DEBRE MARKOS UNIVERSITY BURIE CAMPUS

COLLEGE OF BUSINESS AND ECONOMICS

Determinant of urban private investment in Amhara region (in the
case of burie town)
West gojjam zone of the Amhara national state
A senior essay submitted to the department of economics in partial
fulfillment of the requirement the award for degree of Bachelor of
art in economics

By: Yimeku Adamu

ID.NO BER/214/07

College: college of business and economics

Department: Economics
Programme Bachelor of art in Economics
Advisor: Nigatu.B (MSC)
May, 10/2009
Burie
 Table of Contents

Contents page
Table of Contents .................................................................................................................................. II
LIST OF TABLES .............................................................................................................................. IV
Acknowledgment ................................................................................................................................. V
Abstract ............................................................................................................................................... VI
ACRONYMS ..................................................................................................................................... VII
CHAPTER ONE ................................................................................................................................... 1
1. Introduction ....................................................................................................................................... 1
1.1 Background of the Study ............................................................................................................ 1
1.2 Statement of the Problem ............................................................................................................ 4
1.3 Research Question ...................................................................................................................... 5
1.4 Objectives of the Study ............................................................................................................... 5
1.4.1 General objective ................................................................................................................. 5
1.4.2 Specific objective ................................................................................................................. 6
1.5 Significant of the Study .............................................................................................................. 6
1.6 Scope of the Study ...................................................................................................................... 6
1.7 Limitation of the Study ............................................................................................................... 6
1.8 Organization of the study ............................................................................................................ 7
CHAPTER TWO .................................................................................................................................. 8
2. Review of Related Literature ............................................................................................................ 8
2.1 Definition of investment ............................................................................................................. 8
2.2 Kinds of investment .................................................................................................................... 8
2.3 Source of private investment ...................................................................................................... 8
2.4 Theories and models of investment ............................................................................................ 9
2.4.1 Classical model of investment ............................................................................................. 9
2.4.2 Neo classical theory of investment .................................................................................... 10
2.4.3 Keynesian theory of investment......................................................................................... 10
2.5 Contribution of Investment to economic growth ...................................................................... 10
2.6 Determinants of investment in developing countries................................................................ 11
2.7 Ethiopian investment policies and trends of private investment .............................................. 13
2.7.1 Private investment in the Dergue Period ........................................................................... 13
2.7.2 Private investment in the post reform period ..................................................................... 14
2.8 Impediments of private investment at micro level .................................................................... 15

II
 2.9 Empirical studies on micro level determinants of private investment ...................................... 17
CHAPTER THREE ............................................................................................................................ 19
3. Research Methodology ................................................................................................................... 19
3.1 Description of the study area .................................................................................................... 19
3.2 Source and method of data collection ..................................................................................... 19
3.3 Source of data ........................................................................................................................... 19
3.4 Sample size and sampling techniques ....................................................................................... 20
3.5 Method of data analysis and presentation ................................................................................. 20
CHAPTER FOUR ............................................................................................................................... 21
4. RESULTS AND DISCUSSIONS ................................................................................................... 21
4.1 Descriptive analyses.................................................................................................................. 21
CHAPTER FIVE ................................................................................................................................ 30
5. CONCLUSION AND RECOMMENDATION .............................................................................. 30
5.1 Summery and conclusion .......................................................................................................... 30
5.2 Recommendation ...................................................................................................................... 31
Reference ............................................................................................................................................ 32
Appendix A: ........................................................................................................................................ 35

III
 LIST OF TABLES

Tables’ page
Table 4.0 trend of investment from 2005-2009………………………………………21
Table 4.1: Sex &marital status of the respondents …………………………………22
Table 4.2: Age information of the respondents………………………………………23
Table 4.3: information about educational level of investors………………………....23
Table 4.4: family size of investor’s respondents……………………………………....24
Table 4.5: sample investor’s perception about Access of credit……………………...25
Table 4.6: perception of sample investors about investment incentives……………..25
Table 4.7: sample investor’s perception about access of infrastructure……………..26
Table 4.8: source of capital for the investment…………………………………………27
Table 4.9: sample investor’s perception about interest rate……………………………28
Table 4.10: sample investor’s perception about license…………………………………29

IV
Acknowledgment
Above all, thanks to Almighty God and Saint Mary then I express my deepest and sincere gratitude
to my parents especially my brother Tayachew Adamu for being the pillar for my academic progress
through her aptitude, financial support and prayers.

I would like to my express sincere gratitude to my advisor Negatu B, for his invaluable comments,
suggestions, encouragements and corrections.

I express my deepest and sincere gratitude to Burie town investment office and investors who
willing to give information about their business for me to for the input they offered for the success of
the study.

I’m also highly grateful to instructor of university and my friends especially, who hold me up
through my studies with all their time and aptitude assistance, and finally I would say God bless
you to those and all other contributors to the good my life.

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 Abstract
Private investment plays a great role in country’s development, especially in developing countries
whose capital is scarce and their government lacks enough capacity to cover all constraints and
bring economic change for development. The general objective of this study was to analyze the
determinant of urban private investment in case of Burie town. The survey was conducted at
Burie town, in Amhara regional state and primary data was collected using structure questioner
and secondary data was collected from different sources. Accordingly the number of projects
licensed in the study area is classified into groups based on their project type. The study is used,
descriptive analysis method. The study identify the main determinant that determines investor’s
decision on investment activities to be: educational level, access to credit, access to infrastructure
facilities and investment incentives are significantly affected the investment activities and intensity
of capital allocation.

VI
 ACRONYMS

EPRDF……………..Ethiopian People Revolutionary Front

UNCTAD…………..United Nations Commission for trade and Development
FDI…………………Foreign Direct Investment
ERP…………………Economic Reform Program
GDP…………………Gross Domestic Product
MOFAD……………..Ministry of Finance and Developme

VII
i
 CHAPTER ONE

1. Introduction
1.1 Background of the Study
Investment is an instrument which has a great role in development of an economy
especially for less developed countries like Ethiopia. This is because of the importance of
investment to bring employment opportunities, effectiveness of domestic resource, large
production, specialization, which do not fulfill in developing countries (Befekadu, 1994).
In Ethiopia both private and public investment are relevant for economic growth, but
private investment is more effective than public investment. Investment canbe classified
as public and private investment. Private investment can also be classified as domestic
private investment and foreign direct investment types of private investment(Ndikumana
and Verick,2007).public investment is an investment mostly spent by the
public(government) like investment in capital projects such as infrastructure (roads,
telecom service projects, schools, universities, health centers and hospitals, power etc.)
and their purpose not profit. Foreign direct investment (FDI) are private investments
which are partly or wholly owned by nonresidential potential investors and their objective
is mostly for profit and risk diversification. Domestic private investment refers to the
private investments wholly owned by residential potential investors and operating in the
country domestically. Different studies have shown that, private investments effect on
growth is greater than government (public) investment (Ghura & Hadjimichael, 1996) as
cited in Beddies, 1999).Besides, According to Bouton and Sumlinski(1998) though,
theoretical development models developed in the economics literature makes no
difference between private and public investment ,there is an emerging pleasure that
private investment is more efficient and creative than public investment. Evidence from
empirical studies suggested that private investment has a stronger relationship with long
run economic growth than public investment. The volume and diversity of investment has
been on increasing level since the introduction of liberalization measure in early 1990s.
Unlike in the previous governments in which investment activity are mainly carried out
by public sector, both domestic and foreign private sector firms have been actively

1
participating in the investment sector of the economy since the reform of early 1990s
(wolday & Amah, 2005/2006). According to w. Rostov (1995) most developing
countries are either in the per-condition or traditional state. All this society had to take of
(to self-sustain growth) was to follow a certain rules of development. Development
requires substantial investment through capital mobilization of foreign direct investment
and foreign saving in order to generate economic growth. Investment trend which
prevails in Ethiopia shows the close interdependence of the level of investment,
especially private investment in this case and economic growth has been lower for many
years. According to Bhagwati and Chenery(1999) investment needs certain circumstance
in order to have a contribution for economic growth, such as sufficient source of fund,
political stability of a country and existence of effective polices. .the source fund or
incomes for investment are foreign direct investment, domestic saving and foreign aid (as
cited in (Todaro, 2000).
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. 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.
Rapid and sustained growth is facilitated by virtuous circle whereby entrepreneurship and
investment leads 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. (Ibid)
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. Thus, investment plays a vital role for economic growth
and development and for improving the welfare of the society. Recent studies (collier
Gunning, 1999; Ndikumana, 2000; Herndeze-Cata, 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 very

2
essential economic as well as social institution in which the private sectors is not
involved (Brihanu&Befikadu,2003/04).
Regarding trends of private investment performance in Ethiopia, the overall performance
in a country during the emperor regime shows that the rate of growth, which fluctuated
through time. In the emperor Haileselasse regime (pre-1975) investment had shown a
progress there both in domestically 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 in this 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 Ethiopia started a free market economy policy during the EPRDF regime the
investment activity started reviving parallel to the reformed policies of investment
(Asmelashe, 2007).Thus, 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 11.7% in (1990) and(1991) as the Dergue regime
started ‘’reform’’ early in (1989 ) and proclaimed a mixed economy in much in 1992, the
rate of private investment continued to increase substantially through change in market
principle of the present government (Workie, 1996).
According to Haroon and Nasr (2011), some of the advantages of private investment are
increases the level of employment opportunities, increases individual income, improves
standard of living, helps to reduce the poverty in the country, helps to increase the per
capital income of country, pushes up the growth rate of GDP and GNP, and helps to
attract foreign investors to invest in the country, especially Diasporas living and working
abroad. Many countries rely on investment to solve their economic problems such as
poverty and unemployment. Developing countries like Ethiopia are trying to learn from
each other how to attract and encourage private investors because proper investment in
proper economic sectors can change their economic conditions quickly. These days,

3
Ethiopia as a developing country is intensively working at improving socioeconomic
development of its citizens. Since private sector is the engine of industrial growth, the
government of Ethiopia has been promoting and supporting the private sector in order to
enhance their contribution for the economic growth and industrialization endeavor.
Particularly, the private sector has been encouraged to invest in activities that link
manufacturing and agricultural sectors (GTP annual progress report, 2010/11). Due to
this reason, Government of the Federal Democratic Republic of Ethiopia has recognized
and paid due attention to the promotion and development of private investment including
working a lot to attract private investors for investment in different sectors of the
economy and is taking many major steps such as expanding infrastructural access,
providing investment incentives, and facilitating financial access to encourage private
investment in order to increase the pace of economic development in the country.
Therefore, the purpose of this study was to assess the determinants of urban private
investment growth in Burie town.

1.2 Statement of the Problem

Private investment plays a great role in country’s development especially in developing
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 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).
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 thereby reinforcing the need foreign direct
investment in development of the economy (UNCTAD, 2002).
Given the low investment and saving performance the government intended to sustain
broad based economic growth, throughout the five year growth and transformation plan.
(MOFED, 2010). This is because investment is believed to play a crucial role in

4
economic growth and its aggregate demand function has considerable effect on economic
activity on long term economic growth (Ibid).
Although the investment climate has improved greatly in recent years, there are still
many 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 (Ibid). This study focused on internal and
external factors that affect urban private investment in burie town. According to the
Amhara regional state investment office report urban private investment shows dramatic
increment from time to time, off the total investors who have got investment license, the
majority not entered in the operation and implementation, and this study is aimed at
addressing or solving this and like gaps or problems. Before this time there were many
studies that related to the determinant of urban private investment in Ethiopia. According
to Ambachew Mekonen (2010) which assess the determinant of private investment in
Ethiopia his finding shows that domestic demand, the return to capital, trade openness,
liberalization measure, foreign direct investment and infrastructure have a positive
response however unfavorable environment government activity and political instability
are the negative determinant of private investment. However private investment is not
only determined by the above factors but also it is determined by interest rate, education
level, public investment market size are determinants of private investment.

1.3 Research Question

To address this gap the study answered the following questions;
 What are the major influencing factors that affect private investment in Burie
town?

 What seems like investment trend overtime in Burie town?

As per my knowledge, no study has been undertaken regarding urban private

investment in study area.

1.4 Objectives of the Study

1.4.1 General objective
The general objective of this study is to analyze the determinant of urban private
investment activity in Burie town.

5
 1.4.2 Specific objective
1. To know the factors that affect urban private investment in Burie town.

2. To Show investment trend over time in Burie town.

1.5 Significant of the Study

The study expected to have the following significant roles:
Understanding the determinant of urban private investment will help to the town to
develop favorable investment environment and exploit the benefit of investment that
essential to supplement the town economic growth.
To add some to the existing knowledge of other society and it provides a clue for policy
makers and researchers as an input for further investigation around investment.
Generally the result of this study will therefore help to provide information about urban
private investment in Burie town.

1.6 Scope of the Study

As indicated in the objective, the aim of this study was to identify an important variable
that determines private investment in the study area. In order to identify the important
variable at micro level, the survey will conduct at Burie town by using structured
questionnaire. Based on the list of investors licensed in 2005-2009 provide Amhara
regional state investment office and Burie town administration about projects were
licensed, stratified and random sampling technique was employed based on their project
status and investors were be selected from total population.

1.7 Limitation of the Study

In the process of undertaking this research study, there have been certain constraints or
problems which may limit the study. Among these:
 Constraints of finance and time are the main one.
 Other problem may be few investors may be found in Burie Town and
most respondent are not willing to give the require and right responses in
order to get sufficient information.
 There is lack of secondary data and getting other information.
 The study was focus on the institutional factors, was not involve the
overall factors especially macroeconomic factors like GDP, inflation,

6
 exchange rate etc. Because of it may be lack of the availability of data
from investment promotion agency (investment office).

1.8 Organization of the study

The study organized in to five chapters, i.e. chapter one deals with introductory part that
include background of the study, statement of the problem, research question, objective
of the study, scope, significance and organization of the study. The second chapter deals
with both theoretical and empirical related review of literature. The third chapter covers
research methodology of the study which includes description of the study area, types of
data, method of data collection and data analysis. The analysis about the determinant of
urban private investment in burie town explained in chapter four. Finally, chapter five
provides the conclusion of the finding from the discussion section and recommendation.

7
 CHAPTER TWO

2. Review of Related Literature

This section shows review of related and relevant theoretical and empirical literature that
can complement our analysis .thus it deals with theoretical that explains factors or
determinants, that affect to invest and empirical evidence.

2.1 Definition of investment

Investment in economic analysis can be defined as flow of expenditure devoted to
increase or maintain the real capital. More broadly, it is defined as the flow of
expenditure devoted to projects producing goods and service, which are more style not
intended for immediate consumption where this project may take the form of adding both
physical and human capital as well as investors.
It is also defined as flow of capital, the volume of which is determined by those entire
projects, which will yield positive net present value of an internal rate of return greater
than interest rate (Dictionary of modern economics, 1992)

2.2 Kinds of investment

Today there are varieties of considerable investment opportunity for private individual
but it is difficult to state all types of investment in broad term according to Mankiw
(1995) there are three types of investment spending.
Business fixed investment: The largest piece of investment spending, accounting for
three quarter of the total investment. It includes the equipment and structure that business
buy to use in production. Business fixed investment includes everything from the tax
machineries to factory, from computer to company cars.
Inventory investment: includes that the business put aside in storage is at the same time
negligible and of significant. It is one of the smallest components of spending, averaging
one percent of GDP.
Residential investment: includes the new housing that people buy to live in and that
landlords buy to rent out.

2.3 Source of private investment

Increasing investment and capital accumulation is a necessary condition for economic for
economic growth as well as economic development. Therefore without increase the level

8
and rate of investments, bringing a sustainable development is unthinkable. In any
development in an economy accumulation of capital requires mobilization of economic
surplus which can be financed from internal and external source. Basically, the source of
investment can be categorized in to: domestic and foreign external source.

Domestic source of -private investment

The accumulation of capital in development of the economy requires the mobilization of
economic surplus. In the case of private investment it is to be increase from domestic
source there must be growing surplus above a current consumption that can be tapped and
direct in to productive investment channels. This involves abstinence from present
consumption for future use. The importance of financial institution in this case lies in
there making available the means to utilize saving. It means the existence of more
developed capital market and financial intermediate in the collection and distribution of
inevitable fund (Meier, 1995).
External source of private investment
Mobilization of investment from external is needed when the domestic resource are not
enough to finance investment. Capital from such source can be used to raise economic
activity in developing countries, and hence economic development, but according to
jargon (1988) the best course is started joint venture.

2.4 Theories and models of investment

2.4.1 Classical model of investment
Classical theorists did not explain spending in a well systematic ways as others did.
Classical theory treated investment as an inverse function of interest rate. The lower the
interest rate the greater the investment spending. According to classical theorist for every
prospective investment project, management estimates the expected rate of returns before
allowance for the interest cost on the funds tried up in the project.
The classical school looks granted that capital makes investment. Because they expect to
earn profit in the future depends on the good deal on what profit are now.

9
One of the well-known classical economists, Adam Smith (1776) took for granted that
capitalists make investment because they expect to earn profit in the future which
depends on the actual profit (Higgins, 1959).
2.4.2 Neo classical theory of investment
Unrealistic assumption behind the growth models led Jorgensen 1997 and Hall 19967 to
formulate neo classical approach to investment that provides another explanation for
investment expenditure in addition to change in output. In this approach investment
decision depend on out put the price of capital goods the real interest rate and the
deprecation rate capital. As stated in the above neo classical argue that investment
depends on the rate of interest rate and level of income. Thus the theory of investment the
rate of interest rate focuses mainly on the cost of finance as the key variable all other
variables (including the availability of finance, economic infrastructure, source of capital,
policy)being assumed to be an important origin. However, private investment behavior
countries cannot be directly explained by the standard approach based on the theory of
the firm (Jorgenson, 1992)
2.4.3 Keynesian theory of investment
The theory of investment behavior goes back to Keynes (1936) “general theory “He was
the first to attention to the existence of an independent investment function decision in
the economy. He observes that investment depends on the perspective management
efficiency of capital or by reducing the interest rate. He further pointed that private
investment was intrinsically volatile any rational assessment on the return on investment
was bounded to highly uncertain. The “ animal spirit “ of private investor could be the
main driving force Investment decision in addition to the expectation future demand for
firm output, velocity of investment, uncertainty and other economic variables are possible
determinant of private investment in general (Serven and Somanio, 1992) .

2.5 Contribution of Investment to economic growth

There are different theories regarding the contribution of investment to economic growth
these are:
The Long and summer (1991, 1993) disaggregate investment in to its structure
(construction) and equipment components using a sample of both developing and

10
industrial economies, they find that equipment investment contributes much more to per
capital GDP growth than structure investment.
In short term, investment has been shown to depend on the rate of output growth, the rate
of capacity utilization, or both as indicators of future demand and the severity of liquidity
constraints faced by firms- two variables critical to decision to expand productive
capacity. Thus during the course of the business cycle output may lead investment in
accelerator fashion (Server and Seliman, 1993).
Development economics has traditionally maintained that capital accumulation is
fundamental cause of growth over the long term. Recently, however this view has been
challenged by the argument that the movement of investment ratios and growth rates may
be largely caused by the action of the third factor technological innovation. That is
driving both capital accumulation and output expansion (Benhabib and Javanovic, 1991).
An extreme interpretation of this view would hold that capital accumulation is
consequents which other than cause of the growth process, is caused by technological
factors.

2.6 Determinants of investment in developing countries

The major actor which have an important bearing on the private investments are the
quality and quantity of public infrastructure investment, different rate of return to
investment in the economy, availability of finance, the real interest rate, fiscal policy,
foreign exchange constraints and risks.
 Availability of finance: comparing to industrial countries the financial
constraints are, in general more buildings in developing countries. Self-financing
is limited in developing countries due to two main reasons: - many firms in
developing countries have limited ability to commutate adequate finance.

 The real interest rate: neoclassical model leads to conclusion that the private
investment rate should be negatively related to real interest rare as a measure of
user cost of capital. User cost of capital is an important factor in any investment
decision by private sector. On the other hand in countries where there are high
deposit rates the level of private investment is higher which suggest a positive

11
 relationship between investment interest rate because of represent financial
market in developing countries.

Low per capital is often accompanied by low level of saving and led to fewer resources
being available
1. Financial (government) deficit: over the expansion of public sector resulted
in the higher deficit in many countries. The way this deficit is financed has
immediate long term effects on private investment. Domestic financing of fiscal
financing direct reduce the availability of credit to private over the expansion of
public sector has resulted in higher deficit in many countries.

2. Foreign exchange constraint: access to international market is one of the key

factors that determine the private investment. In most developing countries, the
real price of foreign exchange and availability affects private investment
consequently there is real limit on import capacity resulting from foreign
exchange short falls. Which one in turn called by inelastic export supply
exogenous rise in export price external debt rationing (limiting the purpose for
which credit granted by international financial institution.

3. Devaluation: to reduce external imbalance structural adjustment program use a

combination of expenditure reducing and expenditure switching policies. A real
devaluation of a countries currency (i.e. a fixed exchange rate system) is usually
included in switching policies. This generally had negative effect on investment in
the short run. Devaluation may also reduce investment by depressing aggregate
demand. More over if investment has significant import content. The expansion of
output is likely to be necessary condition to expand investment (N. Gregory
Mankiw 2007).

4. Risk and Uncertainty: since expectation plays critical role in investment

decision, economic and political instability and uncertainty can have a harmful
impact. Indeed it can be argued that the later factors as bring partially responsible
the incompatibility of neoclassical accelerator models in developing countries.

12
 Effect aimed at encouraging private need to be supported by sands
macroeconomic policies and adequate regulatory and supervisory structures.

2.7 Ethiopian investment policies and trends of private investment

Situation of private investment in Ethiopia has been following different investment
policies and forms of the last many years; the investment level in the country has showed
changes in fact in deterioration position. The contribution of private investment is still
insignificant in the economy and the economy the country remain s one of the least
developed nations. Post of the populations lives under poverty line with a very low per-
capita income.
These all facts are mainly explained by inefficient economic policies, which accounted to
the low income, saving and investment pictures in the economy.
Investment in any sectors of the economy particularly in a private investment is made for
profit. This profit is obtained by providing the goods and services produced to the market.
But if there is no market or market is limited for the goods and services produced the
progress of investment in accounting will be lower. In Ethiopia investors are always
complains the poor performance of the sectors is all factors that investors have been
complaining about such shortage of demand and ability to complaining about such
shortage demand and ability to compute with cheap imports (economic focus, 1999).
The state of private investment in Ethiopia begins in the imperial era. At that time where
polices issued by the government to encourage private investors and investment,
particularly private sectors’ investment. in this period the entire economy is expected to
work not according to what economic loans dictate, but rather in the socialist ideological
frame work ,which gave a dominant role of public sectors by discriminating the private
sector’ investment.
2.7.1 Private investment in the Dergue Period
The common economic policy and the Dergue regime which was centered on socialist
economic system, gave a dominant role to the public sectors by limiting the role of
foreign and domestic investment. The policy of the military of government had started to
be implemented by the nationalizing different private property and instituted central
planning as a means of allocating resources. This was possible by using proclamation
notice and declaring 1975, Dergue’s policy of nationality action was enacted as a

13
proclamation no 26/1975.according this proclamation, the military government
nationalized a number of industries, commercial forms, financial intuitions ,financial
institution, houses, land and restricted private portions to a few lines of activities and
imposing capita selling on them.
In the Dergue period, saving rate has shown decline from 13% to 4% by the end of 1980,
which was the lowest saving in the world .such decline of saving rate was the reflection
of dramatic increase in the government consumption, which was increased in military
expenditure and expanded government bureaucracy, parallel with the rise in the
government consumption, there has been a decline in private consumption from 79.8% of
GDP during 1974-1978 to 70.8% during 1988-1990 (Eshetu and Mekonen, year).
2.7.2 Private investment in the post reform period
After the military empire, transitional government of Ethiopia issued a liberalizing
market oriented economic policy, which basically aimed at encouraging the participation
of private investments in the economy the main features of the policy include: limiting
the role of the state to the building of essential infrastructure facing preparation of sound
macroeconomic and spectral polices that create favorable condition for attracting and
mobilizing foreign capital and encouragement of widely participation of the private
sectors in the economy (yobeokellow 1992).
Under broad policy frame work of a market oriented economic system, the rational
government of Ethiopia issued proclamation (proc. No 15, 1992), to provide
encouragement of investment is a vital to spending up the economic social department
endeavors of the country, in the creasing the supply of goods and services and thereby to
advancing the benefits of the country of the investors (federal NegaritGazeta).
The proclamation created an enabling the environment for the active participation of both
domestic and private capital in various investment activity without any limitation of
capital ceiling ,foreign investors are encouraged to participate widely and constructively
in the rehabilitation and reconstruction efforts of the country’s domestic private
investment .
In 1988, new investment proclamation, that is proclamation number 116/1998,
amendment of the exited code 37/1996 was issued to ensure the participation of private
investors in the key strategic sectors such as telecommunications services and defense

14
industries in collaboration with the government. According to the amendment domestic
investors means as foreign nationals permanently residing in Ethiopia having made an
investment and including the government public enterprise as well as foreign national
,Ethiopian by birth and designing to be considered as detesting investors and enjoy the
opportunities to participate in the area that are sole reserved for local investors(federal
negarit gazeta,1998).
Since the former regimes had an international interest in discouraging private investment,
particularly foreign direct investment, the new government had made numerous
proclamations locating its interest to attract private investment, particularly foreign direct
investment .for the last many years it has revised its investment codes in order to make it
more attractive for foreign direct investors to invest in Ethiopia. Proclamation no
280/2002 is one of the proclamations that are issued mainly to give incentive to private
investors and to enlarge areas that foreign private investors can participate with a view to
enhance the country’s investment area (federal negarit gazeta).
Latest investment proclamation, pro, No 375/2003 is issued mainly to take the s\system
of administration of investment transparent and efficient accordingly the Ethiopian
investment authority that has been re-establish under proclamation no 280/2002 is
renamed as Ethiopian investment commission. The proclamation gives more incentive
that any proclamation before to private investor in order to enhance private investment of
the country (federal negaret gazeta, 2003).

2.8 Impediments of private investment at micro level

Although, adjustment of macroeconomic factors stabilization is necessary, it is not
sufficient so as to increase the private investment. Thus, there should be also adjustment
of microeconomic factors and institutional factors that affect private investment.
Inadequate accesses to land, weak market, bureaucratic red tape, corruption, and poor
functional factors. These are much of the problem for expansion of private investment in
developing countries in long term (workie, 1996) as sited in dawite, 2010).
According to Girma as cited in dawit (2010).although, many author showed determinants
of private investment decision like political, and macroeconomic instability, availability
of natural resources and market size insignificant, a lot of new factors are emerged that

15
inhabit the expansion of private investment at micro level. Some factors that inhibitor
reduces private investments are discussed below:
I. Poor business environment: this refers to the general frame work of regulation
no being clear and unequal provision of service, anticompetitive policies by the
government and practice by private enterprises, inefficient legal system and negative
attitudes toward a private investment.

II. Distorted incentive policies: this refers to only some groups benefiting from

Incentives such as controls on product and factor prices, tax incentives, trade protection,
state subsidies, and access to resources.
III. Inadequate legal framework: Insufficiency of laws defining property right

, regulating enforcement of contracts, ensuring effective competition, establishing

bankruptcy procedures and regulating labor contracts.
IV. Weak financial systems: that is, inefficiency of the financial market and financial
institutions in providing credit and other money related services.

V. Inaccessible to land: that is difficulties in gaining access to land through

outright purchase or leased contracts.

VI. Poor infrastructure: that is, shortage of communication networks, domestic and
international links, and reliable power supplies.

VII. Lack of skilled labor: that means, not fitting to the increasing demand for
skilled or highly trained human capital that can cope with emerging technologies.

Absence of supplies network: meaning that, not creating appropriate conditions and
supportive policies investors to contribute to the development of the networks.
Hence, along with macroeconomic factors, microeconomic factors should be considered
to create a business friendly environment for the recovery and expansion of private
investment.

16
2.9 Empirical studies on micro level determinants of private investment
There is no sufficient literature regarding this study. However, an attempt has been made
in this research to review the available findings.
Mbugua (2000) 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. Furthermore, according to Getachew (1997) 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 were sets of markets ,financial ,infrastructure, policy,
technology and input related. He further noted that the root cause for these problem were
many and interdependent. Moreover, the degree of severity of these problems was found
to be independent of location of the enterprise. Willem Naude (2000) conducted a study
on determinants of investment and exports of South African manufacturing firm that
utilized data from 61 manufacturing firms using Tobin model. Its findings showed that
labors costs were found to be high in comparison to other African countries were similar
surveys were 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. Moreover, it was 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 was found that firm efficiency firms. Thus, improving firm

17
efficiency and overcoming labor cost disadvantageous are serious firm level constraints
facing South African manufacturing firm in their adjustment to globalization
Kefay (2005) were conducted on determining macro and micro factors on private
investment by using Tobin model. His findings at micro level showed that education,
access to land, access to credit, infrastructure facilities, investment incentives, corruption
and bureaucratic red tape were the most important determinants of private investments in
this study area.
Moreover, the micro level study result in indicated education, access to land, access to
credit, infrastructure facilities, and investment incentives were positively significantly
related with private investment. Corruption and bureaucratic red tape were negatively and
significantly associated with private investment. The results of his study revealed that
most of the problems encountered by the private sectors were institution.
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 attempted to identify major determinant
that determines private investment at micro level to the north part of Ethiopia, Amhara
regional state at Burie Town, western Gojjam.

18
 CHAPTER THREE

3. Research Methodology
This section includes description of the study area, method of data collection, sampling
technique and size and method of data analysis parts.

3.1 Description of the study area

This study mainly focuses on BurieTown, West Gojjam Zone in Amhara regional state of
Ethiopia. Burie (also transliterated Burye) is a town in western Ethiopia. Located in the
west Gojjam Zone of the Amhara Region. This town has a longitude and latitude of 100
42’N 370 4’E / 10.7000 N 37.0670E with an elevation of 2091 meters above sea level.
Burie enjoys a flourishing small business and connection point of businesses between
wolega, Gonder and Shewa. An agricultural training college and burie baguna, a mineral
water factory, are the main modern industrial opportunities in the town. Demographics
based on figures from the central statistical agency in 2005, this town has an estimated
total population of 23,292 of whom 11,535 are men and 11,757 are women. The 1994
census reported this town had a total population of 13,437 of whom 6,069 were men and
7,368 were women. It is the largest town in Burie woreda.

3.2 Source and method of data collection

In this study both primary and secondary data was collected for analytical purpose. The
survey was conducted at Burie Town, in Amhara regional state and secondary data was
collected from different sources. In order to a sample from total investors a stratified
sampling method is used. The investors are is stratified in to six stratus or sectors
(construction, agriculture, hotel and tourism ,social, industry and commerce) and the
researcher uses judgmental sampling to select the sample from the respective sectors of
strata to avoid the problem of identifying the location of individual investors and
proportionate strata method is employed to address each individual sector investors.

3.3 Source of data

The researcher were used two types of data sources, namely primary data and
secondary data sources. The primary data sources are the main source of the
study. The importance sources of primary data were current private investors in
Burie Town. The primary data were collected through structured questionnaire

19
 method. Secondary data was collected from secondary sources. These were
collected from investment bureau in Burie Town that means from published and
unpublished materials. By using the above methods of primary and secondary
data collection the necessary information were collected.

3.4 Sample size and sampling techniques

Out of this total investor, the researcher selected 30 investors as sample size. The primary
data was collected from current private investors. The researcher was used stratified
sampling techniques. By using stratified sampling technique, different types (types of
investment) were selected and investors who actually engaged in the selected types of
investment were randomly selected.

3.5 Method of data analysis and presentation

After the relevant data were obtained from different sources by using different data
collection method; the researcher analyzed the data. Data was analyzed through both
quantitative and qualitative method. The collected data was summarized and presented by
using descriptive analysis method such as tabulation, frequency and percentage are used
to analyze the data. Percentage is a dominant tool for this study, since it is an ideal
instrument to measure and analysis, it is also an ideal to analyze the respondents,
opinions and assumptions against each statement. Because the data will expect to give
meaningful conclusion.

20
 CHAPTER FOUR

4. RESULTS AND DISCUSSIONS

4.1 Descriptive analyses
This section is mainly concerned with descriptive analysis result of the survey data and
interpretation of analytical findings. The problem of private investment in Ethiopia is
multidimensional. Burie town is one part of the country. Therefore, this paper only
considers those problems that investors face based on the response potential investors.
These problems are somewhat analyzed and identified as follow.
Personal information of the respondents
Personal information refers to the written account of an individual life. (biography
written by the subject) the term biography connotes an artful, conscious literary gender
that employs a wide range of source, strategies, and insight; that deals with the intimate,
inconsistent textures of personality and experience; an and attempts to render the whole
sense its subject, not the life only but what like to have lived it at its several stages. The
following table 1, 2, 3 and 4 describes the trend of investment and personal background
of the respondents:
Potential trend of private investment over time in Burie town

Table 4. trend of private investment over time

No Year Number of project Capital invested in Employment
project opportunity unit
No Share in Capital Share in No Share in
% % employed %
1 2005 7 7.87 43334706 3.76 283 4.67
2 2006 6 6.74 16810000 1.46 212 3.5
3 2007 11 12.36 585130000 50.7 1583 26.1
4 2008 32 35.96 92476036 8.01 810 13.4
5 2009 33 37.07 416171041 36.1 3166 52.3
Total 89 100 1153921783 100 6054 100
Source Burie town investment office 2017

21
 As you look from the above table 4.1 investment shows an increasing trend from 2005-
2009 the year 2009 shows33 (37.1%) investors the highest one with initial capital of
416171041 (36.1%) and employment opportunity of 3166(52.31%). However the year
2006 there are 6(1.46%) investors which is the lowest compared to the given years
having initial investment capital of 16810000 (1.46%) and employment opportunity of
212(3.5%) and the year 2005 shows 7 (7.87%) and the investors initial capital of
43334706 (3.76%) and employment opportunity of 283 (4.67%) and the year 2007 shows
11 (12.36%) the initial capital of 585130000 (50.7%) and employment opportunity of
1583 (26.1%) and the year 2008 shows 32 (35.96%) the investors initial capital 92476036
(8.01%) and employment opportunity of 810 (13.4%). According to burie town
investment office urban private investment shows a dramatic increment from time to
time.

Table 4.1 Sex &marital status of the respondents

Variable Frequency Percentage
Sex Male 17 56.7%
Female 13 43.3%
Total 30 100%
Marital status Single 7 23.3%
Married 18 60%
Divorced 5 16.7%
Total 30 100%
Source: own survey in Burie town, 2017
As it can be observed from the table sex distribution of total sample respondents is
17(56.7%) of male, 13(43.3%) female. This means, even though males have the highest
number of participation improvement in the female engagement in private investment
activities was recorded. As it seen the above table, out of total respondents 18(60%) are
married, 5(16.7%) are divorced and 7(23.3%) are single. The above table indicate that the
difference between groups with sample regarding to marital status insignificant. It means
that gender was the main factor that affects private investment, but the marital status was
not the main factors that affect the growth of private investment in the study area.

22
Age: Economically active age group population is contribute to the development of
growth domestic product of the country as well as towards the achievement of the
strategy of agricultural development led industrialization as stated in macro-economic
performance of Ethiopia by Berhanu and Seid (1998) articles.

Table 4.2 Age information of the respondents

No 1 Age Frequency Percentage

Item 23-30 8 26.7%
31-40 13 43.3%
41-50 6 20%
>50 3 10%
Total 30 100%
Source: own survey in Burie town, 2017
The result of the study shows that the majority of the age respondents are found in
interval 31-41 which accounts 13(43.3%). This indicate that majority of the respondents
are found in economically active age group which may contribute the product of not only
the Burie town but also the development of growth domestic products of the country.
Furthermore, as table show about 8(26.7%) of the respondents fall between 23-30 age
interval which also founding the active group categorized and able to contribute to the
economy. Also respondents which founds between 41-50 age groups which are 6(20%)
and respondents which found in the age interval of greater than 50 which are 3(10%)
have also significant role. So this indicates the active population age have significant
impact on private investment in study area.
Educational level: Education or human capital development is considered as the basic
instrument in fighting poverty. Any policy that aimed to improve nation education of man
power such as development of skill, knowledge, invention, research and development etc.
are expected to bring about long run sustainable economic development.
Table 4.3: information about educational level of investors

No 1 Respondent Frequency Percentage

23
 education level
Item Illiterate 2 6.7%
Primary(1-8) 10 33.3%
Secondary 8 26.7%
Diploma 6 20%
Degree and above 4 13.3%
Total 30 100%
Source: own survey in Burie town, 2017,
Educational level distribution of respondents show that majority of them, which is,
10(33.3%) are primary educated, 8(26.7%) of them are secondary educated, 6(20%) of
them have diploma, 2(6.7%) of them are illiterate and 4(13.3%) of them are higher
educated. Therefore education was the main factors that affect the growth of private
investment in the study area
Table 4.4: family size of investor’s respondents
No Frequency Percentage
Family size
1-3 13 43.3%
3-5 8 26.7%
6-10 6 20%
>10 3 10%
TOTAL 30 100%
Source: own survey in Burie town, 2017
As the surveys shows, that 13(43.3%) of respondents their family size ranged between 1-
3 person per households, 8(26.7%) respondents whose family size ranged between 3-5
person per households, 6(20%) of the respondents whose family size ranged between 6-
10 person per households and 3(10%) of the respondents whose family size ranged
between or above 10 person per households. As we observe from the table the majority
of the respondents holding few families have more invest as compare to have more
families.
Access to credit: Recall that the financial problems facing households is how best to
investment their funds. The relative smallness of most households makes direct

24
investment intrinsically difficult. Also investor obviously cannot advertise in local
newspaper his/her willingness to finance investment. Instead, financial intermediaries
such as bank, investment companies or credit unions naturally evolve to bring (bodie
Kane Marcus1991).

Table 4.5: sample investor’s perception about Access of credit

No Item Frequency Percentage
Have access credit 21 70%
Respondent Do not have access of credit 9 30%
Total 30 100%
Source: own survey Burie town, 2017
As seen from the above table 21(70%) of the total sample respondents have access to
credit, 9(30%) of the total sample respondents did not have access to credit. therefore the
majority of respondents said to have access to credit. As we observe from table the
difference between the groups within the sample regarding to access to credit was it
means that access to infrastructure was the main factors that affect the growth of private
investment in the study area.
Investment incentives: The proclamation number 15/1992 removed restriction on private
investment and allowed for wide participation of private sectors several investment
incentives were provide under article 130 of the proclamation. The proclamation provide
that domestic and foreign investment should be exemption of important and export taxes
and duty to income taxes holiday s and to some other benefits the duration of income tax
holiday was two and three years for existing enterprise and newly ,enterprise established,
respectively from the data of commitment of orientation. Investment designated priority
regions and sector of investment should enjoy income taxes holiday for five years (Niatu,
Aklilu 2006).

Table 4.6 respondent perceptions on investment incentive

No 1 Investment Frequency Percentage

25
 incentive
Benefited 22 73.3%
Not benefited 8 26.7%
Total 30 100%
Source: own survey in Burie town, 2017
As we can read from the table bout 22(73.3%) of the respondents were benefited from the
investment incentive, whereas 8(26.7%) of the sample respondents not benefited from the
investment incentive. So investment incentive was the main factors that affect the growth
of private investment in study area.
Infrastructure facilities: For country to accelerator economic growth and to attract private
investment there is no question to the need for social and economic infrastructural
facilities Such as telecommunications, road, electric power supply, health and education,
bank insurance .However, the existing infrastructure facilities, which is important to
bring about economic development to attract private investment in this is concentrated in
the center particularly the capital goods. Investors asked to evaluate infrastructure
facilities that have direct or indirect impact on their operational activities or in the
absence of such facilities the activity will be strongly challenged.

Table 4.7: sample investor’s perception about access of infrastructure

service very good Good Poor total

Frequen Perce Frequen Perce Fervenc Percen Frequen Perce

cy nt cy nt y t cy nt

Road 14 46.7% 12 40% 4 13.3% 30 100%

Telepho 16 53.3% 11 36.7% 3 10% 30 100%

ne

Power 12 40% 12 40% 6 20% 30 100%

supply

26
Water 10 33.3% 15 50% 5 16.7% 30 100%
supply

Posta 17 56.7% 10 33.3% 3 10% 30 100%

Health 11 36.7% 15 50% 4 13.3% 30 100%

Educatio 18 60% 8 26.7% 4 13.3% 30 100%

n

Source Owen survey Burie town, 2017

According to the above table, among the total sampled investors 14(46.7%) respond very
good and 12(40%) of the respondents respond that road infrastructural facility is good.
The remaining respondents, which is 4(13.3%) responds the facility is poor. While
telephone and power supply is good by accounting 16(53.3%) and 12(40%) respectively.
The sample respondents respond of that infrastructure very poor regarding telephone,
power supply is given by investors, which consists 3(10%) and 6(20%) of respondents
given as very poor respectively. Regarding water supply and Posta which consists of
10(33.3%) and 17(56.7 %) of the sample respondents revealed good .while 5(16.7%) and
3(10%) of sample respondents revealed poor. In addition hospital and education is good
which consists 15(50%) and 8(26.7 %) respectively. While from both respondents level
of non-poor infrastructure in the study area is none. So infrastructures were the main
factors that affect growth of the growth of private investment activity.
Initial capital: According to the questionnaire results, difference source of capital were
used for the investment. To mention some of them: source of capital used: in addition to
owing capital, loan from different sources among those we show below the table.
Table 4.8: source of capital for the investment
No 1 Source of capital for Frequency Percentage
investment
Owen saving 8 26.7%
Partner contribution 5 16.7%
Borrowing from bank 13 43.3%
Other (Family ) 4 13.3%

27
 Total 30 100%
2 Have a problem of bank
Yes 11 36.7%
No 19 63.3%
Total 30 100.%
Source: own survey in Burie town, 2017
The survey shown that about 8(26.7%) of the respondents initial investment from own
contribution, 5(16.7%) of the respondents from the partnership contribution, 13(43.3%)
of the sample respondents their initial investment of capital from the bank, 4(13.3%) of
the respondents their initial investment capital comes from family. As we observe from
the table 7 the majority of initial investment capital comes from bank. Most of the sample
respondents revealed no which account around 19(63.3%), the other 11(36.7%) of sample
respondents revealed yes. As we observed from the table the majority of the respondents
to finance their investment from bank and most of the respondents revealed there is no
problem to gate lend from banks.
Interest rate: The demand for investment depends up on the level of interest rate because
interest rate is a measure of cost of finance for financing investment. When the interest
rate is high, the cost financing projects is high, as this time the level of demand for
investment coming to down (Mankiw, 2000).
Given the neoclassical model interest rate come up with a conclusion of negatively
related with private investment. However, some arguments are there the cost of money to
investors is less important than other major costs like cost of machinery, labor, and row
material. Moreover studies suggested that in developing countries which have repressed
financial markets like Ethiopia, its interest rate are not affected the level of investment
rather it is affected by credit policy. Thus, the study includes it as an empirical study
which does not support the negative relationship between investment and interest rate in
developing countries. (Husain, 1993).

Table 4.9: sample investor’s perception about interest rate

Item Respondent
Interest Frequency Percentage

28
 High 16 53.3%
medium 12 40%
Low 2 6.7%
Total 30 100%
Source: own survey in Burie town, 2017
As it can see from the table, 16(53.3%) of the sample respondents said that interest rate
of the loan was high, 12(40%) of the sample respondents revealed interest rate of the loan
was medium, 2(6.7%)are respond low . so as we observe from the table the interest rate is
not affect the private investment in study area. However as we seen from the table, the
difference between groups within sample indicates that interest was negative determinant
of investment. So the interest rate was the main factors that affect the growth of private
investment.
License: The first phase of (ERP)(as cited in kefay ,2005),different polices were reform
so as to expand private investment, among the notable reforms, which are expected to
promote private sectors participation, among those The easing of licensing requirements
and deregulations is necessary.

Table 4.10: sample investor’s perception about license

No Respondent
Do you faced license Frequency Percentage
problem
Yes 12 40%
No 18 60%
Source: own survey in Burie town, 2017
Regarding to get license for investors 12(40%) of the sample respondents said that
license have problem, 18 (60%) of the respondents said no. So the majority of the sample
respondents said that did not have any problem to gate license for their investment. As we
seen the above table however, the difference between groups with sample that license
was statistically insignificantly. It means that license was not the main factors that affect
the growth of private investment in study area.

29
 CHAPTER FIVE

5. CONCLUSION AND RECOMMENDATION

5.1 Summery and conclusion
In this study, a determinant that determines the growth of private investment at town
level was analyses. The survey was conducted at Burie town through structured question.
The sample investors were repaired from list of regional investment office which seat at
Burie town and were taken from licensed investors in 2005-2009 that is the only five
year. This study employed stratified random sampling and purposive sampling method,
because of heterogeneity among the sample units, stratification needed based on their
project sectors. In this study descriptive analyses were used for analytical purpose.
The study identifies the main determinants that determine investor’s decision on
investment activities to be: educational level, access to credit, access to infrastructure
facilities and investment incentives are significantly affected the investment activities and
intensity of capital allocation. The other variables such as gender, interest rate were not
significantly related to the dependent variable.
The finding of this study could be used to recommendation for future intervention that
can boost private investment in town, which is one of the specific objectives of the study.
Well implication of polices the participants of investors in the study area, it is also
important to improve investment climate in the town or region and finally it increase the
volume of private investment in our country, Ethiopia. Policy and strategies formulated at
national level should also be implemented at regional or town level. National
development policy and strategies could give the desired outcome only if it supported by
appropriate regional polices and strategies for effective investment activities. Therefore,
implementation of development planes and strategies in the town would be taken in to
account the determinants (factors) that are directly and indirectly related with private
investment. A clear message from this research is that having well formulated national

30
polices and strategies by itself is not enough to attract investors in our economy. It needs
properly defined regional and town level implementation strategies to change the
investment climate that increases the participation of private investors up on investment.

5.2 Recommendation
Based on the result of the study, the following recommendation are suggested to be
considered for future intervention strategies by regional government and town
administration which are aimed for promotion of private investment in the town. This are
broadly viewed about strengthening of institutional procedures in the town.
The finding indicates that educational level, access to credit ,access to infrastructure and
investment incentive were the most determining affecting the growth of private
investment and intensity of capital allocation .this reflecting the importance of improving
the functioning of government institution while provides different services for different
private sectors. The results found that access to credit was an important factor for
increasing private investment. Therefore, the federal as well as the regional government
should give attention up on supplying adequate credit for active investors as well as
potential investors that helps running investment activities. Besides this, the needed fund
should provide on the time the need it. Over requirement of collateral asset may retreat
the participation of investors rather the government can control them by the following
their day to day investment activities.
The analysis also revealed that the availability of infrastructure was important factors in
promoting private investment .therefore, regional government as well as town
administration should invest on infrastructure such as road, power supply,
telecommunication and water supply etc. so as to increase the participation of investors
on investment activity in town. Accordingly, an efficient road network, railway system
and recommendation system has been cited as a major factors that discourage investment
in our country. Thus, the regional investment should construct a better infrastructure
facility that encourages activities as well as potential investor’s to participate investment
activities.
The results also indicate that, investment incentives were found to be one of the
determinants of investment decision. Therefore, the government has to identify the types

31
and area of investment incentives and it should be distributed equal so as to motivate
more investors in investment activities.

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Ababa University.

 Federal NegaritGezeta: Proclamation no.2/1996, Proclamation

no.35/1986, Proclamation no.11/1989, Proclamation no.17/1990,
Proclamation no.15/1992, Proclamation no.37/1996

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 Appendix A:
DEBRE MARKOSE UNIVERSITY BURIE CAMPUS
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF ECONOMICS
Dear Respondents
This questionnaires is designed to gather relevant information for the researcher that is
partial fulfilment of BA degree on economics. The objective of the research is to identify
the determinants of urban private investment in Burie town. Your frank and honest
opinion has a positive contribution to the success of the research. This questionnaires is
prepared in Debre Markos University Burie Campus College of business and economics
department of economics under graduating student in an attempt to conduct a survey on
determinant of urban private investment in case of burie town and know that it is only for
academic purpose and your response will be kept confidential you are not required to
write your name.
Household characteristics (personal information)
1. Sex A. Male B. Female
2. Age. A. 23_30 B. 31_40 C. 41_50 D. > 50
3. Educational level______________
A. illiterate B. 1_8 C. 9_12 D. diploma E. Degree
4. Marital status__________________
A. Married B. Single C. Divorce
5. Family size_____________________
A. 1_3 B. 3_5 C. 6_10 D. >10

About business characteristics

6. Initial Capital___________________
7. How much is the current capital________________
8. Types of business A. Industry B. Service C. Agriculture D. Trade
9. To develop the investment activity more rapidly, is there infrastructural facilities for
this activity?
A. Very good B. Good C. Poor
If Very good, Good, Poor which one?
A. Road

B. Telephone

C. Power supply

D. Water supply

E. Posta

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 F. Health

G. Education

10. What are the source of initial capital for your business.
A. Borrowing from bank
B. Own Saving
C. Partnership contribution
D. Others specify
11. If you borrow from bank have you faced any difficulty in acquiring bank loan.
A. Yes B. No
12. If you yes what were the problem? please rank them.
A. Collateral requirements of bank
B. High interest rate
C. Need special connection with banks
D. Adequate credit
E. Bank required detailed feasibility study information on customers
13. How do you find the prevailing interest rate of formal financial institution on
borrowing funds?
A. Low B. High C. Medium D. Very high
14. How long it take to acquire the loan from a formal source
A. Less than three month
B. Six month
C. One year
D. More than one year
15. If license how long did it take to obtain year______________
16. Is his licensed by the ministry of trade and investment?
A. Yes B. No
17. What is your impression about the time it takes for licensing?
A. Short B. Long C. Too long D. All right
18. Do you think obtaining license cumbersome.
A. Yes. B. No
19. How do you see the profit trade in this investment through time?
A. Satisfactory B. Good C. Unsatisfactory D. Bad
20. What was the main source of finance to pay profit?
A. Personal saving
B. Profit from business
C. Loan from saving groups and credit union
D. Loan from local lender
E. Credit from suppliers
F. Others
21. Did you face any problem in these investment activities?
A. Yes B. No
If yes what kind of problem______________
22. Do you believe support of government is important to solve the problem?
A. Yes. B. No
If yes what way______________________

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 If no what way_______________________
23. What is the most significant obstacle to expanding your investment?
A. Government attitude towards private investment
B. High level of tax problem of credit
C. Interest rate to high
D. Lack of demand/ lack of raw materials
E. If others specify
24. Do you firm benefit from investment incentive promotes you much to invest? please
rank from starting with the most important to list important.
A. Income tax
B. Duty free import of machines and equipment
C. Availability of market
D. Others specify
25. What Do you think the factors that affecte urban private investment activitiy in your
opinion?
________________________________________________________________________
________________________________________________________________________
________________
26. What do you suggest in General to chances the investment activitiy in the future in
the town?
_______________________________________________________________________

Thank you!!!!

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