 49 (18 said strongly agree and 31 said
agree) as there is no good road access, the government no constrict temporal road until
contract permanent road to link investor destination with the main road, the government no
provide special treatment for investor regard to road, 61 (23 said disagree and 38 said
strongly disagree) as there is goad road access, government constructs temporal road until
contract permanent road to link investor destination with the main road, the government
provides special treatment for investor regard to road. Were as 62 average respondents
were neutral. This indicated that the majority responses‘: there is no significant road
constraint in the sector. This due to that the private manufacturing location is located near,
around the main road and other concrete road.

Water infrastructure: finally 3 questioners distributed for 200 respondents and collects
172 each questioner. From these the average respondents of 50 (30 said strongly agree and
20 said agree) as there is not enough availability of water, quality water, the government
not provide special treatment for investors regard to water. 50 (21said disagree and 29 said
strongly disagree) as there is enough availability of water, quality water, government
provide special treatment for investors regard to water. Were as 72 average respondents

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were neutral. According to majority responses availability of water is not significant
constraints for private manufacturing investors in the north showa zone.

4.1.6. The Variables’ Mean Score Value Analysis.

Under this thesis, the researcher employed various statistical data analysis tools such as
mean, and standard deviation to analyze the collected data. The summary of descriptive
statistics of all variables that are evaluated based on a 5-point Likert scale (from ―5‖
―strongly agree‖ to ―1‖ ―strongly disagree‘). the mean score below 3.39 was considered
as low, the mean score from 3.40 up to 3.79 was considered as moderate, and a mean score
above 3.8 was considered as high as illustrated by Comparison bases of the mean of the
score of five-point Likert scale instrument, (Zaidaton & Bagheri 2009). The detailed
analysis and presented were displayed as follows:

Table 4 4: Summary Statistics of Continuous Variables

Items Minimum Maximum Mean Std. Deviation

Investment 3.38 5.00 4.225 0.327

Investment Policy 2.67 5.00 4.397 0.409
Incentive 1.00 4.50 3.720 1.016
Human Capital 2.00 5.00 4.151 0.525
Collateral Requirement 3.00 4.33 3.649 0.359
Access to Credit 2.40 4.20 2.867 0.452
General Inflation 2.33 4.67 4.099 0.579
Lending Interest Rate 3.33 4.67 3.740 0.347
Average Exchange Rate 1.00 5.00 3.012 1.190
Electric Power 1.00 5.00 3.928 0.801
Water 1.00 5.00 4.083 0.815
Road 1.33 5.00 3.762 0.802
Source: Own Survey, June, 2020, stata output
From the above table 4.4 indicated that the overall arithmetic mean and standard deviation
of dependent and independent variables With Their Minimum and Maximum Value.

Private manufacturing investment (PMI)

Private manufacturing investment in north showa zone for the year 2011 E.c. had a mean
of 4.225 and a standard deviation of 0.327. This implies that there is a variation in the
privet manufacture sector. At the minimum and maximum value of 3.38 and 5.00

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respectively. Investment Policy (IP), Investment Policy is one of the explanatory
variables that used in this study, which the mean of 4.397 and a standard deviation of
0.409, which implies that there is a good variation on investment policy. The minimum
value of 2.67 and maximum value 5. Government Incentive (IC) Government Incentive
Is Another Explanatory Variable That Used In This Thesis. The incentive had a mean of
3.720 and a standard deviation of 1.016. It Indicates That There Is A Variation Of
Incentives from Time To Time. Because the government renewed investment
proclamation, from time to time. The maximum and minimum values of respectively 4.5
and 1.00.

Human Capital (HC) The availability of human capital is a crucial resource for privet
investors. The mean value and standard deviation of Human Capital is 4.151 and 0.525,
respectively. This indicates that there is a good deviation about the access to manpower.
The minimum and maximum value of 2.00 and 5.00 respectively. The Collateral
Requirement (CR) Collateral requirement is the explanatory variable used in this study.
The Collateral Requirement has a mean of 3.649 and a standard deviation of 0.359. This
revealed that the requirement of collateral has a variation. The minimum value of 3.00 and
a maximum value of 4.33. Even though the collateral requirement is another obstacle for
investors, there is little variation. Access to Credit (AC) the Access of Credit is one of
the Explanatory Variables in This Study. The Mean Value and Standard Deviation Value
is 2.867 and 0.452, respectively. Therefore there is a variation of credit access from time to
time. The minimum and maximum values of 2.40 and 4.20 respectively.

General inflation rate (GIR), General Inflation rate is one of the macro variable used in
this study (Explanatory variables). It has a mean value of 4.099 and a standard deviation of
0.579. This indicates that a high variation of the inflation rate in private manufacturing
investment. The minimum value and maximum value of 2.33 and 4.67
respectively. Lending interest rate (LIR), Lending Interest Rate was Another Macro
Explanatory Variable. The mean value of the lending interest rate is 3.740 and a standard
deviation of 0.347. This revealed that there is a higher variation of lending interest rates in
private manufacturing investments. The minimum value is 3.33 and the maximum value of
4.67. Average exchange rate (AEXRT), The Average Exchange Rate Is the Third Macro
Explanatory Variable under This Study. Average Exchange Rate had a mean of 3.012 and
a standard deviation of 1.190, this indicates that the level of the exchange rate is varied.

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Electric power (EPW), Availability of electric power is another micro explanatory
variable used in this study. Electric Power has meant 3.928 and a standard deviation of
0.801, this indicated that the availability of electric power has a high variation for private
manufacturing investment. The minimum and maximum values are 1.00 and 5.00
respectively.

Availability of water (AWR), water if the once explanatory variable used in this
study. Water has a mean of 4.083 and a standard deviation of 0.815. This indicates there is
a variation of water availability for private manufacturing investment. The minimum value
is 1.00 and the maximum value is 5.00. Finally, access to roads is another variable. The
road has a mean of 3.762 and a standard deviation of 0.802. This indicates that there is a
variation in the access of roads on private manufacturing investment. The minimum and
maximum values of 1.33 and 5.00 respectively.

Generally: From the above presentation the researcher can understand that private
manufacturing Investment and 6 variables (Investment Policy, Incentive, Human Capital,
General Inflation, Electric Power an d Water) had a mean score of high, On the other
hand, 3 variables (Collateral Requirement, Lending Interest Rate, and Road) had mean of
the score of moderate. Finally, the 2 variables (Access to Credit and Average Exchange
Rate) had a mean score of low.

4.1.7. Challenges and Opportunities of Private Manufacturing

Investment.
Table 4 5: RESPONDENT STASTICS FOR EACH QUESTION of CHALENGE
AND OPPORTUNITY

CHALENGE AND OPPORTUNITY PRIVATE MANUFACTURING INVESTMENT

SCALES 5 4 3 2 1 SUM
Lack of Raw Material 43%(74) 55%(95) 1%(2) 1%(1) 0%(0) 100%(172)
High Tax Rate 44%(76) 51%(87) 3%(6) 2%(3) 0%(0) 100%(172)
Access of Product 30%(52) 66%(111) 2%(5) 2%(3) 1%(1) 100%(172)
Market
High Tax Rate Exp. 17%(30) 17%(30) 38%(66) 22%(37) 5%(9) 100%(172)
Product
Tax Rate Uncertainty 12%(20) 35%(61) 52%(90) 0%(0) 1%(1) 100%(172)
Difficult climatic 40%(68) 59%(101) 1%(2) 0%(0) 1%(1) 100%(172)
condition

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Raw Material market 12%(20) 17%(29) 19%(32) 35%(61) 17%(30) 100%(172)
Bargaining power
Product Market 9%(16) 16%(28) 16%(27) 38%(65) 36%(62) 100%(172)
Bargaining Power
High beur. To invest 37%(64) 60%(103) 2%(3) 1%(2) 0%(0) 100%(172)
High buer. To get licence 51%(88) 48%(82) 0%(0) 1%(2) 0%(0) 100%(172)
High Bueeer. To get land 75%(129) 23%(39) 1%(2) 1%(2) 0%(0) 100%(172)

NOTE 5 4 3 2 1
Strongly agree Agree Neutral Disagree Strongly disagree
As stated table 4.5: 11 questioners distributed for 200 respondents and collects 172 for
each questioner.

From these, the respondents of 169 (74 said strongly agree and 95 said agree) as there is
lack of raw materials, 163 (76 said strongly agree and 87 said agree) as there is high tax
rate, 163 (52 said strongly agree and 111 said agree) as there is no access of product
market, 169 (68 said strongly agree and 101 said agree) as there is difficult climatic
condition, 167 (64 said disagree and 103 said strongly disagree) as there is easy
bureaucracy to get the license to invest, 170 (88 said disagree and 82 said strongly
disagree) as there is easy bureaucracy to invest the sector, 168(129 said strongly agree
and 39 said agree) as there is high bureaucracy to get land after getting the license to
invest. From majority responses‘ We can conclude that there is a lack of raw materials,
high tax rate, no access to the product market, difficult climatic condition, high
bureaucracy to get land after getting the license to invest, are the main challenges of
private manufacturing investment in north showa zone.

On the other hand: the average respondents of 91 (61 said disagree and30 said strongly
disagree) as there is no strong compotators‘ bargaining power in the raw material market,
127 (65 said disagree and 62 said strongly disagree) as there is no strong compotators‘
bargaining power in the product market, and 66 average respondents were neutral, regard
to the exported product tax rate, 90 average respondents were neutral regard to tax rate
uncertainty. There absence of bargaining power in the raw material market, absence of
bargaining power in the raw product market, tax ret certainty and investors un reaction on
the exported product tax rate.

Finally: from the above presentation we can generalize that the challenge and opportunity.
The absence of bargaining power in the raw material market, absence of bargaining power

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in the product market, tax rate certainty, easy bureaucracy to get a license to invest, there
is easy bureaucracy to invest the sector and investors un reaction on the exported product
tax rate, are the opportunities of private manufacturing investment, on the other hand as
there is lack of raw materials, high tax rate, no access of product market, difficult
climatic condition, high bureaucracy to get land after getting the license to invest is the
main challenge of private manufacturing investment.

4.2. Inferential Stastics

4.2.1. Introduction
Inferential statistics makes inferences and predictions about a population based on a
sample of data taken from the population in question. Inferential analysis is a collection of
methods for estimating what the population characteristics (parameters) might be, given
what is known about the sample's characteristics (statistics), or for establishing whether
patterns or relationships, both association and influence, or differences between categories.

4.2.2. Testing Assumptions of Classical Linear Regression Model

(CLRM)
The ordinary linear regression estimation method is one of the classical linear regression
models and employed for this study. The Ordinary least square (OLS) method of
estimating parameters or regression function is about finding or estimating the values of
the parameters. To estimate the parameters in multiple linear regression functions and
minimize the sum of squared error or the difference between an observed value and
predicted value the researcher has used the ordinary least square method (OLS) method.
Ordinary least square method has the same key underlying assumptions that should be
satisfied. These assumptions help the researcher as a guideline to test properly.

Therefore, benefits that derived from using ordinary least square method is to make sure
that the model is unbiased, the error terms ‗are randomly distributed or the disturbance
terms are not correlated, the disturbance terms ‗have zero mean, the sum of the
disturbance terms is zero Explanatory variables ‗Xi‘ and disturbance terms ‗are
uncorrelated or independent, The disturbance term Ui is assumed to have a normal
distribution with zero mean and a constant variance and Explanatory variables should not
be perfectly, linearly and/or highly correlated.

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 4.2.2.1. Multicollinearity Test
Table 4 6: Multicollinearity Test

Independent Variables VIF ToL (1/VIF)

Investment Policy 3.35 0.299
Incentive 6.51 0.154
Human Capital 2.69 0.371
Collateral Requirement 1.63 0.615
Access to Credit 3.29 0.304
General Inflation 9.79 0.102
Lending Interest Rate 2.21 0.452
Average Exchange Rate 1.37 0.731
Electric Power 1.77 0.564
Water 1.48 0.674
Road 1.84 0.543
Mean VIF 3.26
Where, VIF = Variance Inflation Factor, ToL = Tolerance
Source: Own Survey, June, 2020, stata out put

The predictor (explanatory) variables in the model should not be linearly correlated with
each other. When explanatory variables in the model have linearly correlated with each
other, it indicates that there is a problem of Multicollinearity. Regard to explanatory
variables each other, when the variable inflated is below 0.9 may not cause serious
Multicollinearity problem (Hair, et al. 2006). Due to multicollinearity problem the
regression coefficients of independent variables are undetermined and difficult to measure
their standard error (Guajarati, 2004). In order to test the multicollinearity problem the
researcher applied variance inflation factor (VIF) and correlation coefficient of
explanatory variables. If the computed value of VIF of the variables exceeds 10, t h e r e
i s p r e s e n t o f multicollinearity problem (Hair et al., 2013). As indicated table 4.6, the
value of variance inflation factor for all explanatory variables is less than 10. Therefore, it
implies that there is no multicollinearity between explanatory variables.

4.3.2.2. Pearson Correlation Coefficient

In this section, the researcher is analyses, the result of the Pearson correlation coefficient.
The correlation coefficient measures the degree of linear association (closeness) between

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the dependent and independent variable, the value of correlation coefficient ranges from -1
to +1. A correlation coefficient of 1 indicates that there is a perfect positive relationship
between two variables; while -1 indicates that there is a perfect negative relationship
between two variables. On the other hand, a correlation coefficient of zero indicates no
relationship between variables. Even though the correlation is zero, the effect of the
explanatory variable on the explained variable determined by the regression coefficient.
That is the correlation coefficient indicates the relationship rather than its effect, (Brooks,
2008).

The value of correlation coefficient between 0.1and 0.29 indicates the association among
the items is poor, 0.3 and 0.49 implies there is a moderate relationship, and > 0.5 implies
a strong relationship between two variables, (McDaniel and Gates, 2006). Based on this as
noted by Gujarati,2004, most generally used bi-variant correlation coefficient, normally
known as Pearson correlation is utilized to find out the relationship between explanatory
and explained variables. The value of the correlation coefficient between -1and -0.50 is
strong, between -0.50 and +0.50 is the week, and between +0.50 and +1 is strong (Gogtay
and Thatte, 2017). Also, the correlation coefficient between 0.3 and 0.49 is moderate and
the correlation coefficient greater than 0.5 is a strong relationship between two variables
(McDaniel and Gates, 2006).

4.3.2.3. Correlation Analysis

Table 4 7: Pearson correlation coefficient

INV
(p-value) r- value
IC 0.0000* 0.3525
HC 0.0000* 0.3886
CR 0.0000* -0.3794
AC 0.0218** 0.1748
INF 0.0000* -0.3352
INR 0.0000* -0.5027
EXR 0.0000* -0.4476
IP 0.0928 0.1285
EPW 0.1964 0.0990

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 RD 0.9691 -0.0030
WR 0.5777 -0.0427
Source: Own Survey, June, 2020, stata out put

Note: * and ** indicates the correlation coefficient is statistically significant at 1% and 5%

level of significance respectively.
Coefficient of Correlation indicates the strength of association between explanatory
variables and explained variable, and again explanatory variables each other. As stated in
the above table 4.7: the Pearson correlation (r) of the variables is presented. There is a
significant positive correlation between incentives and private manufacturing investment
with r=.0.3525 and sig. (1-tailed) is .000, which is <.05. That is moderate and statistically
significant relationships at a 1% significance level. Human capital is positively related to
private manufacturing investment with r=.0.3886 and sig. (1-tailed) is .000, which is <.05.
This is a moderate and statistically significant relationship at a 1% significance level. The
general inflation rate is negatively correlated to private manufacturing investment with r=
0.3352 and sig. (1-tailed) is .000, which is <.05. That means a moderate and statistically
significant relationship at a 1% significance level.

The other explanatory variable is the access of credit to the private investor. The access of
credit is positively related to private manufacturing investment with r= 0.1748 and sig. (1-
tailed) is. 0.0218, which is <.05. Therefore there is an acceptable and statistically
significant relationship at a 5% significance level. The collateral requirement is negatively
correlated with private manufacturing investment by r= (-0.3794) and sig. (1-tailed) is
.000, which is <.05. So that there is a moderate and statistically significant relationship at a
1% significance level. The lending interest rate another explanatory variable that
correlated negatively with private manufacturing investment with r= (-0.5027) and sig. (1-
tailed) is .000, which is <.05. It indicates that there is a strong and statistically significant
relationship at a 1% significance level. That means there is a moderate and statistically
significant relationship at a 1% significance level. The average exchange rate is negatively
correlated with private manufacturing investment by r= (-0.4476) and sig. (1-tailed) is
.000, which is <.05.

Even though the investment policy is related positively with private manufacturing
investment with a Pearson correlation coefficient r= 0.1285 and it is statistically
insignificant, which is 0.0928>05. It correlated positively and statistically insignificant

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relationships at a 5% significance level, (1-tailed). The electric power is related positively
with private manufacturing investment with r= 0.0990 and it is statistically insignificant,
which is 0.1964>05. So that it correlated positively and insignificant relationship at a 5%
significance level. (1-tailed). The water is related negatively with private manufacturing
investment with r= (-0.0427) and it is statistically insignificant, which is 0.5777 >.05.
Even though it related negatively there is a statistically insignificant relationship at a 5%
significance level. The road is related negatively with private manufacturing investment
with r= (-0.0030) and it is statistically insignificant which is 0.9691>.05. Therefore there is
a statistically insignificant relationship at a 5% significance level.

Generally, the correlation level of explanatory variables with explained variable from
highest to lower is human capital by 38.86%, incentive by 35.25%, general inflation rate
by 33.52%, investment policy correlated by 12.85%, and access of credit by 17.48%,
electric power by 9.90%, and lending interest rate by (50.27%), average exchange rate by
(44.76%) and collateral requirements by (37.94%). Finally, even though investment policy
correlated by 12.85%, electric power by 9.90%, positively, availability of water is
correlated by (r=-0.003) negatively and access of road correlated by (r=-0.0427), they are
statically insignificant.

4.3.2.4. HETROSCEDASTICITY TESTS

Table 4 8: Breusch-Pagan / Cook-Weisberg Test for Heteroskedasticity

Model Chi2(1) P-value

1 2.27 0.1934
Source: Own Survey, June, 2020, stata out put
H0: The Error Term has Constant Variance and Variables: Fitted Values of Investment

In the classical linear regression model, one of the basic assumptions is that the probability
distribution of the disturbance term remains the same overall observations of X; i.e. the
variance of each Ui is the same for all the values of the explanatory variable. Assume that
when the variance of the error term is constant, this is known as homoscedasticity. When
the variance of the error term is not the same (not constant), they are said to be present the
problem of heteroscedastic, (Brooks, 2008) the present of Heteroscedasticity problem
makes your parameter estimates no longer BLUE – they are still unbiased, but no longer
have minimum variance. To check whether there is a present heteroscedasticity problem or

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 not the research used Breusch-Pagan / Cook-Weisberg Test. As stated test results of
heteroscedasticity at table 4.8, we can see that p-value (0.1934) <chi value (2.27) which
signifies that there is no present the heteroscedasticity problem.

4.3.2.5. Normality Test

Figure 4 4: normality test
2
1.5
Density

1
.5
0

-.5 0 .5
Residuals

Source: Own Survey, June, 2020, stata out put

The diagnostic model test is a normality test. This is the assumption of regression analysis
is error terms must be normally distributed with mean zero and constant variance. To
check the normality of error terms distribution the researcher checked by the histogram.
To attain this assumption the histogram should be approximately normal or it must be bell-
shaped distribution. And the distribution of points should be lying around the 45-degree
straight line in the pp-plot. OLS assumes that the distribution of the error term is normally
distributed. Normality assumption is important while using regression and worthwhile, if
we want to make inference about the population parameter from the sample parameters
(Field, 2009). If the mean of the residual is zero and constant variance the error is

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normally distributed. Thus, the result in figure 4.4 illustrates that the mean of the residual
is zero, which implies that the distribution of the error is normally distributed.

4.4. Results of Regression Analysis

According to the ordinary square regression model, the model has satisfied the five diagnostic
tests. Based on this, multiple regression analysis is determined to reveal the value of the
coefficient included in the model. Accordingly table, 4.10 below depicts the result of the
regression model that examines the effect of explanatory variables on private manufacturing
investment. Hence, private manufacturing investment is explained variable whereas
Investment Policy, Incentive, Human Capital, Collateral Requirement, Access to Credit,
General Inflation, Lending Interest Rate, Average Exchange Rate, Electric Power, Water,
Road are explanatory variable.

4.4.1. Model Summary test

Table 4.9: Model Summary

Model R R Square Adjusted R Std. Error of the

Square Estimate
1 0.8468 0.7171 0.6977 0.032
Predictors: (Constant), Investment Policy, Incentive, Human Capital, Collateral
Requirement, Access to Credit, General Inflation, Lending Interest Rate,
Average Exchange Rate, Electric Power, Water, Road
Source: Own Survey, June, 2020, stata output.

Predictors: Constant), Investment Policy, Incentive, Human Capital, Collateral

Requirement, Access to Credit, General Inflation, Lending Interest Rate, Average
Exchange Rate, Electric Power, Water, and Road. R-square- is a statistical measurement
that measures the proportion (amount) that independent variables explained the dependent
variable.it indicates that the percentage that explained variables explained by explanatory
variables included in the model. R2- also explains to what extent the variance of one
variable explains the variance of other variables. R- Squared value range from 0 to 1and
commonly stated as a percentage from 0%to100%. And R- square of 100% indicates that
the dependent variable is completely explained by the independent variable of the model.
0% shows the model explains none of the variability of the response data around its
mean. Under this study value of R-square is 0.7171 or 71.71%. This indicates that

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71.71% of the variation in private manufacture investment is explained by selected
explanatory variables included in the model. But 28.29% variation in private manufacture
investment is explained by other factors that were not included in the model.

The adjusted R-squared is a modified version of R-squared that has been adjusted for the
number of predictors in the model. The adjusted R-squared increases only if the new term
improves the model more than expected by chance. The adjusted R-squared shows
69.77% that can really be explained by explanatory variables.

So it is good to show the effect of explanatory variables on explained variables. In order

to show the total significance for the population, it can be explained by F- statistics
corresponding to P-value. As the above regression table, 4.9: shows, F-statistics‖ p-value
is less than 5% which are very significant for model and for the population inference.

4.4.2. Analysis Of Variance (ANOVA)

Table 4.10: Analysis of Variance (ANOVA)

Model Sum of Degrees of Mean F(11,160) p-value

Squares Freedom Square
Regression 13.107 11 1.192
Residual 5.172 160 0.032 37.25 0.0000*
Total 18.279 171 0.107

Predictors: (Constant), Investment Policy, Incentive, Human Capital, Collateral Requirement,

Access to Credit, General Inflation, Lending Interest Rate, Average Exchange Rate, Electric
Power, Water, Road
Note: * indicates the estimated regression model is significant at 1% level of significance.
Source: Own Survey, June, 2020, stata output.

The Variance Analysis is done to test (checked) the overall significance of the model. The
test result of ANOVA tells whether the overall effect of the twelve independent variables
on private manufacturing investment determinant is significant. As indicated in table 4.10,
at a 99% confidence interval, a significant P-value of .000 and an F-value of 37.25 is
recorded. This show that the regression model is a suitable prediction for explaining the
effect of Predictors: (Investment Policy, Incentive, Human Capital, Collateral

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Requirement, Access to Credit, General Inflation, Lending Interest Rate, Average
Exchange Rate, Electric Power, Water, Road) on private manufacturing investment in
north showa zone private manufacturing investment. The significance level in the above
table reveals that the regression model is highly significant to fit the data. And the
cumulative effect of the set of independent factors on the private manufacturing
investment is highly significant.

4.4.3. Regression Analysis

Table 4.11: The Regression Coefficients

Investment Unstandardized tcal P-value Standard

Beta Coef. Beta
Coef. Std. Err. Coef.
Investment Policy 0.313 0.077 4.07 0.000* 0.393
Incentive 0.129 0.043 2.99 0.003* 0.407
Human Capital 0.224 0.054 4.15 0.000* 0.360
Collateral Requirement -0.260 0.061 -4.24 0.000* -0.286
Access to Credit 0.158 0.069 2.27 0.024** 0.218
General Inflation -0.420 0.093 -4.51 0.000* -0.745
Lending Interest Rate -0.269 0.074 -3.65 0.000* -0.286
Average Exchange Rate -0.093 0.017 -5.45 0.000* -0.336
Electric Power 0.097 0.029 3.36 0.001* 0.236
Water -0.017 0.029 -0.58 0.562 -0.042
Road -0.044 0.026 -1.69 0.094 -0.109
Constant 4.797 0.682 7.03 0.000*
Note: * and ** indicates the regression coefficients are significant at 1% and 5% level
of significance respectively.
Source: Own Survey, June, 2020, stata output.

Under this study, there were 11 variables. These Different variables have there on bête
value display on table 4.11. By taking this beta value under standardized coefficients, the
researcher interprets the results. A variable that has higher the beta value, the largest
contribution becomes. Or the larger the standardized coefficient, the higher is the relative
importance and contribution of the factors to private manufacturing investment. These
make the largest contribution to explaining the dependent variable.

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 ( )

Government incentive‘s (beta=12.9%), this affects private manufacturing investment

significantly and positively. This indicates that a 12.9% change in government incentive
affects private manufacturing investment by 1 unit positively. Investment policy‘s
(Beta=31.3%), this affects private manufacturing investment significantly and positively.
This implies that a 31.3% chance of investment policy affects private manufacturing
investment by 1unit positively. Human capital‘s (beta=22.4%), this affects private
manufacturing investment significantly and positively. From this, we can conclude that a
22.4% change in the availability of human capital affects private manufacturing
investment by 1unit positively. Availability of electric power‘s (beta=9.7 %), this affects
private manufacturing investment positively. This shows that a 9.7% change in the
Availability of electric power affects private manufacturing investment by 1unit positively.
Access of credit‘s (Beta=15.8%%), this affects private manufacturing investment
positively. This revealed that a 15.8% change in credit access, affect private manufacturing
investment by 1unit positively.

General inflation rate (Beta=-42%), this influence private manufacturing investment

significantly and negatively. This indicates that a 42% change in general inflation affects
private manufacturing investment by 1 unit negatively. Average exchange rate (Beta=-
9.3%), this affects private manufacturing investment significantly and negatively. From
this, we can conclude that a 9.3% chance of an average exchange rate affects private
manufacturing investment by 1unit negatively. Collateral requirement‘s (beta=-26%), this
affects private manufacturing investment negatively. From this, we can conclude that a
26% change in Collateral requirement affects private manufacturing investment by 1unit
positively. Lending interest rate (Beta=-26.9%), this affects private manufacturing
investment negatively. From this, we can conclude that a 26.9% chance of Lending
interest rate affects private manufacturing investment by 1unit negatively.

Finally Access of roads (Beta=-4.4 %%), Road is spastically insignificant (p-value,

0.094> 0.05) from this we con concluded that a 04.4% change in road access, did not
affect private manufacturing investment. Availability of water‘s (beta=-4.2% %), water
availability (-0.01.7%) is statically insignificant (p-value, 0.562> 0.05) from this we con

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concluded that 1.7% change in water availability, did not affect private manufacturing
investment.

4.4.4. Interpretation of Hypothesis Testing Result

Under this part, the researcher were discussed the relationship between the dependent and
independent variables. The private manufacturing investment is explained variables, whereas
Investment Policy, Incentive, Human Capital, Collateral Requirement, Access to Credit,
General Inflation, Lending Interest Rate, Average Exchange Rate, Electric Power, Water, and
Road were explanatory variables. In regression output, Beta indicates that the level of
influence of each predictor variable on the dependent variable: as well it indicates the
direction of the relationship between them. Next to this, the researcher has discussed the
hypothesis results as follows.

Under thesis research, the researcher used an unstandardized beta coefficient to interpret
hypothesis results. Because the unstandardized beta coefficient is raw coefficient produced by
regression analysis that showed the impact of explanatory variables on the explained variable.
when the analysis is performed on original, for unstandardized variables as unstandardized
coefficient regress the amount of change independent variable (Y) due to change of 1 unit of
change of independent variables (X).

Hypothesis1:
Ho: Investment policy is not affecting PMI positively and significantly.
Discussion: Investment policy has not a positive and significant effect on PMI. The result on
the table 4.11 shows that the investment policy has (beta=.313, p<0.01). The result of
multiple regressions revealed that investment policy has a positive and statistically significant
effect on private manufacturing with a beta value of 0.313 and a p-value of .000 which is less
than 0.05. Assume the other independent variables remain constant.

Decision: The result did not support the Null hypothesis (Ho), therefor the researcher rejects
the null hypothesis and accepted alternative hypothesis (H1). That means investment policy
has a positive and significant effect on private manufacturing investment. This indicates that
the one percent increase in investment policy causes a 0.313 percent increase in private
manufacturing investment in the same period. That means an improvement of investment
policy (investment incentives, investment guaranties, investment warranties, state preferential
right for private manufacturing investors) will lead to a corresponding increase in private

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manufacturing investment. Supportive previous studies, The results of this study is consistent
with the study of (Ayalew, 2014),(Yismaw, 2007)and (Mihret, 2011).

Hypothesis2.
Ho: Government incentives for private investors, do not affect PMI positively and
significantly.
Discussion: Government incentive has not a positive and significant effect on PMI. The result
on the table 4.11 shows that the investment policy has (beta=0.158, p<0.01). The result of
multiple regressions revealed that investment policy has a positive and statistically significant
effect on private manufacturing with a beta value of 0.158 and a p-value of .000 which is less
than 0.05. Assume the other independent variables remain constant.

Decision: The result did not support the null hypothesis (Ho), therefor researcher rejects the
null hypothesis and accepted alternative hypothesis (H1); that means investment policy has a
positive and significant effect on private manufacturing investment. This indicates that the
one percent increase in credit access causes a 0.158 percent increase in private manufacturing
investment in the same period. That is an incensement of investment incentives tools
(improve tax incentives, and guaranties, warranties, for private manufacturing investors) will
result to promote private manufacturing investment. Supportive previous studies, were
consistent with the study as Investment incentives of tax holidays, preferential tax rates, and
grants, stimulating investment, this study is almost consistent.

Hypothesis3.
Ho: Availability of Human capital is not affected PMI positively and significantly.
Discussion: Human capital has not a positive and significant effect on PMI. The result on the
table 4.11 shows that the investment policy has (beta=0.224, p<0.01). The result of multiple
regressions revealed that investment policy has a positive and statistically significant effect
on private manufacturing with a beta value of 0.224 and a p-value of .000 which is less than
0.05. This implies that the other independent variables remain constant.

Decision: The result did not support the null hypothesis (Ho), therefor researcher rejects the
null hypothesis and accepted alternative hypothesis (H1); that means human capital has a
positive and significant effect on private manufacturing investment. This indicates that a one
percent increase in the availability of human capital causes a 0.224 percent increase in private

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manufacturing investment in the same period. That means increasing access to skilled and
well-trained

manpower for private manufacturing investors leads to an increase of the correspondent I

private manufacturing investment. Supportive previous studies, as pear previous research
result; labor force is force has a positive influence on economic growth, (research report,
Jwan Saeed hussein, 2015). Human capital is a significant determinant of manufacturing by
managing (Glaeser, 2005). The main source of output growth in the medium and large scale
industries is labor (Admit and Getnet, 2002).therefore the result of this study is consistent
with the previous study.

Hypothesis4.
Ho: Credit accesses for investors; is not affect PMI positively and significantly.
Discussion: Credit access has not a positive and significant effect on PMI. The result on the
table 4.11 displayed that the credit access has (beta=0.158, p<0.05). The result of multiple
regressions revealed that credit access has a positive and statistically significant effect on
private manufacturing with a beta value of 0.158 and a p-value of 0.024 which is less than
0.05. Assume the other explanatory variables remain constant.

Decision: The result did not support the null hypothesis (Ho), therefor researcher rejects the
null hypothesis and accepted alternative hypothesis (H1); that means investment policy has a
positive and significant effect on private manufacturing investment. This indicates that a one
percent increase in investment policy causes a 0.158 percent increase in private
manufacturing investment in the same period. This shows that an improvement of credit
access (provide especial credit access, easy financing source, certain credit interest rate, and
conducive loan duration) will lead to a corresponding increase in private manufacturing
investment. Supportive previous studies, Previous research revealed that Credit availability to
the private sector is a positive and significant impact, (Erden, 2005), and the growth of real
credit to the private sector has a positive effect on private investment, (Asante, 2000).
Therefore the result of this study is consistent with the previous study.

Hypothesis5.
Ho: Availability of Power Infrastructure was not affecting PMI positively and
significantly.

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Discussion: Availability of electric power has not a positive and significant effect on PMI.
The result on the table 4.11 shows that the investment policy has (beta=0.224, p<0.01). The
result of multiple regressions revealed that the Availability of electric power has a positive
and statistically significant effect on private manufacturing with a beta value of 0.097 and a
p-value of 0.001 which is less than 0.05. This implies that the other independent variables
remain constant.

Decision: The result did not support the null hypothesis (Ho), therefor researcher rejects the
null hypothesis and accepted alternative hypothesis (H1); that means the availability of
electric power has a positive and significant effect on private manufacturing investment. This
indicates that a one percent increase in electric power access causes a 0.097 percent increase
in private manufacturing investment in the same period. That is to increase the electric power
availability and reduce electric power interruption will lead to promoting private
manufacturing investment. Supportive previous studies, Previous studies conformed as
Electricity is the main driver for industrial development. Essential service enjoys protection
from competition and consumers have little or no choice (Chau, 2009).

Hypothesis6.
Ho: Collateral requirement for loan provision is not affect PMI negatively and
significantly.

Discussion: Collateral requirement has not a negative and significant effect on PMI. The
result on the table 4.11 displayed that the Collateral requirement has (beta=-0.260, p<0.01).
The result of multiple regressions revealed that Collateral requirement has a negative and
statistically significant effect on private manufacturing with a beta value of -0.260 and a p-
value of .000 which is less than 0.05. Assume the other explanatory variables remain
constant.

Decision: The result did not support the null hypothesis (Ho), therefor researcher rejects the
null hypothesis and accepted alternative hypothesis (H1); that means investment policy has a
positive and significant effect on private manufacturing investment. This indicates that a one
percent increase in collateral requirement causes a 0.260 percent decrease in private
manufacturing investment in the same period. This shows that reducing collateral
requirements for loan provision will encourage private manufacturing investment. Supportive

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previous studies, Supportive previous studies indicated that: In Bangladesh confirms that
firms are affected by loans backed up by sound collateral (Khar, 2008).

Hypothesis7.
Ho: General Inflation Rate is not affected PMI negatively and significantly.
Discussion: The General Inflation rate has not a negative and significant effect on PMI. The
result on the table 4.11 displayed that the General Inflation rate has (beta=-0.420, p<0.01).
The result of multiple regressions shows that the General Inflation rate has a negative and
statistically significant effect on private manufacturing with a beta value of -0.420 and a p-
value of .000 which is less than 0.05. Assume the other explanatory variables remain
constant.

Decision: The result not supported the null hypothesis (Ho), therefor researcher rejects the
null hypothesis and accepted alternative hypothesis (H1); that means the General Inflation
rate has a positive and significant effect on private manufacturing investment. This indicates
that a one percent increase in the General Inflation rate causes a 0.260 percent decrease in
private manufacturing investment in the same period. This shows that certain, laws and the
moderate inflation rate will encourage private manufacturing investment. Supportive previous
studies, as per previous study Inflation rate, affect negatively (abate Y. 2016), inflation rate,
affect negatively (wasihun D.2010), the Inflation rate affects private investment negatively
(Gebremariam M. 2019).

Hypothesis8.
Ho: The lending interest rate is not affected PMI negatively and significantly.
Discussion: Lending interest rates has not a negative and significant effect on PMI. The result
on the table 4.11 displayed that the General Inflation rate has (beta=-0.269, p<0.01). The
result of multiple regressions showed that the Lending interest rate has a negative and
statistically significant effect on private manufacturing with a beta value of -0.267 and a p-
value of .000 which is less than 0.05. Assume the other explanatory variables remain
constant.

Decision: The result did not support the null hypothesis (Ho), therefor researcher rejects the
null hypothesis and accepted an alternative hypothesis; that means the Lending interest rate
has a positive and significant effect on private manufacturing investment. This indicates that a
one percent increase in the General Inflation rate causes a 0.269 percent decrease in private

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manufacturing investment in the same period. That means a certain, stable, and low-interest
rate will encourage private manufacturing investment. Supportive previous studies, this study
supported as the interest rate affect private manufacturing investment negatively
(Gebremariam M. 2019).

Hypothesis9
Ho: The average Exchange rate is not affected PMI negatively and significantly.
Discussion: The average exchange rate has not a negative and significant effect on PMI. The
result on the table 4.11 displayed that the Average exchange rate has (beta=-0.093, p<0.01).
The result of multiple regressions showed that the Average exchange rate has a negative and
statistically significant effect on private manufacturing with a beta value of -0.093 and a p-
value of .000 which is less than 0.05. Assume the other explanatory variables remain
constant.

Decision: The result not supported the null hypothesis (Ho), therefor researcher rejects the
null hypothesis and accepted alternative hypothesis (H1); that means the Lending interest rate
has a positive and significant effect on private manufacturing investment. This indicates that a
one percent increase in the Average exchange rate causes a 0.093 percent decrease in private
manufacturing investment in the same period. That means an improve exchange rate service,
and control exchange rate fluctuation will encourage private manufacturing investment.
Supportive previous studies, Supportive previous studies: as per the previous study, real
exchange rates affect manufacturing investment negatively (Habibur and Ismail 2003). The
exchange rate has a negative and significant impact on the manufacturing sector in Nigeria
(Ayinde, 2014).

Hypothesis10.
Ho: Access of Road Infrastructure, is not affected PMI positively and significantly.
Discussion: Access to road infrastructure has not a positive and significant effect on PMI.
The result on the table 4.11 displayed that the Access of road infrastructure has (beta=-0.044,
p<0.01). The result of multiple regressions showed that Access to road infrastructure has a
negative and statistically insignificant effect on private manufacturing with a beta value of -
0.044 and a p-value of 0.094 which is greater than 0.05.

Decision: The researches fail to accept the null hypothesis or directional hypothesis in favor
of the null hypothesis which means; road access has no significant effect on private

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manufacturing investment. Supportive previous studies: The road has a significant impact on
manufacturing productivity growth because it attracts the investors for investment in that area
where infrastructure is well designed (Dash and Nataraj, 2010).

Hypothasis11.
Ho: Availability of Water Infrastructure, is not affected PMI positively and
significantly.

Discussion: The availability of water infrastructure has not a positive and significant effect on
PMI. The result on the table 4.11 displayed that the Availability of water infrastructure has
(beta=-0.017, p<0.01). The result of multiple regressions showed that the Availability of
water infrastructure has a negative and statistically insignificant effect on private
manufacturing with a beta value of -0.017 and a p-value of 0.562 which is greater than 0.05.
Decision: The researches fail to accept the null hypothesis (Ho) or alternative hypothesis
(H1), which means; Availability of water has no significant effect on private manufacturing
investment.

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 4.4.5. Hypothesis Summary
Table 4.12: Summary of hypothesis

No. Explanatory variables Expected sign Actual sign and impact Remark
(result)
1 Investment Policy Positive and significant Positive and significant Supported
2 Incentive Impact
Positive and significant Positive and significant Supported

3 Human Capital Positive and significant Positive and significant Supported

4 Collateral Requirement
Variables
5 Access to Credit
6 General Inflation
7 Lending Interest Rate
8 Average Exchange Rate
Negative and significant Negative and significant Supported
Positive and significant Positive and significant Supported
Negative and significant Negative and significant Supported
Negative and significant Negative and significant Supported
Negative and significant Negative and insignificant Supported

9 Electric Power Positive and significant Positive and significant Supported

10 Water Positive Negative and Insignificant Not
Supported
11 Road Positive and significant Negative and Insignificant Not
Supported
Source: Own Survey, June, 2020, stata output.

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 CHAPTER FIVE
FINDING SUMMARY, CONCLUSION AND RECOMMENDATION

5. NTRODUCTION
Under this chapter, the researcher summarized the result; draw the conclusion for both
distributive and inferential statics results. Based on the conclusion results we indicated the
recommendation about the trend of private manufacturing investment in north showa zone,
the impact of explanatory variables on private manufacturing investment, challenge, and
opportunities of private manufacturing investment in the north showa zone. Finally to
showed scope for the future researcher.

5.2. Summary of Finding

The first objective is to assess the Trend of privet manufacturing investment, from 2000
to 2011, 1000 investors were taken license to invest in medium and large scale
manufacturing industry. From this, we can see that investors who taken license to invest
medium large-scale private manufacturing investments increased dramatically from time
to time, especially since 2007E.c.

The reason that inflow (trend) of private manufacturing investment increment in north
showa zone were: North Showa Zone, become as one of Ethiopia‘s emerging destinations
for local and international companies due to its proximity to the capital city [AA] and
accessibility to the international market via the port of Djibouti, due to access of Amhara
regional state investment branch office in Debre Berhan town, it is one of the preferred
industrial hubs, north showa investment bureau officer has four internal departments to
administer the four private manufacturing investment clusters, since 2005|2006. There is
easy bureaucracy to get the license to invest, investment bureau used senior investors as
promoters, there is a forum of (investment leader, selected investors, zonal administrator),
prompt by different media, review the activity quarterly and take remedial action, and
others commitments attract the investors.

Even though the inflows of investors increase dramatically, the numbers of investors that
are on the operation are still stagnant. Because there are only 59 total medium and large
scale private manufacturing investors (companies) join operation. Even though there are

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many investors in the construction phase, according to the inflow percentage (amount) the
investor amount in operation is to law.

The study is conducted based on a survey of 200 respondents. The 20 questionnaires were
administered to the respondents of each of 10 companies. 200 questionnaires were
administered and at the end of the fieldwork, a total of 172 of usable questionnaires were
retrieved, that is representing an 86% response rate and all were used in the analysis.
Regard to investment policy, as per the majority respondents‘: investment incentive not
encourages private manufacturing investment; investors did not satisfy by investment
incentive not satisfies. Regard to human capital, based on majority respondents: there is no
enough trainable and skilled manpower. According to collateral requirement, the majority
respondent‘s response, collateral provision for credit access is the main constraint, there is
the high collateral requirement, and collateral requirement discourage private
manufacturing investment. As per credit access majority, respondents' response credits
access has a direct impact on privet investment, the majority respondent response of the
General inflation rate indicates that the inflation rate is uncertain, high, and discourages
private manufacturing investment.

Regard to lending interest rate average respondents the interest rate is uncertain, high and
discourage private manufacturing investment. The average exchange rate majority
respondent respondents‘ exchange rate is uncertain; there is no easy access to currency
exchange service. As per electric power majority respondent responses, there is no enough
availability of electric power, high electric power interruption, the government no provide
special treatment for investor regard to electric power.

According to the access of road majority respondents responses: there is no significant

road constraint in the sector. This due to that the private manufacturing location is located
near, around the main road and other concrete road. Regard to water infrastructure
majority responses, availability of water is not significant constraints for private
manufacturing investors in the north showa zone.

The second objective: Challenge and opportunity were the first objectives. At stated
Table 4.5: the researcher generalized as the challenge and opportunity. The absence of
bargaining power in the raw material market, absence of bargaining power in the product
market, tax ret certainty, easy bureaucracy to get the license to invest, easy bureaucracy to

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invest the sector and investors un reaction on the exported product tax rate, is the
opportunities of private manufacturing investment, on the other hand, lack of raw
materials, high tax rate, no access of product market, difficult climatic condition, and high
bureaucracy to get land after getting the license to invest are the main challenge of private
manufacturing investment.

The third objective is the impact of macro-economic variables on private manufacturing

investment. The general inflation rate affects private manufacturing investment with the
value (Beta=-0.42), significantly and negatively. From this, the researcher concluded that a
42% change in general inflation affects private manufacturing investment by 1 unit
negatively. The average exchange rate affects private manufacturing investment with the
value (Beta=-0.093), significantly and negatively. This showed a 9.3% chance of average
exchange rate affect private manufacturing investment by 1unit negatively. Lending
interest rates affect private manufacturing investment with the value (Beta=-0.269),
negatively. From this, the researcher concluded that a 26.9% change of Lending interest
rates affected private manufacturing investment by 1unit negatively.

The fourth objective is the impact of micro-economic variables on private manufacturing

investment. The effect of government incentive. Government incentives affect positively
and significantly private manufacturing investment with value (beta=0.129), from this the
researcher can concluded that a 12.9% change in government incentive affects private
manufacturing investment by 1 unit positively. Investment policies affect positively and
significantly private manufacturing investment with value (b=0.313), which is a 31.3%
chance of investment policy affect private manufacturing investment by 1unit positively.
Human capital affects positively and significantly private manufacturing investment with
value (beta=0.224)), therefor 22.4% change in the availability of human capital affect
private manufacturing investment by 1unit positively.

The availability of electric power affects positively and significantly private

manufacturing investment with value (beta=0.097). From this, the researcher concluded
that a 9.7% change in the Availability of electric power affects private manufacturing
investment by 1unit positively. Access of credit‘ affect positively and significantly private
manufacturing investment with value (beta=0.158) from this we con concluded that a
15.8% change in credit access, affect private manufacturing investment by 1unit
positively. Collateral requirements affect private manufacturing investment with the value

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(beta=-0.26) negatively. From this, the researcher concluded that a 26% change in
Collateral requirement affects private manufacturing investment by 1unit positively.
Finally, the variables of road and water are not a significant impact at 5% level of precious
on private manufacturing investment, even though they have negative beta coefficient
negatively.
The fifth objective: Investment policy implication based on the 11 explanatory variables
and other effects on private manufacturing investment. as stated above, the explanatory
(determinants of private manufacturing investment) variables affect the explained
variables (private manufacturing investment) in three ways. That is investment policy,
investment incentives, human capital, credit access and electric power affect positively.
On the other hand collateral requirements, inflation rate, interest rate and exchange rate
affect negatively. But accesses of road and water availability have not statically significant
impact at 5% level of precise. In addition there is other constraint, especially lake of raw
material and access of land to get lands to get after to get license to invest. These indicated
that the investment policy needs modification of amendment to address these problems
and encourage the sector.

5.3. Conclusion
As stated on the objective of the study, it is assessed the privet investment tend, examined
the challenge and opportunities, examined the determinants of private manufacturing
investment in the north showa zone. And recommend investment policy.

Descriptive analysis indicates that:

 The inflow of private manufacturing investment is to increase time to time.
Especially since 2007E.c. the inflow of private investment has been increased
dramatically. The reason why the inflow of investors increase is the commitment
of north showa zone investment bureau officers, location of the zone, and others
that stated in summary. Even though there is a high inflow of investors, the
number of investors on the operation is too law when we compared with the
inflow amount.
 The absence of bargaining power in the raw material market, absence of
bargaining power in the product market, tax rate certainty, easy bureaucracy to get
the license to invest, easy bureaucracy to invest in the sector and investors un
reaction on the exported product tax rate, are the opportunities of private

82 | P a g e
 manufacturing investment, on the other hand, the lack of raw materials, high tax
rate, no access of product market, difficult climatic condition, and high
bureaucracy to get land after getting the license to invest are the main challenge of
private manufacturing investment.
Inferential analysis revealed that:

 The government incentive, investment policy, and availability of human capital

affect highly and positively. And also electric power availability and access to
credit are affecting positively. On the other hand, the general inflation rate and
average exchange rate affect strongly and negatively, and the collateral
requirement and lending interest rate affected negatively.
 In general: government incentive, investment policy, and availability of human
capital, availability of electric power, and access to credit, affect significantly and
positively. Were as the general inflation rate, average exchange rate, collateral
requirement, and lending interest rate affect significantly and negatively. Hence, in
developing phase of policies and strategies for the private investment, government
(policy-maker) should gave significant attention to improve incentive, relax
investment policy, and increase the availability of human capital, availability of
electric power, and mitigate the problem of the general inflation rate, average
exchange rate, collateral requirement and lending interest rate towards private
manufacturing investment.

5.4. Recommendation
Private Manufacturing investment is treated as an engine to economic growth and
development due to its sustainability nature and efficient allocation of resources KNBS-
2012), Promoting private manufacturing investment has a significant benefit like to
enhance innovation, encourage economic growth and reducing and alleviate poverty, and
creates job opportunities (Fietas& Sinha, 2011). The main objective of the study is to
examine the determinant of the private manufacturing industry. Under this study,
quantitative and qualitative analysis methods were employed. Depend on the research
objective and data analysis, the researcher provides the following recommendations to the
concerned bodies. The recommendation is vast, because there are 9 significant variables
which need detail recommendation and two out of the regression result that assessed by
disruptive tools.

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 Even though the inflow of private manufacturing investment increase dramatically.
The number of investors on the operation is still stagnant. That is only 59 investors
were joining on operation during12 years. So the zonal investment bureau and
other responsible bodies should give attention to the sector (investors) that are take
license and on the operation, and on construction. That means any responsible
body should understand the investors why their number did not increase inline the
inflow. Simply they should exert there effort like to attract the investors to solve
their problem.
 The absence of bargaining power in the raw material market, absence of bargaining
power in the product market, tax rate certainty, easy bureaucracy to get the license
to invest, and easy bureaucracy to invest and law exported product tax rate, where
the opportunities of private manufacturing investment, The government should be
used these opportunity to attract more investors. On the other hand lack of raw
materials, high tax rate, and no access to the product market, difficult climatic
condition, and high bureaucracy to get land after getting a license to invest are the
main problems for private manufacturing investors. Thus, the regional and federal
government should alleviate this problem by providing linkage with suppliers,
product market, revising tax rate, cold desert allowance for employees, and provide
land for investors. Unless we will lose the investors.
 Since government incentive has a positive impact on private manufacturing
investment, the government should keep in mind that good investment incentives
have a positive effect on private manufacturing investment. Therefore, there should
be improving incentives more to promote private manufacturing investment which
ensures economic growth.
 Since investment policy has a positive impact on private manufacturing
investment, the government should keep in mind that good investment policy has a
positive effect on private manufacturing investment. Therefore, there should be
improving access to incentives, guarantees, and special treatments for investors to
promote private manufacturing investment which ensures economic growth.
 Since the Availability of human capital has a positive impact on private
manufacturing investment, the government should keep in mind that literate and
skilled manpower has a positive effect on private manufacturing investment.
Therefore, there should be providing linkage with universities to generate skilled
manpower to fid manufacturing company labor consumption. This promotes

84 | P a g e
 private manufacturing investors by reducing or avoiding high salary payments for
imported laborers and ensures economic growth.
 Since the Availability of electric power has a positive impact on private
manufacturing investment, the government should keep in mind that increase
electric power availability has a positive effect on private manufacturing
investment. Therefore, there should be an increase in electric power availability
and reduce or avoid power interruption, and give special treatment for
manufacturing companies. This promotes private manufacturing investors to utilize
their capacity and reduce or avoid unnecessary expenses for extra power generating
mechanisms, like the generator. This resulted to ensure economic growth.
 Since the access of credit has a positive impact on private manufacturing
investment, the government should keep in mind that good and easy credit access
has a positive effect on private manufacturing investment. So that government
should provide easy, sufficient, proper credit access, provide linkage with financial
sectors and give special credit access treatment for manufacturing companies. This
helps private manufacturing investors to alleviate financial constraints and expand
their business. This resulted to ensure economic growth.
 Since the general inflation rate has a negative impact on private manufacturing
investment, the government (policymakers) should understand the inflation
volatility cause and reduce its volatility level. The level of inflation should be kept
manageable level. Because high inflation uncertainty hinders the private
manufacturing investors. The government can improve privet manufacturing
investment by ensuring proper macroeconomic stability. This resulted to ensure
economic growth.
 Since the average exchange rate has a negative impact on private manufacturing
investment, the government (policymakers) should keep the exchange rate stable
and reduce its volatility level. Because high exchange rate uncertainty hinders the
private manufacturing investors. Because both high currency devaluation and
appreciation are difficult to manage in business.
 Since collateral requirement has a negative impact on private manufacturing
investment, the government (policymakers) should understand the impact of high
collateral requirements for loan provision. High-value collateral requirement limits
the investors borrowing capacity, this hinders the private manufacturing investors.
The government can improve privet manufacturing investment by reducing

85 | P a g e
 collateral requirements for loan provision for private manufacturing investors. This
resulted to ensure economic growth.
 Since lending interest rate has a negative impact on private manufacturing
investment, the government should understand that high and uncertain interest rate
affect private manufacturing investors. The government can alleviate this problem
by kept stable and certain lending interest rates, by ensuring proper
macroeconomic stability. That means the level lending interest rate kept
manageable. Because high lending interest rate, the uncertainty of the lending
interest rate hinders private manufacturing investors.
 Generally, as per investment policy implication: the government (policymakers)
should give attention to provide land for investors before taking license to invest,
provide linkage between universities and ministry of investment to generate skilled
human capital accordance private manufacturing companies need, provide proper
linkage between the financial institution and private manufacturing companies.
Finally, provide special treatment regard electric power, why because encouraging
private manufacturing companies by especial treatment regard electric power than
other sectors today leads high potential to generate excess electric power in near
future.

So the government should give attention and work seriously to solve these problems, to
improve and expand private manufacturing companies, and ensure economic growth and
development.

5.5. Suggestions For Further researchers

This research is the first research that conducted on private manufacturing investment
determinants on north showa noze, Therefore, using the finding of this research as a bench
mark other researchers can be conduct research in this area. Besides, the researcher
recommends that this study only included 11explanatory variables such as Investment
Policy, Incentive, Human Capital, Collateral Requirement, and Access to Credit, General
Inflation, Lending Interest Rate, Average Exchange Rate, Electric Power, Water and Road.
There could be other relevant private investment determinants that are more important for
the issue under study but excluded due to different reasons. Therefore, it is better if the
future researchers consider more factors of private manufacturing investment determinants

86 | P a g e
that affect private manufacturing investment like profitability determinants, capital
structure impacts, obstacles of investors to start operation after getting license to invest,
impacts of private manufacturing investment on local economy, impact of culture on
private manufacturing investment, and examine the contribution of debre berhan university
for private manufacturing companies.

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 7. APENDEX1

DEBRE BIRHAN UNIVERSITY

SCHOOL OF POST GRADUATE STUDIES
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF ACCOUNTING AND FINANCE

These Questioners are for the management members and supportive staffs of medium
and large scale privat manufacturing company in north showa zone which have five and
more than five years operational life (experience). Dear respondent the researcher will be
conducted this thesis for partial fulfillment of the requirement of master‘s degree in
accounting and finance. Entitled the research to the main determinant of privet
manufacturing investment in north showa zone. So you are one of the respondents that
selected to participate on this study by the researcher. Please assist me by responding the
question honestly, correctly and timely. Your participation is entirely voluntary. After I
complete this paper you will share the information for different purpose. Thank you for
your collaboration and dedication your time.

General directions1: Don‘t write your name.

Indicate your answer by (√) symbol.
Part One: clos end Questions
General directions2: Please indicate how much you agree or disagree with each of
the following statements by ticking (√) that best represents your opinion. There are no correct
or wrong answers.
Scales strongly agree agree neutral d i s agree strongly
disagrees
Remark 5 4 3 2 1

Determine of private manufacture investment 5 4 3 2 1

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1 Your annual profit is too low than the expected annual
profit.
2 The accesses of infrastructures‘ are the main constraint for
your business.
3 The credit interest expense is too high.
4 There is no conducive access of credit sources.
5 There is no enough access of product distributors.
6 There is no enough access of raw material suppliers.
7 There are high constraints of international market linkage.
8 There is no enough access of skilled man power.

Challenges and opportunities of privet Manufacturing

investments.
9 There is Lack of raw materials.

10 The Level of taxes is too high.

11 There are no Accesses of product (output) market.

12 Level of tax rate for exported product is too high

13 There is Uncertainty about taxes rate.

14 There is difficult climatic condition.

15 There is high Competitors bargaining power in raw

material(input) market

16 There is high Competitors bargaining power in product

(output) market

17 There is high Burecracy to get service from investment

bearo (office).

18 There is high Burecracy to get license to invest

19 There is high Burecracy to get land after getting license to

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 invest

Impact of Investment policy on private manufacturing

investors
Investment policy discourages private investors.
20

Uncertainty of Investment policy discourages private

21
investors.
There is Un clear Investment policy.
22

Impact of incentive on private manufacturing investors

23 Investment incentives not encourage private manufacturing

investors

24 I am not satisfied by incentives that provide for private

investors.

Impact of human capital on private manufacturing

investors
There is no enough labor man power.
25

There is no enough access of lit rate man power.

26
There is no enough access of skilled man power.
27

Impact of collateral requirement on private

manufacturing investors

28 Collateral provision for credit access is main constraint for

my business.

29 There is High Collateral requirement.

30 Collateral requirement discourage private investors.

Impact of Access of credits on private manufacturing

investors

31 There is no Special credit Access for private manufacturing

investors.

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32 There is no easy access of bank finance for investors.

33 There is uncertainty of credit interest rate.

34 The Level of credit interest rate is too high.

35 The Loan duration for investors is not conducive.

Impact of inflation on private manufacturing investors

36 There is uncertainty of inflation rate.

37 The Level of inflation rate is too high.

38 The inflation rate discourages private investors.

Impact of interest rate on private manufacturing

investors

39 There is uncertainty of Interest rate.

40 The Level of Interest is rates too high.

41 The Interest rate discourages private investors.

Impact of exchange rate on private manufacturing

investors

42 There is uncertainty of exchange rate.

43 There is no Accessibility of currency exchange service in

debre berhan town.

44 Devaluation of local currency affects my business.

Impact road infrastructure on private manufacturing

investors.
There is no good road Access (transportation)
45
The gov‘t douse not construct temporal road to link
46
investor location with main road.
There is no Special treatment to construct permanent road
47
to link investor location with main road.

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 Impact water infrastructure on private manufacturing
investors.
There is no enough water availabilities investors.
48
There is no enough quality water availabilities for
49
investors.
There is no Special treatment to provide water for private
50
manufacturing investors

Impact power infrastructure on private manufacturing

investors.

51 There is no enough Availability of electric power for

private investors.

52 The electric power interruption is the main constraint for

my business.

53 There is no Special treatment to provide electric power for

private investors.
Part two: open end Questions
54. What are the main:
 Challenges of private manufacturing investors?

.................................................................................................................................................
.................................................................................................................................................
.................................................................................................................................................
...................................................................................................
 Opportunities of private manufacturing investors?
.................................................................................................................................................
.................................................................................................................................................
.................................................................................................................................................
..........................................................................................................
55. If there is (are) other factors that affect private manufacturing investors, Palace
explain:………………………………………………………………………………………………
………………………………………………………………………………………………………
…………………………………………………………………………

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10. Biographical sketch
The researcher was born Amhara Regional state, east Gojjam zone, Debby
tilatng woreda on Jone, 08, 1984, and studied Debre Markos from grade 1-12;
and Mizan-Tepi University this bachelor degree (BA) in Accounting and
Finance. Finally the researcher has one year academic experience.

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