ARBA MINCH UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ECONOMICS

CHALLENGS AND PROSPECTS OF PRIVATE BUSINESS

INVESTMENT (IN CASE OF BANTU TOWN)

A SENIER ESSAY SUBMITTED TO THE DEPARTMENT OF ECONOMICS

IN PARTIAL FULFILLMENT OF REQUIREMENT FOR THE BACHELOR
OF ART DEGREE IN ECONOMICS
PREPARED BY: DEBELE TEKLU

ADVISOR: PROFESSOR UMA Emadishetty

June 2017

ARBA MINCH, ETHIOPIA

Declaration
This paper is a presentantion of my own original research work.where ever
contribution of others are involved,every efforts is made to indicate this clearly
with due reference to the literature, information derived from the published or
un published work of others has been acknowledged in text and at list of
references is given.And I declare that this paper has not been submitted in any
from for another's degree, diploma at any University or another institutions.

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....................................... ............................ ..................................
(signature). (Date)
Advisors full name. _____ ___ ___________ _________________
(Signature). (Date)
Approval of boards of Examiners
Name. Signature. Date
1. __________________ _________________ ______________________
(Examiner)
2. ___________________ ____________________ _________________
Name signature
Debele Teklu
Place of submission:
Arba Minch University
Date of submission June 19/06/2017

ACKNOWLEDGEMENTS

First of all and for most I would like to thanks God for helping me from of beginning
to the end of this study.
Second, I pay my special and deepest graduate to my advisor professor Uma
Emadishetty,who guided me with his deepest participation and understanding by
tolerating my mistake patiently without which the development and computation of
this paper would be impossible.
Third, I would like to state my deepest, heart full indebtedness to my grandmother and
all of my family for their moral and financial resistance, hardworking and
perseverance they gave me.
Last but not least, I offer special acknowledgment to Debele Teklu. For his
continuously typing of this paper from proposal up to the final research paper.

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 Table of content.
content page
Acknowledgment.................................................................................................I
Abstract................................................................................................................II
Table of contents.................................................................................................III
List of tables..........................................................................................................IV
Acronym.................................................................................................................V
Charter one............................................................................................................. 1
1 Introduction......................................................................................................... 1
1.1 Background of the study................ ................................................................ 1
1.2 Statement of the problem.............................................................................. 2
1.3 Objective of the study..................................................................................... 3
1.3.1 General objective......................................................................................... 3

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1.3.2 Specific objective......................................................................................... 3
1.4 Significance of the study................................................................................. 4
1.5 Scope of the study........................................................................................... 4
1.6 Limitation of the study.................................................................................... 4
1.7 Organization of the study............................................................................... 4
Chapter two.............................. ............................................................................ 5
2 Literature review................................................................................................ 5
2.1. Theoretical Literature review....................................................................... 5
2.1.1 Types of investment.................................................................................... 5
2.1.2 Theory of investment................................................................................... 6
2.1.3 Investment and economic growth............................................................ 10
2.1.4 Investment and employment.................................................................... 10
2.2 Factor that enhance investment..................................................................10
2.2.1 Good investment climate......................................................................... 10
2.2.2 Investment and finance............................................................................11
2.2.3 Access to land...........................................................................................11
2.2.4 Adequate infrastructure service..............................................................11
2.3 Problem of investment................................................................................11
2.3.1 Inaccessibility of credit........................................................................... 11
2.3.2 Lack of infrastructure facility................................................................. 11
2.3.3 Absence of effective demand................................................................ 12
2.4 Empirical literature review......................................................................... 12
2.4.1 Ethiopian investment opportunities.......................................................12
2.4.2 Agriculture.................... ...........................................................................12
2.4.3 Fishery.......................................................................................................12
2.4.4 Mining.......................................................................................................12
2.4.5 Tourism.....................................................................................................12
2.5 Determinant of private investment...........................................................12
Chapter Three....................................................................................................14
3 Methodology of the study..............................................................................14
3.1 Research design..........................................................................................14

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3.2 Data Source Method of data collection.......................................................14
3.3 Sample Technique and Sampling design.....................................................14
3.4 Method of data analysis..............................................................................16
CHAPTER FOUR..................................................................................................17
4 Data analysis and discussion.........................................................................17
4.1 Demographic structure of the sample investors......................................17
4.2 Over all problem and opportunities in the investment.............................. 18
4.3 Types of investment and initial capital........................................................ 19
4.4 Operation of future investment activity...................................................... 20
4.5 The investors expectation in the investment activity................................ 20
4.6 The trends of investment contribution to annual per capital income....... 21
4.7 Lack of effective business advisory role..................................................... 21
CHAPTER FIVE..................................................................................................... 22
5 summary of conclusion and recommendation.............................................. 22
5.1 Summary ........................................................................................................ 22
5.2 Conclusion...................................................................................................... 22
5.3Recommendation.............................................................................................23Refe
rence
Appendix

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IV
List of Table
Table. Page
Table 1: Age distribution of the sample investors........................................... 17
Table 2: Sex distribution of the respondents.................................................... 17
Table 3: Education level of the sample investors............................................. 18
Table 4: Occupation position of the sample investors..................................... 18
Table 5:Types of investment activities.............................................................. 19
Table 6: Source of capital for sample investors................................................ 19
Table 7: Future plan of private investors............................................................ 20
Table8:Trends of investment contribution to annual per capital
income................................................................................................................. 21

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 V

ACRONYM
GDP-- Gross Domestic Product
Mo FED-- Ministry of Finance and Economic Development
MENA-- Middle East and North Africa
FDI-- Foreign Direct Investment
MEEA-- Middle East Economic Association
GTP-- Growth and Transformation Program
ADLI-- Agricultural Development Led Industrialization
EEA-- Ethiopian Economic Association
LDCs-- Less Developing Countries

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 ABSTRACT
Investment is one of the key points for the growth of the country. The general
objective of this study was to identify the challenges and prospects of private
investment in Bantu town. To achieve this objective, three research questions were
raised. To address the questions 88 respondents out of 720 private investors those who
have investment license were selected through stratifie d sampling. To gather primary
data from the respondents, questionnaires and interviews were used as methods of
data collection. The collected data was processed, analyzed and interpreted using
tables. The data revealed that insufficient support from government, high interest rate,
high tax rate, lack of access market and high collateral requirement for taking loan
are the major problems faced private business investment in the study area. Finally,
the researchers recommended that the government has better to work on the above
problems to create conducive environment to the growth of private business
investment in the town.

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 CHAPTER ONE

1. INTRODUCTION

1.1 Background of the study

Private business investment is play's a great role in world development especially in
countries whose capital is scarce and their government lack enough capacity 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 determinant 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; 2000).
Private investment is the main engine of growth in market economics thrives and
delivers sustained growth when numbers of challenges combines to produce
conductive environment for private sectors to develop to develop. Private investment

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is crucial prerequisite for economic growth because it allows entrepreneurs to set
economic activity in motion by bringing resources to gather to produce goods and
services. Economic 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 private investment. Thus, investment plays a
vital role for economic growth and development and for improving the welfare studies
(Collier and Gunning, 1999, Ndikumana, 2000; Hernzezecata, 2000) conducted in
Africa, Asia and Latin America has established the critical linkage between
investment and the 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 every essential economic as well as social institution in which the
private sectors are not involved which requires huge investment like construction of
roads, electricity generating, telecommunications and so on. (Birhanu and Befikadu,
2011).
Lack of encouraging investment policies, recurrent drought and famines and problem
of infrastructural facilities was the major once (Ibid).regarding the trends of private
investment performance in Ethiopia, the level of private investment in the country
during (2002) was fluctuating. This has been influenced by substantially change in
economic policy by the "Transitional Government" and the present government of
Ethiopia, which emphasized market principles and the encouragement of private
sectors investment through investment proclamation N0,15/2000 and N0.37/2004
(Workie, 2004).The private sector is expected to play the pivotal roles in realizing the
objective of growth and transformation plan (GTP).The fundamental for private
sectors development were future enhance during 2010/2011 and
2011/2012.Accordingly, the government continued to strengthen the peace and
stability, guarantee property rights and ensure macroeconomic stability with prudent
fiscal discipline, exchange rate and interest rate policies.
Most of the investment opportunities and problems prevailing at the national level

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directly prevail at local level. Bantu town is found on Oromia region in South East
shoa is being one of the town in Ethiopia has encouraging policies under current
régimes through it has suffering from a lot of obstacles regarding private business
investment. Until few years ago, the private business investment activities in financial
facilities, infrastructure involvement and attitude of investors to wards investment are
some of the factors the challenged it's development. However; know a days, the
number of investors increasing from time to time.
1.2 Statement of the problem
Investment is an important macroeconomic variable that plays a great role in the
process of growth and development. It gives the Way for Large scale production,
technological progress, creation of employment with new skills and etc. Many
economic policies and theories have formulated focusing on economic development
of take off by accumulating necessary capital (MoFED).
The economic standard of developing countries are not showing progress due to main
problems, such as wide spreads and chronic absolute poverty, high and raising level of
unemployment, rapid population, low and stagnating agricultural activities and poor
infrastructure theories. Accordingly, lack of investment is also one of the problems.
This is because, investing in different areas will increase the saving of a country and
make the country asset accumulated for future generations. It is in this respect that
investment can play an important role and it may not bring only additional capital but
also technology managerial skill which many of the developing countries are
currently suffering from. Ethiopia is on less developing countries which tries to
increase investment activities for its economic growth. However; the country's benefit
from investment is low as compared with others African countries. However, the
performance is still unsatisfactory given the country's desire to move in terms of
economic development and job creation for a large number of unemployment people.
The reasons for such performance are attributed to various factors; the private sector
deficiencies of experience, entrepreneurship and also resources to expedite the start of
the projects.Besides investment sectors are negatively affected because investors are

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not received Full Corporation from the government.
The problems of policy, attitudinal as well as operational inherited from the negative
impacts on private enterprise. However, various measures are taken to overcome these
impediments. The absence of infrastructure, land, financial institution are improve and
measures to avoid bureaucratic red tape was also introduced. Despite all these
measures taken by the government, still the investment activities of the town are
considerably low.
Tola (2015) studied on success factors and problems of domestic private investment in
sebeta town and concluded that the major determinants of private investment decision
are political and macroeconomic stability, availability of natural resources, and access
to market at macro level and weak financial systems, inaccessible land and poor
infrastructure at micro level. Tola's study only concerned with determinants of private
investment. Of all the total investors who has investment license, the majority are not
enter in the operation and implementation. Thus, he suggested the existence of poor
performances investment sectors though factors attributed to this and the impacts of
such performances on socio-economic development was not considered. To address
this gap the researcher initiated to study and attempted to answer the following
questions: _
 What are the challenges of private business investors to invest in Bantu town?
 What are the prospects of private business investment in Bantu town?
 How to improve the challenges of private business investment in Bantu town?
1. 3 Objectives of the Study
1.3.1 General objective
The general objective of the study was to find out major challenges and
prospects of private business investment in Bantu town.
1.3.2 Specific objective
The specific objective of the study includes:-
 To examine the challenges to private business investment in Bantu town.
 To assess the prospects of private business investment in Bantu town.
 To improve the problem which are binders to expansion private business

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 investment in Bantu town.
1.4 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 studies of total
licensed in the area is still rudimentary stage. Therefore, it will essential to study the
challenges and prospects of private business investment decision. This study was
initiated to explore the current challenges and prospects of private business
investment in Bantu town.
In general the results of this study may appear to be significant for policy Maker,
investment officials, investors, and for future researchers, by laying down the base
stone through making available relevant and use full data.
1.5 Scope of the Study
Investment is the broad concept covering both public and private business aspects.
This paper focuses on private business investment in terms of its challenges and
prospects in Bantu town. The study is limited to the identification of the major
challenges and future prospects to private business investment in Bantu town.
1.6 limitation of the Study
The term investment is a broad topic. However, this study was taken in to
consideration only private investment. Also, the study was focus mostly on the
challenges and prospects of business private investment and some of this limitations
are insufficient time for data collection, difficulty to get the investors address,
inadequacy of materials like reference, and financial problem for gathering relevant
data from office and sample investors.
1.7 Organization of the Study
The paper has five chapter. The first chapter deals with an introductory part of the
study, which includes background of the study, statement of the problem, objective of
the problem, significance, scope, limitation and organization of the study. The second
chapter deals with literature review and the third chapter deals with methodology of
the study. The fourth charter deals with data analysis and discussions, and the last
(fifth) chapter deals with conclusion and recommendations.

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 CHAPTER TWO

2. LITERATURE REVIEW

2.1 Theoretical Definition

Investment refers to the sequences of new capital, such as equipment or building,
when one borrows from the bank to build himself new house, he added the country
investment. Similarly, the early corporations sells some stock and use the proceeds to
build new factory. It is added to invest country (Mankiw 2002; 570).
An investment is also defined as a current commitment of dollars for a period of time
in order to drive futures payments that will compensate the investor for the time. The
funds are committed, the expected rate of inflation and uncertainty of the futures

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payments (Reilly, Brown, 2006; 6).
Investment can be defined as the rise in the amount of productive capital in an
economy I.e. the increasing the number of factory, store building, and equipment used
in the production of goods and services (Wilson, 1997).
It also refers to the purchases of new capital, such as equipment or building. When
one borrows from the bank to build himself new house he added to the country
investment. Similarly, when the curly corporation’s sales some stock and use the
proceeds to builds new factory it's also added of county (Mankwi, 2002).
In common wage "investment" often refers to buying existing financial or physical
asset, for example we some ones invest in stocks, Bond; house when he or she buy's
assets. Macroeconomics "investment" added to stocks capital period and it's the flow
of specked that had to a physical stock of capital. (Dornbush and Fisher, 2004:363)
2.1.1 Types of investment
The classification of investment May be private investment or public investment
private investment is on private accounts, i.e. by private individual and public
investment is by government. Private investment i.e. private investors or
entrepreneurs are influenced by marginal efficiency of capital i.e. profit and the
rate of interest in profit elastic. Public investment is by the state or local state, such as
building of road, irrigation project, schools building, public parks, electricity work
etc.in public investment, profit motive does not enter into consideration. It is wider for
social good and not private gains.
After Keynes two types of investment were distinguish.one is autonomous investment
and the second is induced investment.
Autonomous investment: - refers to which don't depends on change in the income
levels. It takes place in house, road, public under taking and in other types of
economic infrastructure as, pore, transportation and communication. This autonomous
investment depends more on population growth and technical progresses than the
levels of income. Most of the investment under taken by the government is
autonomous nature.
Induced investment: - is that the investment which is affected by the change in the

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levels of income. The greater levels of income, the larger will be the consumption of
the community. In order to produce more consumers’ goods, more investment has to
be made in capital goods so that the greater output of consumers good became
possible. With the increase in national income implies that the demand for output of
the goods and services.TO produce greater output more capital goods are required to
produce them.TO have more capital goods, more investment has to be undertaken.
This induced investment is that the greater income and therefore greater aggregate
demand affected the levels of investment in the economy (Ahuja 2010).
According to N.Gregory Mankiw (2002), there are three types of investment in the
economy. These are business fixed investment, residential and inventory investment.
Business fixed investment: - is the purchases of new plant and equipment of firm. It
is the largest piece of investment spending accounts for about three quarter of the total
investment. The terms business is that these investments goods are bought by term for
in future production. The terms fixed is that this spending is for capital that will stay
for while as opposed to inventory investment.
Residential investment: - is the purchases of new housing and land. It includes the
purchases of new housing both by people who plans to live in it and settle and by land
who plans to rent it to others.
Inventory investment: - is the increase in firm investment of goods. It includes
produced consumers good which are not consumed but added to stock. When sales are
low the firm produced more than it sales and put the extra goods into inventory. When
sales are high the firm produced less than the sales and takes goods out of the
inventory to produce smoothly, N.Gregory Mankiw (2000)
2.1.2 Theory of investment
These are a number of competing theory of investment behavior in the literature and
it’s not clear which one is superior to the others. Therefore in this section an attempts
is made to review only some of the discussed theories of investment. In investment is
generally defined as the flow trending that adds to physical stock of capital.
According to Dornbush and Fisher (2004), investment spending that important as it
account for such movement in the business cycles. It was attempts to those theories of

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investment. However, emphasis was given to those theories of investment that won
the attention of development economist.
 Marginal efficiency of capital theories of investment.
 Accelerator theories of investment
 Neoclassical theory of investment
 Tobin theory of investment
Marginal efficiency capital theory of investment can be traced to Keynes (1936) who
introduced the idea of an independent function in the economy. He argued that
investment depends on the prospective marginal efficiency of capital relative to some
interest rate, reflecting the opportunity cost of investment. Moreover Keynes also
pointed out that spending is highly volatile due to the uncertainty associated with the
return on investment, which explained the business cycles. Hence, he said investment
decisions are very much affecting by how optimistic or pessimistic the investor feel.
The definition of marginal efficiency of capital involves the present value criteria of
the investment project which account is taken to an expected steam of futures return
associated with a given investment project .
This income is then discounted at some appropriate rate of interest. In order to
undertake, the investment project at certain costs and its present value which given a
clue about its profitability.
Keynes marginal efficiency approach was criticized on the basis of the expectations
hypothesis and internal rates of return used for discounting. The investor must from
some sort of an expectation hypothesis that enables him to assess the profitability of
investment project based on the future steam of return associated with the projects.
However, Keynes didn't take explicit accounts of such an expectation hypothesis,
which could reflect the investor concern about the outcomes of the possible return
steam.
Keynes ideas were never unchallenged because in 1950's and early 1960's other
economists formulated model that gives raise the acceleratory theories of investment.
This theories assumes that investment is linear function of changes in output (Dorbush
and Fisher, 1994) which could be given as follow.

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 I=a(Y)............................................... (1)
Where "I" is investment, "Y" is output and "a" is coefficient relating investment to
investment. This theories was dominated theory of investment behavior specially
during the 1950's and early 1960's.However,the theory has confronted with so many
limitations, such as constant ratios of desire capital stock to output and disregarding
expectations, profitability and the costs of the capital as determinants of investment.
In the models a relatively modest increase in the rate of growth of demand for final
goods can lead to enlarge increase in the demand for investment. Investment can fall
as result of decline in the rate of growth of demand for final products. Although, the
neoclassical theory of investment appears to be more comprehensive in its approach,
in lend itself to criticism due to its assumptions of perfect completion and
exogenously given output, which are inconsistent with the business cycles. In
addition, the assumptions of status expectations regarding price, interest rate, and
output that are invalid to given economic agent have rational expectations about the
future market problematic to use.
Following the above theory, Tobin (1969) formulated" theory of investment as an
attempts to address the inconsistency in neoclassical theory. The main concern of this
theory is how to measure the gaps between the desired and the actual level of capital
stock. Saleh’s and Larraine (2000) defined the Q, theory as “the ratio of the cost of
acquiring the firm through the financial market versus the cost of purchasing the firm
capital in the output market.

The modern theory of investment was developed in the beginning of twenty century
either "macro oriented" based on industrial organization theory "(Tianyu, 2003).The
former includes," the general theory "(Keynes, 1997) and “the accelerator theory
".The later includes the industrial organization theory (Brained and Tobin, 1992) and
electric theory (Dunnin, 1997, essay, 2005).
Investment theory has remained one of unsettled issues of economic growth Keynes
(1997). For example, investment depends on the future marginal returns to capital

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relative to the cost of investing funds. However, it also pointed out of the important of
human instincts in investment decision making, owning to the intractable problem
surrounding the computation of future returns to investment in world of uncertainty
(Ibid).
In 2003 and 2005 the acceleration of the theory about investment which postulated a
linear relationship between investment requirements for a certain desired target of
output growth is computed from a given incremental capital output ratio. However,
this model disregards the importance of expectations profitability and cost of capital
instruct contract to the forward (Jorgenson's, 2000). Looking the nature of investment
(Jorgenson, 2000) and (Hand Jorgenson, 2001) criticized the accelerated pointing to
its static assumption, developed another model that guys invest mental a function of
output and user cost of capital which in turn depend on prices and interest rate. This
model is also devoid of dynamic expectation and regards future prices interest and
depends. According to Tobin "1969" pointing the investment decision in function of
the ratio of the addition to the value of the firm due to one extra capital stock.
In disequilibrium context, investment is viewed as dependent on the profitability and
output. In the context of developing countries a recent study on Pakistan economy
shows the private investment is a function of output growth, public investment is
broken in infrastructure investment, later is related to private sector (sakor, 2003;
snobbish, 2004)
Macro theory of investment after Keynes "the acceleration principles", as the
dominant theory has limitation as it disregards expectation, profitability and the cost
of the capital model based on the optimal accumulation of capital (associated with
Transenson, 2001) and Holland Jargoning (2003) tried to minimize the limitation of
accelerator principle by assuming investment climate is a top priority for the modern
world. Particularly, for the developing Africa countries because investment is
considered and engine for economic growth and even for poverty reduction in the
long run. These tasks of attracting a sizable investment in regard for many African
countries in indispensable and showed are pursued. Multi faced that investment leads

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not only to simple growth but also creates sustainable jobs and opportunities for
citizens and entrepreneur. In this broad context, investment is proudest mechanism
needed to finance budgetary charm in such a way for economic growth and
development (Gitman and Jolelk, 2004).
The investment climate can be achieved through different means among all
privatization play in important role either directly or indirectly. Privatization gives a
dual effect to the investment climate one is the sale proceeds coined to the private
investment as well as revenues to the government and second is privatization process
creates a favorable conditions for attracting investment during its operation such
conditions include the development of local capital markets, division of food
regulation liberation markets (Enicha, 2000).
Investment and economic growth, according to Harold Domar and solos (2002)
growth model, presume that investment causes growth. Some others economics
argued that massive investment in infrastructure and human capital have not produced
faster growth in sub Saharan African (Ibid).

2.1.3 Investment and Economics growth

Investment is most volatile components of GDP
GDP=C+I+G+NX Where
C= Consumption
I= Investment
G=Government
NX=net exports
Hence when expenditure on good and services falls during recession, much of the
decline is usually due to drop in investment spent (Mankiw, 2000).
Investment has significant contribution in the process of economic development in a
nation. More important is that it’s expected to play pivotal roles in the endeavor of
economic development of developing countries. The central questions in economic
development are a rapid accumulation of capital, which is a question at the level of
savings and investment in economy.

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2.1.4 Investment and Employment
Keynes argues that intervention is important in minimizing the problem of
unemployment. He proposed that aggregate demand is the sum of consumers
spending, investment, government expenditures and net export. Hence, the dynamics
forces to minimize the problem of unemployment are private investment and
government expenditures by improving the educational opportunities of the people's
in LDC's. It is possible to enhanced capital formation by expanding employment
opportunities. That is investment in human capital promotes the expansion of
employment through capital accumulation.
2.2 Factors that enhance investment
2.2.1 Good investment climate
Expansion of investment requires macroeconomic stability. The farmers are the key
factors to investment attraction and sustain economic development. Investor needs
free and fair condition to be pursuing productive capacity. They also need to have
conditions where contractors right are respected and corporations is kept at its lowest
possible levels, while the latter can be achieved through adopting sound policies that
helps to lower inflation, lower investment rate and realistic exchange rate and
relatively decrease the roles of the state through privatization (Noted, 2001).
2.2.2 Investment and Finance
The availability of financial management, transparency, efficiency, and equitability of
access to the factors for enhancing private sector development (Mankwi, 2000).
2.2.3 Access to land
Land is an important inputs of inventory, goals to implement projects since it a fixed
assets and it is not possible to increase supply, government should adopt sound
policies that helps to improve land provision process to investors (Ibid).
2.2.4 Adequate infrastructure services
The provision of goods quality infrastructure services particularly telecommunication,
electricity etc, is essential for the efficient operations investment. It also to integrate in
to the global market (Ibid).
2.3 Problems of investment

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The investment and savings determinants can be drown from empirical literature on
investment behavior with appropriate consideration of the structural features of
economy. Economy investment necessities are corresponding levels of savings
mobilization either domestic or external .However, in Ethiopia context the level of
investment. The private sector have activities on industry, trade and transportation
have improved considerably, all of which owing to the removal of major and
reorientation in the incentives structure of the economy in favor of trade
Domestic credit constraints that are proxy by credit availability, problem of
infrastructure implies by the laws of public investment expenditures entrepreneurship
capacity of the society in the institutions, where problems caused by administrative
bottle necks and government policies (Werkic, 1996).
2.3.1 Inaccessibility of credit
The main source of funds for investment is loans from financial institutions which are
not well and adequately available in the country. On the other hand, relatively high
collateral requirements suppressed the incentives of inventory (MOFED, 2015).
2.3.2 Lack of infrastructure facility
The existing development of infrastructure in Ethiopia to sustain economic activity is
inadequate. The availability of road, electricity, water, and telecommunications is not
sufficient. Investor has difficulties to quiet beside, bureaucratic nature to obtain these
services is frustrating tremendous (Ibid).
2.3.3 Absence of effective demand
Because of low leveling condition in that country and low income of society, the
demand of inventories to invest in some for new technology and the modern products
is low which skilled the intention of investors to invest in some new business areas
(Ibid).
2.4 Empirical literature review
2.4.1 Ethiopians investment opportunity
Ethiopia is predominantly agriculture country which account for 80%of its exports
and 85%of total employment. Agro processing, manufacturing and services, industry
etc are also gaining importance.

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2.4.2 Agriculture
Because of its diverse agro ecological potential crops of various denominations could
extensively grow.
2.4.3 Fishery
From it lakes, dam, and rivers, Ethiopia has potential fish production which is about
45000 tons of which only 20% is currently being exploited.
2.4.4 Mining
Geological study conducted upon now ascertained that Ethiopia is endowed with vast
mineral resources such as, gold, platinum’s, sodash, cobalt, investment, copper,
chromium, uranium and petroleum.
2.4.5 Tourism
Ethiopia is characterized by unique man made cultural heritage and scenic edges as
the most preferred tourist destinations in Africa. Hence, investing in resort facilities
and services development would be rewarding business under taking in Ethiopia.
2.5 Determinant of private investment
From the theoretical and empirical points of view these are number of macroeconomic
variables that influence private investment. According to Asmelash (2007), private
investment in developing countries is determined by the following factors: _
Real interest rate: - the demand for investment depends upon the level of interest
rate because interest is a measure of finance for financing investment. When the
interest rate is high, the costs of financing project is high, at this time the level of
demand for investment falls (Mankiw, 2004).if
Economic growth:- in most developing countries the rate of growth of real output
(GDP) per capital should be positively related to the private investment, as is common
in industrial countries(Blejerand Khan,2004).Empirically, however, the postulate
doesn't work well because it's unlikely that the entire output ratio is fixed over time as
its influence by such factors like costs of capital and labor, technological progress,
etc. for greater relative of investment there must be approximately faster rate of
output.
Income per capital: - income per capital is hypothesized to effect of private

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investment positively. Positive correlation is due to the ability of high income
countries to devote much more income to savings, so that investment.
Public Investment: - the relationship between public and private investment takes on
greater importance in developing world than industrial countries because of the large
roles play by the government in the overall progress of capital.
Foreign exchange availability: - most developing countries are subjected to foreign
exchange constraints. Indeed, this is the origin of the debt crisis and the central focus
of adjustments policies. In consequences these is a real limit on importance capacity,
resulting from foreign exchange short falls.
Macroeconomic stability:-this indicates important signal to the private sector about
the direction of economic policies and credibility of the authority commitments to
manage the economy efficiency. The key macroeconomic stability indicators are
described below.
Domestic inflation rate: - high domestic rate of inflation will have an adverse effect
on private investment. It enhances the riskiness, of long term investment project. It
reduces the average maturity of commercial loans distorts the information conveyed
by price.
Debt services burdens: - the large external debt, which is proxies by the ratio of
external debt GDP or debt services ratio, adversely affect private investment
activities. It reduces funds available for investment due to debt services payment and
hence make important of capital goods difficult. It also reduces the incentives for
investment. Since much of the forthcoming return from investment must be repay the
existing debt. Therefore, acting as tax on domestic investment (Ibid).
Availability of finance: - it’s one of the factors that affect the level of investment
especially in developing countries. There is high problem regarding the availability of
finance. Because of the segments capital market and non-flexible regulatory rules in
developing countries the level of primate investment is adversely affected (Akpalu,
2007).

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 CHAPTER THREE
3. METHODOLOGY OF THE STUDY
3.1 Research Design
The study would design to get understanding of the private business investment
activities and its challenges in Bantu town. The design of the study was descriptive
survey.
3.2 Data Source and Method of data collection
The data was gathered from different concerned bodies like investors engaged in
different investment areas, investment official and Bantu town investment office by
distributing the questionnaire and receive secondary data from the investment office

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in the areas.
Both primary and secondary data was used for the study. The primary data was
gathered through questionnaire and interviews as to get the respondents full freedom
and to get detailed information about the real situations. While the secondary data was
gathered by reviewing documents such as investment bureau policies and annual
reports.
3.3 Sampling Techniques and Sampling size
The target population in this study was all those who have private investment license
and the total number of population are 720. In order to identify the samples total
population a stratified sampling method has be used. Because the population in this
town grouped in to six strata, industry, construction, agriculture, trade services
tourism. Group 1 encompasses investors, who invested in industry and total number is
20. Group 2 constructionists, total is 16. Group 3 agriculture; the total number is 14.
Group 4 traders is total number is 598. Group 5, services is total number of 48. Group
6 encompasses investors who invest tourism sectors and total of 24.
Out of the total population 720, the sample of 88 which 10% of total population was
taken considering the constraints like time, transportation costs and other similar
expenditures that researchers can't afford.

According to proportional allocation (depending on population in each strata or

sectors), the sample size was determined for each sector's. Simple random sampling
method was used to select the samples from the respective strata using random
number.
Method of proportional allocation
To get sample size using Yemani formula (1967)
n=N/1+N (e) ^2 where n=sample size
N = number of total population
e = error term
Then total samples size
n = 720/1+720(0.1) ^2 which is 10%of error term.

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 n = 720/1+720(0.01)
n = 88
Total sample size (n) = 88
Total population (N) = 720
Size of industry sector (N1) = 20
Size of construction sector (N2) = 16
Size of Agriculture sector (N3) = 14
Size of Trade sector (N4) = 598
Size of Service sector (N5) =48
Size of Tourism sector (N6) =24
To get proportion of sector to use formal: ni= (ni/N) where; n=Total sample size
ni =Sample size of ith strata
N=Total population
N1=Total population of ith strata.
n1 = 88(20/720) = 2.
n2 = 88(16/720) = 2
n3 = 88(14/720) = 2
n4 = 88(598/720) = 73
n5 = 88(48/720) = 6
n6 = 88 (24/720) = 3
From the above result, it is shown that the sample size of industry, construction,
agriculture, trade, service, and tourism sectors are 2, 2, 2, 73, 6, and 3 respectively.
3.4 Method of data Analysis
The analysis of data involves a descriptive types.by applying descriptive statistical
one can compare and contrast different category of sample unit with respect to desire
characteristics

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 CHAPTER FOUR

4. DATA ANALYSIS AND DISCUSION

This chapter deals with demographic structure of the sample investors which includes
age sex distribution of the respondents and educational back ground. It also deals with
primary and secondary data analysis and presentation with their necessary
interpretation.
4.1 Demographic structure of the sample investors
Demographic structure of the population helps to know whether they are male or
female illiterate or educated and to lock their age distribution.
Table 1: Age distribution of the sample investors.

Age Frequency Percentage (%)

Below 30 22 25
30-40 30 34.1
41-50 26 29.55
Above 50 10 11.35
Total 88 100
Source: Own survey, 2016/2017
As show in table 1, the majority of the sample respondents are aged below 40

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accounting about 59.1%.The respondents in age category of 41-50 share 29.55% and
those aged above 50 share 11.36% of the total sample. This indicates that more than
half the total sample is aged below 40.Therefore investors in the study area are mostly
young.

Table 2: sex distributions of respondents

Sex Frequency Percentage (%)

Male 60 68.2
Female 28 31.8
Total 88 100
Source: Own survey, 2016/17
From table 2, it is indicated that the majority 68.2% of the sample investors are male,
while the remaining 31.8% are females. This indicates that female participation in
investment activities is very low and male participation is greater than female
participation.
Table 3: Education level of sample investors.

Educational level Frequency Percentage (%)

Illiterate 10 11.36
Primary and secondary 44 50
College 28 31.82
Degree and above 6 6.82
Total 88 100
Source: Own survey, 2016/17

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As table 3 summarizes, educational level distribution of respondents shows that the
majority of respondent which account 50% have got primary and secondary level of
education, 31.32% are college graduate and 6.82% are university graduate and the
remaining 11.36% are illiterate. Therefore, it is clear that the participation of well-
educated personnel in the investment activities is low and education is the main factor
that affects the growth of private investment in the study area.

4.2 Over all problem and opportunities in the investment

Political related problems and opportunities.
The majority of investors suggest that no more political related issues but
opportunities.
The investors were afraid due to unavailable security accompanied with social
interaction.
Table 4: Occupation position of sample investors
Position Frequency Percentage (%)
Owner 43 48.9
Worker 25 28.4
Both owner and worker 20 22.7
Total 88 100
Source: Own survey, 2016/17
From table 4, the largest numbers which is 48.9% of the sample respondent are the
owner of only his or her investment and 28.4% of the sample investors are worker and
22.7% are both owner and worker.
4.3 Types of investment and initial capital.
In the town investors those who have investment license engaged in six sectors. The
data collected from the sample survey can be seen from table 4 below.
Table 5: Types of investment activities
Types of investment Frequency Percentage (%)
Construction 4 4.55

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Industry 3 3.4
Agriculture 10 11.36
Social service 12 13.64
Tourism 8 9.1
Trade 51 57.95
Total 88 100
Source: Own survey, 2016/17
With regard to table 5,the majority 57.95% of sample investors engaged in trade,
13.64% engaged in social service, and the remaining 11.36%,9.1%,4.55%,and 3.41%
of them are participate in Agriculture, Tourism, construction and industry respectively.
The table depicts that more than half of the sample investors are participants of trade.
Table 6: source of capital for sample investors
Source of initial capital Frequency Percentage (%)
Own saving 38 43.2
Partnership contribution 22 25
Borrowing from Bank 18 20.45
Other 10 11.35
Total 88 100
Source: Own, surveyor’s, 2016/17
The above table shows that about 43.2% of the sample respondents got the initial
capital from own saving, 25% of the respondents got from partnership contribution,
and 20.45% borrowed from Bank and the remaining 11.35% got their initial capital
from other sources. Here it is revealed that investor’s rates of borrowing from
financial institution are low.
4.4 Operation of future investment activity
Table 7: Future plan of private investors.
Investors plan for the Frequency Percentage (%)
future
Continue at this level 32 36.36
Expand it 22 25

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Start other business in 20 22.73
addition
Quite it up 14 15.91
Total 88 100
Source: own survey, 2016/17
From table 7, we realize that 36.36% of sample respondents want to continue with
their business as it was and without expanding or starting other new business. In
addition, the 25% of the sample investors want to expand their business. The
remaining 22.73% and 15.91% of the sample investors mentioned that they want to
start other business in addition and quit it up respectively. The results reveal that the
investors have positive attitude to invest in the study area though some of them want
to quit it up.
4.5 The investor's expectation in the investment activity
Their expectation in the investment opportunity is unfulfilled as predetermined level,
because of the small market share and low demand for their investment. Through the
existing status and availability of infrastructure to sustain new economic activities on
Bantu. Example Bantu 01 infrastructure which connect every Keble to the zonal town
and no good network, power and internal road, according to the data obtained in this
area the investment is weak to growth.
4.6 Trends of investment contribution to annual per capital income.
In the study, the researchers got response on contribution of investment to annual per
capita income from different officials of each sector. The result they got from 20
investment officials in the area and summarized in the table 8 below.
Table 8: Trends of investment contribution to annual per capita income.

Investment contribution Frequency Percentage (%)

to annual per capita
income
Very high 2 10

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High 6 30
Low 8 40
Moderate 1 5
No change 3 15
Total 20 100
Source: own survey, 2016/17
Table 8 revealed that, from total respondent on contribution of investment to annual
per capita income about 40% of them responded that it is low and 30% responded
high. The rest 15%, 10% and 5% responded no change, very high and moderate
respectively. From this we can understand that the contribution of investment to per
capita income in the study area is low.
4.7 Lack of effective business advisory role
As information from investment office in the town there is some advisory role given
to the investors to encourage them but this not effective enough to help investors to
exploit investment opportunity but officer respondents assured of playing such a role
as far as concerning their professional source.

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 CHAPTER FIVE
5. SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Summary
Investment is one of the Major factors in the growth of economy and wellbeing of the
society is determined by economic growth of the country. So investment is a
determinant of growth. Hence, the level of private investment in the Bantu town in
very crucial but not at expected level. This implies that low investment may cause low
income. The study was conducted in Bantu town regarding assessment of private
investment problem in the town based on the information researcher gathered from
investors and investment officers this findings were obtained.
Generally, the following findings were gained by the researcher study to the major
problem of private investment summarized as follows, Administration problem, Town
infrastructure facilities, Land allocation problem, The low incentives provided to
investors, High bureaucracy in the officers, Low cooperation of woreda
responsiveness officials, Lack of effective business advisory and social and security
issue.

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 5.2 Conclusion
Investment plays a great role in the development of an economy. Accordingly, the
participation of private sector is vital for the economic growth of a country. Bantu
serves as potential investment area for trade, agriculture, industry and service
organizations but considering these opportunities and the number of investors
operating in the area, it can be said that the investment of the town is low. It is
obvious that there is immense and to some extent unemployed resources like
agriculture, animal production industries and services that are not fully invested due
to shortage of capital. Therefore, capital as one of the major factors affecting
investment is a constraint to the growth of investment in the area. It was indicated in
the study that only few investors take loan from banks and other financial institutions
due to high interest rates and higher collateral requirement.

The participation of education in investment is also very low. This indicates that
investors are not knowledgeable enough to manage their investment project. The
number of well-educated investors with skills and experiences is considerably low in
the study area.
Lack of sufficient land for investment is also another problem for the existence of low
level investment in the town. An individual demands the government to pay the value
of their land before given to investors. This revealed that the society lack awareness
towards the benefits of investment.
The other major factor for low level of investment in the study area is attitude of
investors to invest in the town. It was shown in the study that some investors were
about to close their business due to factors like high interest rate, market availability
and higher collateral requirement to take loan.
5.3 Recommendation
Based on our findings, we would like to recommend the following points as the best

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solution for the challenges discussed in the paper;
 The investment office has better to facilitate the accessibility of recent
data and information to potential investors.
 Investmentoffice has better promote the investment opportunities of
the town through media like TV and magazine to transmit the real
image of the town in the future.
 The investors of the town has been better prepare to create other
investment projects.
 The government to improve provide different kinds of incentives to
encourage them invest in the town.
 Investors has better to produce products that people demand more for
their livelihood.
 One investor has better at least finish 12 grade of schooling and take
certificate from a certain institute.
 Investment bureau has been organize seminars to create and raise
awareness towards the benefits of investment.
 The government has better to establish sufficient market for investors
to expand the growth of private investment in Bantu town.
 Land policies encouraging investment better to applied practically in
every demanding aspect.
 The government has be provide loan to those investors with minimum
collateral requirement and with appropriate rate of interest to create
favorable environment for investment activities in the town.
 The government has better to focus on participation of female in the
investment activities and provide encouraging support for them.
 The government has better to lower tax rate to attract more investors to
invest in the town.

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 Reference
1. Aysan, A; G.pang and M.A.Venganzones-Varoudakis (2005) "How to Boost private
investment in the MENA countries: The Role of Economic Reforms", Topics in Middle
Eastern and North African Economics, MEEA Online Journal, vol.7.
2. Khan and Rein Cart (1990) Economic and growth.
3. D.W. Jorgenson (2000) “Econometric studies of investment behavior ": A survey,
Journal of Economic Literature, vol.9.
4. I. Fisher (1930) Theory of Interest.
5. Jorgenson, W.D. (2001) " Investment vol.1: Capital Theory and Investment
Behavior ". The MIT press, Cambridge.
6. M. Keynes (1936) The General theory of employment, interest rate and money.
1964 reprint, New York; Harcourt Brace.
7. MoFED (2015) Ethiopian sustainable development and poverty reduction program,
Addis Ababa.
8. N. Gregory Mankiw (2000) Microeconomics, 3th Ed.
9. N. Gregory Mankiw (2002) Principles of Macroeconomics, 7th Ed.
10. Seven, 1. (2003), " Macroeconomic Uncertainty and private Investment in LDCs;
An Empirical Investigation ", World Bank Working paper.
11. Serven, Luis and Andres Solimano (1992) 'Private Investment and
Macroeconomics adjustment- A Survey', Research Observer, 7(1): 95-114
12. Tobin, J (1969) 'A General Equilibrium Approach to Monetary Theory,' Journal of
Money, credit and Banking.
13. W.Brainard and J. Tobin (1962) “pitfalls in Financial Model-Building" American
Economic
14. Workie Mitiku (2002), Ethiopian Journal of Economics, vol. 5.Review, vol. 58.

APPENDIX
ARBA MINCH UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF ECONOMICS
Questionnaire
This questionnaire prepared for private investor, and investment official of Bantu
town. The aim of questionnaire to gather information on the economic potential and
constraints of private these questions is considerable important to get to the necessary
information

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 General instruction
 There you no need to writing your name
 In case where answer option are available, please put a mark ( √) in the
appropriate box
 In case where answer option are not available please answer in accordance
with the question
The paper has two parts of which "part ll will be attempted by investment official only
fulfill by the resident of Bantu Town who have participated in investment officials
concerned respondent are kindly requested to give clear information for the following
question.
Part I
1. Sex A. Male B. Female
2. Age A. below 30 C. 40 -50
B. 30 - 40 D. Above 50
3. Education status. A. Illiterate B. Literate
4. If, literate_______ A. Elementary and preparatory B. Degree and Above

5. What is your position? A. Owner B. Worker C. Both owner and worker

6. What types of investment activity you engage in?
A. Agriculture C. Service E. Tourism
B. Manufacturing D. Construction F. Trade
7. Your project employment A. Temporary. B. Permanent
8. Do you think that the current investment policy is favorable?
A. Yes B. No
9. Is there any kind of challenge that you faced while running your activity?
A. Yes B. No
10. It response of question number 9 is yes what are the challenges please
specify?.............................................................................................................
……………………………………………………………………………………….
11. What kind of capital are you a parting with?
A. Borrowed from financial institution

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 B. You own capital
C. Borrowed from money lenders/friends etc.
12. If answer for question number 11 is borrowed from financial institutional,
what do you think about the current interest rate prevailing in the market?
A. Favorable B. Not favorable
13. With regard to finance, are there a sufficient financial institution in the
financial market which provide sufficient and efficient credit and loan service
to you in the town
A. Yes. B. No
14. What do you want to do with your investment activity in the future?
A. Continue at current level B. Expand it
C. Start other business in addition D. Quit it up
15. If your answer to question number 14 is quit it up your, way? (Specify)
..............................................................................................................................
.............................................................................................................................
Part II
Hint, the following question, showed be attempted by investment official only.
16. Compared to review years, current level of investment in Bantu is
favorable.
A. Agree B. Disagree
17. If your response to question number 16 is disagree, why?
..............................................................................................................................
..............................................................................................................................

18. The contribution of investment in the town to annual per capital income
shows?
A. More increase B. Less increase C. extremely decline
D. Less decline E. No change
19. If your answer to above question is either decline or no change, what do
you think are reason behind? Please specify.

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..............................................................................................................................
...........................................................................................................................

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