DEBRE MARKOS UNIVERSITY

COLLAGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ECONOMICS

SOCIO-ECONOMIC FACTORS AFFECTING URBAN PRIVATE

INVESTMENT (CASE OF DEBRE MARKOS TOWN)

A RESEARCH PROPOSAL SUBMITTED TO THE DEPARTMENT OF

ECONOMICS IN PARTIAL FULFILLMENT OF THE REQUIREMENT
FOR THE BA DEGREE OF BACHELOR OF SCIENCE IN ECONOMICS

NAME ID NO

GROUP MEMBERS 1.WUDINEH MULAT 1725/12

2.WASSIE KINDIE 1678/12

3.BETELHEM KASSEGN 350/12

ADVISOR:TEKLEMARYAM . T(M.Sc.)

Feb,2023 DEBRE MARKOS /ETHIOPIA

Table of Contents
Page
CHAPTER ONE........................................................................................................................................1
1. INTRODUCTION...................................................................................................................................1
1.1 Background of the study....................................................................................................................1
1.2 Statement of the problem...................................................................................................................3
1.3 Research question..............................................................................................................................3
1.4 Objective of the study........................................................................................................................3
1.4.1 General objective........................................................................................................................3
1.5 Scope of the study..............................................................................................................................4
1.6 limitation of the study......................................................................................................................4
1.7 Significance of the study..................................................................................................................4
1.8 Organization of the paper..................................................................................................................4
CHAPTER TWO.......................................................................................................................................6
2. REVIEW OF RELATED LITRATURE.............................................................................................6
2.1 Definition of investment....................................................................................................................6
2.2 Theoretical literatures on investment.................................................................................................6
2.3 Empirical studies on micro level determinants of private investment................................................8
CHAPTER THREE.................................................................................................................................10
3. METHODOLGY OF THE STUDY......................................................................................................10
3.1. Description of the study area..........................................................................................................10
3.2 Sources of Data................................................................................................................................10
3.3 Method of Data Collection..............................................................................................................11
3.4 Sample Size Design and Techniques...............................................................................................11
3.5 Method of Data Analysis.................................................................................................................11
Work and Budget Plan............................................................................................................................12
Work plan................................................................................................................................................12
Budget plan..............................................................................................................................................13
REFERENCE..........................................................................................................................................14

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 CHAPTER ONE
1. INTRODUCTION
1.1 Background of the study
Private investment plays a great role in country’s development especially in developing countries
whose capital is scarce and their government lacks enough cap towns to cover all constraints and
bring economic change for development. Thus, if private investment (sectors) involved in
investment the out and growth domestic product (GDP) country will increase. Investment is a
critical determinants of a long-run economics performance .investment involves the formation of
capital; fixed (tangible) capital, such as reputation or technical knowledge; human capital such as
skills or education (bond and jankinson;1996). The private investment (sector) is the main engine
of growth in market economics. It thrives and delivers sustained growth when number of factors
combines to produce conductive environment for the private sectors to develop to develop.
Private investment is crucial pre-requisite for economic growth because it allows entrepreneurs
to set economic activity in motion by bringing resources together to produce goods and services.

The world all of the several different group funds are privately held and invested on the direction
from our key stakeholders and associated family members. Investments made directly by the
public. However, we do co-invest with individuals and other companies into transactions.
Rapid and sustained growth is facilitated by virtuous circle where by entrepreneurship and
investment lads to higher productivity, making possible to invest large sums in future. In cause
of this process, job is created and new technology is introduced, especially through international
trade and investment linkages. Economics growth could be realized through a proper
development policy. One of which could be promoting demand countries have shown that
growth the economics have come through increased investment.
African governments have not been able to amass the funds needed to invest in new generation
capacity and maintain existing infrastructures. Investments from all multilateral sources to
energy in Africa have amounted to 9.7 % of total multilateral finance (Eberhard, 2008).

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In Africa Asia and Latin America has established the critical linkage between investment and
other rate of economic growth.
It also plays multiplier effects through creating employment opportunity, reducing
poverty ,transferring technology through foreign direct investment (FDI),increasing capital
accumulation and government revenue collected in very essential economic as well as social
institution in which the private sectors is not involved which requires huge investment like
construction of roads, electric town generating, telecommunication, and
soon(Brihanu&Befikadu,2004).
Regarding trends of private investment performance in Ethiopia, the overall performance in a
country since the era emperor’s regime shows allow rate of growth, which fluctuation through
time.
In the regime emperor Haileselasse (pre-1975) investment had shown a progress there both
domestic and foreign investors growing at good pace. But through the change of ideology, the
dergue period (1975-1991) dwindled the development of investment. The government
nationalized the property of national business and other devastating measures were taken that
demolished private investment. It is after 14 years at the last period of dergue period, that a
mixed economy policy was designed. Then another government came to existence in May 1991
it this destitute country with different ideology Ethiopia people’s revolutionary democratic front
(EPRDF),during its stage of transition reformed and formulated the first investment code in 1992
based on the mixed economic policy amendment of dergue.Since the Ethiopia started a free
market economy policy and the investment activity started reviving parallel to the reformed
policies of investment (Asmelashe, 2007).
According to the estimation results private investment in Ethiopia is influenced positively by
domestic market, return to capital, trade openness and liberalization measures. Infrastructural has
been backward in socio-economic development, out with much similar lists of factors affecting
both domestic and foreign direct.
The level of private investment in the country during the last two decades (1975-1994) was
fluctuating. In 1994, the share of private investment total investment was 39.5% and it dropped
to in 11.7%in 1990 and1991 as the dergue regime started ‟reform‟ early in 1989 an proclaimed

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a mixed economy in much in 1992, the rate of private investment continued to in increase
substantially through change in market principle of the present government (workie, 1996).

1.2 Statement of the problem

Private investment is an engine for creating innovation, economic growth and poverty reduction.
Domestic investment shows progressive trends with speedy starting from announcement of
liberal policy in 1992. Nevertheless, the gap between domestic investment and saving has
remained wide there by reinforcing the need foreign direct investment in development of the
economy (UNCTAD, 2002).Although the investment climate has improved greatly in recent
years, there are still money aspects of investment promotion where improvements are urgently
needed. In other words, even if the situations or investment has improved from the previous
period, the participation of private sector is not satisfactory. Due to the following Reasons; Poor
business environment, Weak financial systems, Inaccessible to land, Absence of supplies
network, Lack of skilled labor, Poor infrastructure.
These thesis was conducted by Tollessa in Oromia regional state specially Ambo town since
2010 and he uses data from the year 2007 to 2010 only secondary sources; but we will use data
from 2011 to 2014 that obtain from primary and secondary source and we will conduct in
Amhara regional state in case of Debremarkos town.

1.3 Research question

This study will be the following question.
1. What is the type and level of investment in the Debermarkos town?
2. What is the major influencing factor affects private investments in the Debermarkos town?

1.4 Objective of the study

1.4.1 General objective
The general objective of this study will be examine socio economic factor affecting urban private
investment in the Debre Markos town.
1. To assess the types and level of investment in the Debre Markos town.
2. To identify the investment incentives in the provides in spite of the national incentives.

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 1.5 Scope of the study
As indicated in the objective, the aim of this study will be identify important microeconomic
variables that affect private investment in the study area in order to identify the important
variable at micro level. The term investment is a broad topic. However, this study will be take in
to consideration only private investment. Because of the availability of data from Debremarkos
town administration industry and investment office, the study will be limit on licensed projects
for the year 2010-2014.
1.6 limitation of the study
The main limitations of this study will that the study will not involve investment climate
indictors of the other area. It is only one area Debre Markos town. Thus, the result of this study
will not be reliably used for other area. In addition owing time constraints the sample size limit
or restrict to convenient size only. Hence, the result of this study and recommendation made for
these study area. The study will be only focus on urban private investment but not include urban
public investment. Therefore, further studies on this issue are recommended to fill the research
gap. The results of this study will need to be understood by taking in to account the above
limitations.
1.7 Significance of the study
Private investment is the primary engine to promote any country’s economic growth and
development. Despite this fact, the share of implementation projects out of total licensed projects
in the study area is stillatit rudimentary/normalstage.Therefore,it will be essential to study factors
that hinder the development of private investment decision.This study will initiate to explore the
current factors that affect the development of private investment in Debermarkos town. In doing
so, will hope that the study will be add knowledge in area of private investment and it has its
own contribution for future research work. In general the results of this study will benefit
positional researchers, policy makers and development planner in re-designing appropriate
policies and strategies.

1.8 Organization of the paper

This paper is five chapters. The first chapter is an introductory part including the statement of the
problem, objective of the study, significance of the study, scope of the study, limitation of the
study. The second chapter discusses on the review related literature that includes both empirical

4
and theoretical frame work. The third chapter include, research methodology, method of data
collection, sample size and method of data analysis. Chapter four Will contains the data
discussion and analysis and finally chapter five will concentrates on conclusion and
recomendation.

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 CHAPTER TWO
2. REVIEW OF RELATED LITRATURE
2.1 Definition of investment
The word investment can be defined in many ways according to different theories and principles.
It is a term that can be used in a number of contexts. However, the different meanings of
“investment” are more alike than dissimilar. Generally, investment is the application of money
for earning more money. Investment also means savings or savings made through delayed
consumption. According to economics, investment is the utilization of resources in order to
increase income or production .An amount deposited in to a bank or machinery that is purchased
in anticipation of earning income in the long run are both examples of investments .Although,
there is a general broad definition to the term investment, it carries slightly different industrial
sectors. According to economists, investment refers to any physical or tangible asset, for
example, a building or machinery and equipment. (Stephen L.Slavin, 2005).

According to economics, investment is the spending devoted to increase or maintain the stock of
capital. The stock of capital consists of machineries, factories, office and other durable goods
used in the process of production. Investment is any new plant, equipment, additional inventory
or residential housing Investment is any new plant, equipment, additional inventory or residential
housing. Besides, according to world book, investment is the use of savings to produce future
income.
2.2 Theoretical literatures on investment
There are a number of competing theories of investment behavior in the literature and it is not
clear which one is superior to the other. Therefore, in this section an attempt is made to review
only some of discussed theories of investment.

Investment is generally defined as the flow spending that adds to physical stock of capital.
According to Dornbusch and Fischery (1994), investment spending is important as it is accounts
for much of the movement in business cycle. It is attempted to those theories of investment.
However, emphasis was given to those theories of investment that won the attention of
development economist. These are marginal efficiency of capital the theories of investment, the

6
acceleratory of investment, the neoclassical theories investment, the theories of investment and
the Irvin Fischery theories of investment. Each of these theories is discussed below.

Marginal efficiency of capital theory of investment can be traced to Keynes (1936) who
introduced the idea of an independent investment function in the economy.

He argued that investment depends on the prospective marginal efficiency of capital relative to
some interest rates, reflecting the opportunity costs of investment; moreover, Keynes also
pointed out that spending is highly volatile due to the uncertainty associated with the return on
investment, which explains the business cycle. Hence, he said investment decisions are very
much affecting by how optimistic or pessimistic the investors feel.

According to Ott.Yoo and Ott (1975), Keynes marginal efficiency approach was criticized on the
basis of the expectation hypothesis and the internal rate of return used for discounting. The
investor must from some sort of an expectation hypothesis that enables him to assess the
profitability of an investment project based on the future steam of return associated with the
project. However, Keynes did not take explicit account of such an expectation hypothesis, which
could reflect the investor’s concern about the outcome of the possible return streams.

The Keynesian approach is further complicated by the difficult in computing the present value of
an investment project as a result of the ambiguity about the proper rate to be used which must be
consider as one prevailing for loans of comparable risk. because the lending rate and borrowing
rate for a firm may vary, one therefore, may have to be careful in selecting the rate which the
investor will equate the marginal efficiency of investment.

A distinction is often made between investment savings. Saving is defined as forgone

consumption investment is restricted to “real” investment of sort that increases national output in
the future. This definition is useful to make a destination between real and financial investment.
Real investment generally involves some kind of tangible assets, such as lands, machinery, or
factories. Financial investment involves in contracts written on a piece of paper such as common
stock and bonds. In primitive economies most investment is of the real variety, where as in a

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modern economy, much investment is the financial variety. High developed instantiation for
financial investment greatly facilitate real investment. By and large, the two form of investment
are complimentary, not competitive (WilliamF.Et al, 1998).

According to Ethiopian investment proclamation no-280/2002 investment is defined as

expenditure of capital by an investor to establish a new enterprise or to expand or upgrade one
that already exists (as cited in kefay, 2005).

2.3 Empirical studies on micro level determinants of private investment

There is no sufficient literature regarding this study. However, an attempt will be made in this
research to review the available findings.
Analyzed the micro and macro determinants of private investment in the manufacturing sector in
Kenya, using OLS the technique, for macro level determinants and descriptive statistics for
micro level determinants of private investment. His findings showed that high interest rate,
inefficient infrastructure, corruption, insecurity, weak institutional framework and inefficient and
bureaucratic public serves are the greatest hindrances to investment ( mbugua ,2000).
In this thesis on determinants private investment industrial investment in Ethiopia by using OLS
technique in analysis of macro level determinants and descriptive statistics for analysis of micro
level determinants found out that sever constraining factors to private manufacturing investment
are sets of markets ,financial ,infrastructure, policy, technology and input related. He further
noted that the root cause for this problem is many and interdependent (Getachew ,1997).
Moreover, the degree of severity of these problems is found to be independent of location of the
enterprise (Willem Naude et al. 2000).Conducted as study on determinants of investment and
exports of South African manufacturing firm that utilized data from 61 manufacturing firms
using Tobit model. It is findings showed that labors costs are found to be high in comparison to
other African countries are similar surveys are conducted.
The capital intensity for large firms is comparable to the capital intensity of large firm in
Zimbabwe, but significantly higher than those observed in Ghana or Mauritius. Given that labor
productivity is comparable, but capital intensity and monthly wages are significantly higher
those observed for Mauritius, this suggests that South African firms face a cost advantage via-a-
via successfully exporting firm located in Mauritius.
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Moreover, it is believed that manufacturing perceive their environment to be less uncertain that
counter parts in the Kenya and Zimbabwe, suggesting than uncertainty is less of a deterrent to
investment in south Africa other African countries and credits constraints are even less of
problem for the present sample of south Africa firms than they are for some of other African
countries.
The fact that financial markets are much better developed in South Africa than elsewhere on the
continent may explain this difference. However, it is found that firm efficiency firms. (Kefay
2005) are conducted on determining macro and micro factors on private investment by using
Tobit model. His findings at micro level showed that education, access to land, access to Credit,
infrastructure facilities, investment incentives, corruption and bureaucratic red tape are the most
important determinants of private investments in this study area.
Generally, the above summarized review of the empirical literature on micro level factors
affecting private investment revealed that are different factors that affect private investment at
operational levels. Thus, this study will attempte to identify major factors affecting private
investment at micro level to the west part of Ethiopia, Amhara regional state at Debermarkos
town.

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 CHAPTER THREE
3. METHODOLGY OF THE STUDY
3.1. Description of the study area
The study will conduct in Debre Markos town, which is located in north western Ethiopia In
Amhara National Regional State East Gojjam Zone at adistance of 300Km north-west of Addis
Ababa along addis abeba - Gondar road and 265Km from Bahir Dare the regional capital with an
elevation of over 2446 meters (8025ft). Its astronomical location is 100 20’N latitude and 370
43’E longitude.Debre Markos has a temprate and warm climate typical of elevated portions
Ethiopia.The climate is classifief as subtropical highland(koppen:cwb),despite the proximity to
the equator.The minimum and maximum temperatures average between 14 °c and 20° c
respectively.The mean annual air temperature is 17•5° c.March and April are the warmest
months with average temperature of 19 .81°c. July and August are the coldest months with
average temperatures of 15•7°c. The average annual temperature is 17•5°c.The average rainfall is
considerably irregular going from 15 mm in january to 433mm in July. Based on the 2007 census
conducted by the centeral statistical Agency of ethiopia(CSA),Debre Markos had a population of
62,497, of whom 29,921 were men and 32,576 women.The majority of residents,97•03%
practiced Ethiopian orthodox christianity while 1•7% and 1.1% of population were muslim and
protestants respectively. Debre Markos is located close to a strategic mountain Mount Chokea
Which Is one of the major sources for the water tower of Africa. The mountian is the source of
over 40 rivers and is located around 60km north of Debre Markos and at 4100 meters above sea
level. Debre Markos is also known for being aproducer of prolific writters monuments poetries
and sprituals.

3.2 Sources of Data

The data for the study will be collect from primary and secondary data sources. Primary sources
data will be obtain from employees ,investor’s and Debremarkos industry and investment office.
Secondary data will be from the statistically in Amhara regional industry and investment bureau
and annual reports book of the region.

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 3.3 Method of Data Collection
Both close ended and open ended form of questionnaire’s will be use with investors and public
officials.The secondary data will be collect by careful review of related document and report.

3.4 Sample Size Design and Techniques

In this study a researcher will be apply simple random to collect data. The simple random
sampling techniques are used equal chance to each small business enterprise and higher investor
to reduce bias and sampling error.
The study covers 89 individual respondents from 807 members of towns investment based on
preparation to simple size 89 respondent form Debermarkos are selected finally sample size for
the study will be determine based on the following formula was developed by Yamane
(1967).according to Yamane sample size at 90 percent confidence interval the degree of
variability all and level of presscion 10% sample size will computed as fallows.
n=N/1+N (e) 2
Where, n =Sample size
N= Total population sample size
e= Margin of the error
Then, n=N/1+N (e) 2
n=807/1+807(0.1)2
n=807/9.07
n=89
Based on above formula the sample size for study will be work out to be 89 individual
respondents from this population.
3.5 Method of Data Analysis
The method will be use in the study of deceptive analyses of statically tools such as table
percentage with detail explanation. Also both qualitative and quantitative approaches are us to
analyze the collect data in this study.

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 Work and Budget Plan
Work plan

№ Activities Nov Dec Jan Feb Mar Apr May Jun

1 Title selection

2 Draft resource proposal

developed

3 Final summation of proposal

4 Competing review literature

5 Development questioner’s
and material

6 Data collection

7 Data analysis

8 Report writing the research

paper

9 Submitting the final research

10 Research presentation

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 Budget plan

№ Item Quantity Unit cost Total cost

1 Transportation --- --- 100

3 Printing 55 2 110

4 Duplication of 100 1 100

paper

5 Pen 3 10 30

7 Binder 3 25 75

9 Flash disk 1 200 200

10 Salary for typist --- --- 200

11 Note book 1 35 35

12 Mobile card 15 10 150

Total --- 1000

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Akpalu.w. (1997). determinant of private investment in Ghana. Addis Ababa: AnMsc theses
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Asmelash, B. (2007). Opportunities and services delivery of investment in oromia. In Msc

thesis . Addis Ababa university.

Blejer, M. &. (2004). government policy and private investment in developing countries.
Washington DC.

Brehanu, N. &. (2003/2004). anuale report on Ethiopia economic. In E. e. press. Addis Ababa,
Ethiopia.

Bulletin of Ethiopian economic association, ,. (1999). economic focus(Article).

Collier, p. G. (1999). explaining American economic performance.

Dornbusch, R. (1994). In Microeconomic. New York: mc Graw-hill.

Getachewm. (1997). determinant of private industrial investment in Ethiopia .

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analysis.

Hernadez-cata, E. (2000). Raising growth of private investment in sub-Saharan Africa:what can

be done? Washington D.C.

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paper 1234 .

Kefay, b. (2005). determinants of private investment at national level. In M. t. University.

Keynes.j.M. (1936). general theory of employment,intrest and money. USA: San Diego,Harcourt
brace,Jovanovich.

L.slavin, S. (2005), In p. GoryBurke (Ed.), Economics (Vol. 7th edition).

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Mankiew, g. (2000). macroeconomics. In 4. editing (Ed.). New York: worth publisher.

Maude, w. (2000). determinants private investment and exports south African manufactureing
firms. In s. c. oxford (Ed.).

Mbugua.t. (2000). the micro and macro economy determinants of private investment in
manufacturing sectors in Kenya.

Ndikumana, l. (2000). financial determinants of domestic investment in sub saharan Africa. In

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Workie, m. (1997). determinants and determinants of private investment in Ethiopia.

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