UNIVERSTY OF GONDAR

FACULTY OF AGRICULTURE

DEPARTMENT OF AGRICULTURAL ECONOMICS

Research proposal on:- The constraint of privet investment in Gondar city
Prepared by:-
Ephrata phatros 3020/05
Gashaw Oumer 3045/05
Tesfanesh Zeru 3299/05

Submitted to- Agricultural Economics Department

Advisor:- Siraji N.

Gondar,Ethiopia

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Table of Contents
Acknowledgment…………………………………………………………………………………iii

ACRONOMYS...............................................................................................................................iv

1. INTRODUCTION..................................................................................................................1

1.3 Objectives of the study...........................................................................................................3

1.4 Research Questions................................................................................................................4

1.5 Scope and Limitation of the study.........................................................................................4

1.6 Significance of the study........................................................................................................4

2. LITERATURE REVIEW......................................................................................................5

2.1. Theoretical Literature...............................................................................................................5

2.1.1. Definitions and Concepts of investment........................................................................5

2.1.2 Theories of investment....................................................................................................7

2.2 Empirical review....................................................................................................................7

2.3 Ethiopian investment policies............................................................................................8

2.3.1 Private investment in the Dergue period.........................................................................8

2.3.2 The current goverenment investment policy( the post -1991 period).................................9

3. METHODOLOGY……………………………………………………………………………11

3.1. Description of the……………………………………………………………………………11

3.2 Types and Sources of data collection...................................................................................12

3.4 Methods of data collection...................................................................................................14

3.5 Methods of Data Analysis....................................................................................................14

3.5.1 Econometric analysis.....................................................................................................14

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 3.5.2. Descriptive analysis......................................................................................................17

4. Work plan…………………………………………………………………………………18
4.1 Budgeting……………………………………………………………………………….18

4.2 Time schedule...................................................................................................................19

5.Reference………………………………………………………………………………………20

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 ACKNOWLEDGMENT

Primarily we would like to thank the God who provides us all the courage to make our dream to
come true. Then our appreciation and dedication goes to our advisor Siraj N.(Msc) for his
professional guidance, constructive criticism and suggestion in doing this research paper. Finally,
our appreciation goes to Gondar University College of agriculture Department of Agricultural
Economics and Library workers for helping us to do our research paper.

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 ACRONOMYS

EPRDF Ethiopian People’s Revolutionary Democratic Front

FDI Foreign Direct Investment

GDP Gross Domestic Product

IMF International Monetary fund

Kms Kilo-meters

LDCs less Developed Countries

M Meter

SPSS statistical Package for Social Science

SRS Sample Random Sampling

UNDP United Nation Development Program

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1. INTRODUCTION
1.1 Back ground of the study

Private investment is 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 privet 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 Hankinson; 1996).

The private investment (sector) is the main engine of growth in market economics. It thrives and
delivers sustained growth when number of factors combines to produce conductive environment
for the private sectors to develop to develop. Privet 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 where by 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
OECED, (2005).

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 essential economic as well as social institution in which the private

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sectors is not involved which requires huge investment like construction of roads, electricity
generating,telecommunication,andsoon(Brihanu&Befikadu,2003/04)

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Ethiopia people’s revolutionary democratic front (EPRDF), during its stage of transition
reformed and formulated the first investment code in 1992 based on the mixed economic policy
amendment of dergue. Since the Ethiopia started a free market economy policy and the
investment activity started reviving parallel to the reformed policies of investment (Asmelashe,
2007).Thus, the level of privet investment in the country during the last two decades (1975-1994)
is fluctuating. in 1994, the share of private investment total investment is 39.5% and it dropped
to in 11.7%in 1990 and1991 as the dergue regime started ‘’reform’’ early in 1989 and
proclaimed a mixed economy in much in much in 1992,the rate of privet investment continued to
in increase substantially through change in market principle of the present government
(workie,1996).

Amhara national regional state is one of the owner of different natural as well as human made
resources that enhances the participation of private investors have been investing on different
sectors such as; agriculture, service manufacturing, others, from 2006 -2009 the total project
gained investment license is 2008whose planned capital is 12.8% billion and expected
employment opportunities for 92000 on casual and contrast basis, from the private investment in
the region is that the majority engaged in service out of the total licensed projects service and
agriculture together account for 80.4%,41% and 39.4% of number of projects ,investment
capital and employment opportunity respectively.

The government of the region is committed to enhance the participation of the private sectors to
play portent role for economic development; private investors are welcome to invest on different
sectors in entire of the region over the past two decades Gondar become the owner of the fast
growth as well as the capital city of North Gondar Administrative Zone. The city aims to create
conductive environment for investment in the long-run business plan.

Improving the living standard of the society and poverty alleviation is the major objectives of the
national polices of least developing countries in the world. Therefore to reach the well developed
economic level by improving the living standard of the society and alleviating poverty, it needs
the contribution of all sectors in the economy as a whole. It is obviously well known that
Ethiopia is one of the least developing countries of the world which is realizing the improvement
of living standard of the society and poverty alleviation.

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The economic growth reform had been made in Ethiopia in 1992 with the support of and
pressure from the World Bank and various donors including UNDP to establish free market
economy. The aim of this reform is that “to bring about economic stability and socio economic
recovery as well as to create conducive environment for socio economic participation of private
investment. So that, the private sectors become actors in the productive sector of the economy,
while the public sector concentrates on social sectors and infrastructural development (Tesfaye
A.2009).Having sustainable investment is the most determinant for a nations to improve the
living standard of the society and poverty alleviation. To have this sustainable investment there
are many bottle necks of constraints and determinant of private investment in Ethiopia. As
described by Tesfaye (2009), this problem may arise from both internal and external factors.

External factors may be consistent with natural resources. That means lack of availability of
investment sector and also makes it difficult to have sustainable investment .On the other hand
internal factors arise from the investors themselves. These internal factors may be lack of
knowledge and experience to regulate and permit incentives, failure to regulate the formulation
and implementation of strategies and poor coordination among them.

1.2 statement of the problem

Private investment is a key to long-term economic growth. However, private investment, in
levels and as a percentage of GDP in Ethiopia has not grown at the required level. A key
challenge facing the country is to come up with policies that would help raise private investment
in order to stimulate and sustain economic growth. With a view to drawing some appropriate
policy conclusions and implications, it is therefore important to identify the constraint of private
investment in Ethiopia and in Gondar city.

The Ethiopian goverment has been embarking on abroad based economic reform since 1992.That
is a structural adjustment program with the objective of restoring macroeconomic stability,
strengthening domestic resource mobilization and increasing investment and real per capita
income. Private investment in Ethiopia has been expected to increase and bring about rapid and
sustainable economic growth. However, the number of private investments in Ethiopia has been
lower compared with other countries.Moreover; Ethiopia has not attracted the required foreign
direct investment (FDI) inflows even though the country has liberal investment policy and
location advantages over the Middle East and European countries with its cheap labour.

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Private investment and private sector more generally, in the African countries adversely affected
by the variety of economic, social, legal and other constraints (Manmohan and Kupuhile
2001).The ineffectiveness of investment administration system, absence of strong investment
promotion system, absence of basic urban physical infrastructures and services, and institutional
capacity weakness to enhance and promote investment are the main factors that are hindering the
development of private investment.On the other hand, the major constraints of private
investment in Ethiopia are lack of business skills, shortage of capital, lack of access to land,
inadequate supportive environment and microeconomic constraints (Dejene and Ibrahim 1998).
Hence removing these constraints is crucial if the objective of the country is to pull out the
population from persistent level of poverty and March into development path. As Gondar is one
of the urban areas in Ethiopia, in Gondar city private investments are not growing and playing a
significant role in economic development and poverty reduction due to the above mentioned
problems. This reflects that there are some constraints which hamper the investment and
discourage the investment climate of the city.

The constraints and challenges are not yet fully studied and identified by government and/or
other stakeholders in Gondar city. To address the obstacles and to create enabling environment,
the study is needed at Gondar city. Furthermore to examine the nature and extent of the obstacles
and finding the leading factors that adversely affect the private investment. Therefore, the study
will focus on examining and analysing the constraint of private investment in Ethiopia in general
and Gondar city in particular.

1.3 Objectives of the study

1.3.1 General objective of the study

The general objective of this study will be to identify the major constraints of private investment
in the Gondar city.

1.3.2 Specific Objective of the study

Based on the general objective of the study stated above, the specific objectives of the Study will
be:-
 To identify the major variables of private investment in Gondar city.
 To identify the major investment activities of Gondar city.

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 1.4 Research Questions
Here, the following questions expected to be answered under this study.

1. What are the major variables that cause the constraints privet investment in Gondar city?
2. What type of privet investment activity takes place in Gondar city?

1.5 Scope and Limitation of the study

This study will be focused to analyze the constraint private investment regarding to the Gondar
city. It is particularly limited constraints of private investment in the indicated city. So this
research proposal does not incorporate public investment. The main limitation of this study is
that the study doesn’t incorporate the characteristics or investment situation of other areas. It will
cover only Gondar City, thus, the result of this study (privet investment only) may not be reliably
used for other Cities. And some manor limitations are the cost of collecting data, the cost of
transportation and time consuming.

1.6 Significance of the study

The study will be to show private investment in the Gondar city and the constraints that
associated with its activities and their possible solutions. Besides to this it is also emphasized
with the detail description of constraints of private investment in the Gondar city. By providing
ground line for investment office, the research proposal that we will be perform enable the
investment office to see that the way they are serving the investors either sufficiently or
insufficiently as investors need. The study will be used as reference for future studies that can be
carried out on this issue; it helps interested researchers to get information as a secondary data,
the activities performed during that time on private investment and the trend next to new
research will be conduct and help to find information in related to the private investment
activities. Generally the study will be help full for the investment office, another interested
researchers and investors by providing necessary information.

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2. LITERATURE REVIEW

2.1. Theoretical Literature

2.1.1. Definitions and Concepts of investment

Investment has no definite meaning in different field of study. Its specific definition differs from
each other. Various writers have defined investment in different ways. The following are some of
them.

According to Todaro M. (1995), investment is part of national expenditure devoted for the
production of capital goods over periods of times .Capital accumulation results when some
proportion of present income saved and invested in order to augment future output and income.
New factories, machinery, equipment and material increase the fiscal capital stock of nations and
make it possible for expanded output levels to achieve. These direct that, productive investments
are supplemented by investment in what is known as social and economic infrastructure, roads,
electricity, water and sanitation, communication and the like with facilitated and integrated
economic activity (Todaro, M. 1995).

Investment is multi-various in nature. It may be under taken by private investment enterprise in

fixed capital like machinery, equipment and building and in working capital like raw materials,
semi-finished products and finished products. It may also under taken by public authorities in
social capital like school building, housing, hospital, road and bridges. Then there is the
investment by nationalized industries and the public takings infixed as well as working capital.
Investment can be autonomous, that is solely under taken by without any profit motive mostly by
governments and induced that is under taken by private enterprises with a profit motive under the
influence of a change in income or consumption (Eshetu 2004).

According to Birhanu N.2000 keynessian investment decision is the function of additions to the
value of the firm due to an extra unit of capital installed to its replacement cost of invested
capital funds. Keynes also pointed out the importance of human instincts in investment decision
making owing to the intractable problems surrounding the competition of future returns to
investment in the world of uncertainty. The main idea of writers on the definition of investment
is related to each other even though they explain in different field of study and direction.

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In general terms, investment means that the use of money in the hope of making more money. In
business, investment means a purchase of a produce or inventory in the hope of improving future
business .In other words, investment means money committed or property acquired for future
income. In economics investment is a creation of capital or goods capable for producing other
goods or services (http;//www.investorewords.coms march 2013).

2.1.2 Theories of Investment

There are several theories of investment that explain the determinants of private investment
behavior. In common terms, investment is defined as the capital formation in the production
process. However, the theory of private investment is still one of the unsettled issues in
economics. The origin of the theories goes back to Keynes. Keynes (1936) in his “General
Theory of Employment, Interest and Money” states that investment depends on the prospective
marginal efficiency of capital relative to some interest rates, reflecting the opportunity cost of the
invested funds. Keynes also introduced the idea of an independent investment function in an
economy. According to Keynes, investment depends on the future marginal return to capital
relative to the invested fund. He further argued that, investment decisions are made on uncertain
basis of what he called the “animal spirit”expectation of the private investors. Thus, for Keynes,
private investment is highly volatile because investment decisions are affected by the pessimistic
and /or optimistic behavior of investors about the economy that it is highly uncertain.

As Timothy (2000) stated this in turn reduces the aggregate demand, output, and employment.
Following Keynes, the accelerator theory, which is also known as “accelerator principle” of
investment has developed which gained popularity during the 1950s and early 1960s (Workie
1997, p.59). The key idea of accelerator theory of investment is that, change in the aggregate
demand or level of output and income in an economy determines investment.

The accelerator theory makes investment a linear proportion of changes in output. In the

accelerator model, expectations, profitability and capital cost play no role. Keynesians

have traditionally favored the accelerator theory of investment while discarding the role of factor
cost (Asante 2000). The theory of acceleration is an oversimplification about the

relationship between investment and income or output because of the current change in

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demand, output or sales it is not sufficient to sustain an increase in investment. The theory is
limited in explaining the investment behavior because of its assumptions of full

utilization of capacity; firms are not on the declining phase of their productive life cycle,

and perfectly competitive economy. Thus, investment is not only depending on the output

or sales but also it depends on interest rate and technological changes.

2.2 Empirical review

Empirical studies of the constraints of private investment in LDCs have used a much more
approach of private investment design to capture to destructive institutionalism and structural
models in an effect to emphasize the effect of resource constraints and limitation faced by private
investors. The result of this studies suggest that aggregate demand proxies typically by output,
domestic credit constraints, proxies by credit availability to private sectors and fiscal
infrastructural proxies by public investment in developing countries. In general in the developing
countries like Ethiopia there is lack of empirical evidence that shows accurately the investment.

Empirical studies on micro level determinants of private investment are few and far

between. However, attempt has been made to review the available findings. Empirical studies
conducted in Africa, Asia and Latin America have established the critical

linkage between investment and the rate of growth (Ghura and Hadjimichael 1996, Collier and
Gunning 1999). Throughout the 1990s, the ratio of total gross domestic investment to gross
domestic product in Asia, which experienced a high average rate of growth compared with the
rest of the world, was about 27 percent, while in Latin America and sub-Saharan Africa the
corresponding ratios were 20 percent and 17 percent, respectively (Hernandez-Cata 2000)

Generally, this brief review of the empirical literature on the micro level constraints of

private investment revealed that there are different factors that affect private investment at lower
(operational) levels. Thus, this study attempted to identify major micro level

Constraints of private investment in Gondar.

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2.3 Ethiopian investment policies

Situation of private investment in Ethiopia has been following different investment polices 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 some of the least developed nations. The population 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.

2.3.1 Private investment in the Dergue period

The common economic policy and the Dergue regime which is 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 is possible by using proclamation notice and declaring 1975,Dergue’s policy of
nationality action is enacted as a proclamation no 26/1975.according this proclamation, the
military government nationalized a number of industries, commercial forms, financial
intuitions ,financial institution, houses, land etc 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% to4% by the end of 1980, which is the lowest saving in the world .such decline

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of saving rate is the reflection of dramatic increase in the government consumption, which is
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).

2.3.2 The Current Government Investment Policy (The Post- 1991 Period)

The post-1991 period began with the coming to power of TPLF/EPRDF in 1991 and the
adoption of the WB/IMF sponsored Structural Adjustment Program soon after. Among the stated
objectives of the new government were/are: reducing macroeconomic imbalances, eliminating
structural distortion, improving the country’s human capital and infrastructure as well as poverty
reduction. Since 1991, a broad consensus has emerged on the importance of promoting the
private sector and increasing its share of total investment for long-term growth. It has been
emphasized by researchers and policymakers that private sector plays a leading role while
allowing the status to concentrate on improving the availability and the quality of infrastructure
and poverty alleviation goals is predicated on two main reasons:-

1. There has been increasing empirical evidence showing that private investments are more
efficient than public investments in the productive sectors

2. There are physical complementarities between the private investment and the public
infrastructural investment (Getinet and Hirut 2006).
By agreeing on this growing consensus on development strategy, the current government of the
country has been promoting expansion of the private sector since 1991. In the subsequent years
several reforms were conducted with the liberalization of economy and enhance the participation
of private sector. Investment policies are major reform areas with the main objectives of
accelerating economic development, efficient exploitation of natural resources, domestic market
expansion through enhancing production and productivity, export expansion, creating wider
employment opportunity and transfer of technological and technical expertise and managerial
skills. Thus, in order to materialize the policy of encouraging the private sector, several
proclamations, directives, regulations, and incentives of investment have developed (Getinet and
Hirut 2006).In May 1992, the Transitional Government of Ethiopia issued Investment
Proclamation No.15/1992 with a view to encourage, expand and coordinate investment in the

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country. Under this Code, areas eligible for investment incentives were restricted to broad
sectional categories such as agricultural development and agro-processing, manufacturing, large
scale capital-intensive road and building construction, the development, protection and
preservation of natural resources, rural transportation, as well as support machinery and services.
Proclamation No.15/1992 was in force for duration of four years (July 1992-June 1996). Later, it
was found necessary to issue a new proclamation to overcome the shortcomings identified in the
course of the four years. As a result, Investment Proclamation No. 37/1996 was issued in June
1996.Further, Proclamation No. 37/1996 was amended in June 1998 by Proclamation
No.116/1998 in order mainly to redefine domestic investors so as to include foreign nationals
who were Ethiopian by birth, to allow private investors to invest jointly with the Government in
defense industries and telecommunication services as well as with the approval of the council of
Ministers, to enable the Federal Investment Board grant additional incentives other than what is
provided under the Investment Incentive Regulations. In connection with this Proclamation,
Regulation No.7/1996 was also amended by the Regulation No. 36/1998 in June 1998 in order to
grant additional incentives to selected activities in the education and health sectors and to
investments in telecommunication services, defence industries and industrial estates.

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3. METHODOLOGY

3.1. Description of the Study

The description of the study area is important for the decision of investors to invest their
resources in the city and the most essential issues are described below as follows.

Gondar is located in North Gondar zone of the Amhara Regional state, and it is designed as a
capital centre for North Gondar Zone in the Amhara Regional state. The city of Gondar is
founded by Emperor Fasiledes in 1636 and is a historical city which is one of the major tourist
centers in Amhara Region. It was once the Capital of Ethiopia for more than 200 years. The city
is located at 120 40' North latitude and 370 45' East longitudes. The city is situated at a distance of
748 kms from Addis Ababa in the North Western part of the country along the main highway
that connects Addis Ababa to Bihar Dar city at a distance of 182 Kms. Gondar is also 220 kms
away from boarder of Sudan. The city of Gondar is situated on a mountainous land at an average
elevation of 2150m above sea level and has an area of 8119 hectares. The topographic condition
of the city area limits urban development due to the uprising of the hills and deep gorges (narrow
valley).

According to the classification used in Ethiopia, the climatic condition of the city is
characterized as Woina Dega climatic zone. The mean annual temperature of the city is between
18 oc and 24 oc. The absolute maximum temperature usually occurs from March to May and the
minimum temperature also occurs from June to November. Average annual rainfall is about
1308mm.The total population of the city is around 288,384 for the year 2009.The data also
revealed that, the city has 47,720 households with an average family size of 5 persons. The
average growth rate of the population is around 4.1%. Of the total population 51.5% are female
while the rest are male. Recently, Gondar is restructured as a metropolitan's city to make
administrative effective and efficient by merging the previous 21 kebeles of the city into 12 city
kebeles, 11 rural kebeles and 1 satellite kebele. City wise affairs are administered by mayors and
other related city cabin members and council. The economic sector of the city is mainly
composed of industry, trade, service, tourism and urban agriculture. The economic contribution
of the service sector to the city is also significant next to industry and trade. Hotels, service

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provision, shopping micro and small enterprises and cooperatives are major as which
characterize the city. The major social services available in the city are water supply, education,
health, road, telecommunication and electric power etc. The city of Gondar is favored with
international Airport, named Atse Tewodros. The city is networked with 58 km of asphalt and
86,526 km of gravel roads. Gondar is bestowed with one university with a number of faculties
(government), 5 colleges (1 govt& 4 Private), one technical and vocational college (govt), 19
kindergartens (4 govt& 15 Private), 44 primary schools (34 govt& 10 Private), 8 secondary
schools (4 govt& 4 Private) and 3 preparatory schools (govt). There are 1 hospital and 4 health
centers both government and 45 clinics both private. Besides there are 6 pharmacies, 2 special
drug shops and 6 rural drug shops (City Profile of Gondar 2012).

3.2 Types and Sources of data collection

To get valuable and relevant information, the study will be used both primary and secondary
data. Both of them have their own method of data collection. Thus primary data were collected
using questionnaires, interview and observation. On the other hand secondary data were
collected from investment office, from internet and senior researches made previously.

3.3 Sampling procedures

There are two general types of sampling methods. These are probability and non-probability
methods of sampling. If probability sampling is done, each element in the population has a
chance of being chosen. If non-probability sampling methods are used, not all elements or people
have a chance of being included in the sample. In such instances, the results may be biased,
meaning that the sample results may not be representative of the population. In this study, the
individual investors will be actually responsible for making decision on investment activities.
Thus, individual investors who are licensed since 2014 will be the basic sample unit for our
studies because of heterogeneity among investors group, stratifications needed. Accordingly the
numbers of projects licensed in the study area were classified into four groups based on their
project types: Group 1 encompasses investors who invested in hotel and the total number is 25.
Group 2 investors who consists service sector and total number 15. Group 3 investors who invest
in industry and the total number are 2. Group 4 investors who invest in construction and the total
number are 18. However, after reviewing different literatures for determination of scientifically
acceptable sample size, the researcher prefer to use the following formula.

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 N= n

1+n(e)2

Where: N = statistically acceptable sample size

n = Total size of target population

e = level of precision (error level) at 95% confidence level (0.05).

3.4 Methods of data collection.

Primary and secondary data will be use to achieve the objective of the study. The primary data is
important to get fresh information from the respondents. The primary data will be obtained by
preparing the questioner in which a set of both open ended and closed ended questions are
arranged in a logical sequence. The researchers also will be use secondary data to get additional
information from investment office of the city.

3.5 Methods of Data Analysis

In this study the data will be obtain from both primary and secondary data sources are analyze by
using descriptive method such as tables. Qualitative and quantitative analytical techniques will
be use to describe and analyze the data to meet the objective of our study. Qualitative data will
be analyzed by concept elaboration, idea explanation that we had got from through discussion
with the concerned bodies. Quantitative data will be analyzed by descriptive statistics
(percentage and frequencies) by using statistical tools of SPSS (statistical package for social
science). More over, and the researchers will be use descriptive method of data analysis, through
help of tables and percentages to address the factors affecting private investment activities of
Gondar city.

3.5.1 Econometric analysis

To analyze the constraint of privet investment we will use multiple linear regression model
estimation. It will be an essential method of econometric analysis to recognize and realize
patterns of the influencing factors. The most important variables that could determine the privet
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investment include level of education, access to adequate credit, Access to infrastructure facility,
source of investment fund, land size and source of raw material that will be discussed below.

Model Specification

The econometric model specification of the variables is as follows.

Yi = β0+ β1X1 + β2X2 + β3 X3 + β4X4 + β5X5 + β6X6

Where, X1=Level of education

X2= Access to adequate credit

X3=Access to infrastructure facility

X4=Source of investment fund

X5=Land size

X6= Source of raw material are the explanatory variables.

β0 is the intercept term- constant which would be equal to the mean if all slope coefficients are 0.
β1, β2, β3, β4, β5, and β6 are the coefficients associated with each independent variable which
measures the change in the mean value of Y, per unit change in their respective independent
variables.
Definition of variables

Dependent Variable:

Initial investment capital growth:-these refer to the total initial capital registered for
investment activity. This is continuous variable that might help to represent the preference of an
investor to participate investment activities by contributing money, labor, time and his
entrepreneurship ability. So in this study, investors who will be start operation and, it is going to
be measure by the amount of registered initial capital, which is in fact continuous. Investor’s
registered initial capital is use to measure intensity of capital allocation for investment activities.
It will take a value of greater than zero up to infinity. In the course of identifying factors

14
influencing investor’s decision to invest, the main tasks are to analyze the degree and
significance of potential variables affecting private investment. Therefore, potential variables
that will be supposed to influence investment decision in the research areas will be explained
below.
The Independent variables will be:

Initial investment capital growth (INICAG): These refers to the total initial capital registered
for investment activity. This is continuous variable that might help to represent the preference of
an investor to participate investment activities by contributing money, labor, time and his
entrepreneurship ability. So in this study, investors who will be start operation and, it was going
to be measured by the amount of registered initial capital, which was in fact continuous.
Investor’s registered initial capital was used to measure intensity of capital allocation for
investment activities. It will take a value of greater than zero up to infinity. In the course of
identifying factors influencing investor’s decision to invest, the main tasks were to analyze the
degree and significance of potential variables affecting private investment. Therefore, potential
variables that will be supposed to influence investment decision in the research areas were
explained below.

The Independent variables:

The independent variables of the study are those variables which are hypothesized to have
associations with private investment decision. The findings of past studies on private investment
decisions, the existing theoretical knowledge as well as the researcher’s knowledge and
experience in the area of private investment was used to select the explanatory variables and
structure the working hypotheses. Thus, the following variables are identified to have
direct/indirect effect on private investment decision.

1 .Level of education (EDLVL): This variable refers to the number of years of formal education
of the same investor. It is assumed that education is a key factor for investment decision because
any investment activity involves risks. Moreover, investment is irreversible activity. Therefore;
before getting into investment activity; investors should asses all the pros and cons of their
decision. Education is hypothesized to positively influence on investment decision.

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2. Access to adequate credit (ACCRDT): This is a dummy variable, which takes a value1 if the
investor has access to adequate credit and 0 otherwise. Economic theory has shown that access to
credit plays a significant role in promoting investment. It is hypothesized that affecting the
growth of private investment to have positive impact on the privet investment.

3. Access to infrastructure facility (ACCINFR): This is a dummy variable, which takes a

value1 if the investor has access to infrastructure facility and 0 otherwise. Several studies and
economic theories have shown that infrastructure plays a key role in promoting investment. If
there will adequate infrastructure facilities, more investors will be attracted to invest.
Infrastructure facilities like road, water supply, electric power supply, telephone, education,
health, postal, & other.

4. Source of investment fund (INVSO): This variable refers to sources of investment fund for
financing investment projects by sample investors. A value 1 will be assigned to this variable if
the source of investment finance is own capital and 0 otherwise. A study by Aramyan et al.
(2007) reveals that high solvency (sufficient amount of own capital) motivates investors to make
investments because they are less dependent on financial Intermediaries.

5. Land size (LANS): It should be noted that any investor who would like to have land for
investment activity is required to have an investment permit. It is quite obvious that land is one
of the major factors of production and investment could not be materialized without having
access to land. Recent empirical studies confirm that access to land is significantly and positively
related to private investment (Kefay, 2005). This variable is expected to have a positive
association with private investment.

6. Source of raw materials (SORRM): This variable refers to the source of raw material. This
variable takes a value 1 if the sample investor uses purely domestic source of raw materials and 0
otherwise. In the context of this study it is hypothesized that those investors who procured their
raw materials from foreign sources would face more difficulties (delays, foreign exchange
constraint, administrative red tape. etc.) than those who procure them from domestic sources.

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 3.5.2. Descriptive analysis

Descriptive statistics describe the main features of a collection of data quantitatively. It aims to
summarize a data set quantitatively. So we will use the descriptive statistics to describe how
much a variation occurs within the data collected related to the constraint of privet investment in
Gondar city. The analysis for the study will be based on the survey of a sample of enterprises
undertaken. The study will be employed both qualitative and quantitative analysis so as to
produce a good researcher document. The descriptive statistics that is use in this study include
percentage and frequency of occurrence to our quantitative data numerically.

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 4. Work plan
4.1 Budgeting

1. Stationery and consumable expense

Item Unit Unit price Amount of Total price

required
Paper Packet 50 2 100
Pen Number 5 6 30
Flash Number 120 1 120
Printing Page 1.50 50 75
Photo copy Page 0.5 120 60
Note book Number 12 3 36
Total 421

2. Miscellaneous expense

No. Item description Total

1 Telephone 50
2 Internet 50
3 Transport 120
4 Sum/total 220

Total = stationary & consumable cost + miscellaneous expense

= 421 + 220
= 641 Birr
Contingency (10%) =641*0.1
= 64.1 Birr
Grand total = ∑total + contingency
= 641 + 64.1
=705.1 Birr

4.2 Time schedule

2014/2015

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 Activities Mar Apr Ma Ju
y n
Literature survey
Proposal writing
Data collection
Data entry
Data analysis
1st draft project
writing
Final draft project
writing
Project presentation

5. Reference
Asmelashe, B (2007).opportunities and service delivery of investment in Tigray, Msc
Berhanu Nega (1999/2000), annual report of Ethiopian economy, journal of economics
volI,Addis abeba .

BerhanuNega and BefekaduDegefe, 2003/2004. Annual report on Ethiopian Economy. Vol. 3.

Ethiopian Economic Association Press, Addis Ababa, Ethiopia.

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Bond &jnkinson (1996).assessment of investment performance and policy, oxford.

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

Collier, P, & Gunning, J.W. (1999) explaining American economic performance. Journal
Dejene, A & Ibrahim, Z 1998, Macroeconomic Policy Reform in Ethiopia Since 1991, Paper
summated to the 18th Annual Conference of the Ethiopian Economic Association, Addis Ababa

Economic Focus (1999) determinants of private industrial investment in Ethiopia’s thesis

Eshetu Chole (2004), under development in Ethiopoa, Addis Ababa.

Ethiopian Economic Association, 2007, Report on the Ethiopian Economy, volume 2005/06,
Addis Ababa.

Federal Negarit Gzeta:

Proclamation no.11/1989
Proclamation no.15/1992
Proclamation no.17/1990
Proclamation no.2/1996
Proclamation no.35/1986
Proclamation no.37/1996

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

Internet: http//www.Investors.com march 2013

Manmohan, S &Kupuhile, M 2001, Determinants Of Private Investment in Sub-Saharan

Africa: An empirical Investigation, Economic Development in Sub Saharan Africa, IEA
conference volume No 129

Mekonen, 1997. Determinants of Private Industrial Investment in Ethiopia. An Msc Thesis

Presented to the School of Graduate Studies of Addis Ababa University.

MSc. thesis presented to the school of graduate studies of Addis Ababa

N. Gregory Mankiw (2003) Macro Economics fifth edition.

Ndikumana, l. (2000) financial determinants of domestic investment in sub-Saharan

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OECED, (2005).mobilizing private investment for development: policy lesson on the
of economic litriture, 37, 64-111.
Presented to the school of graduated studies of Addis Ababa University.
Tadese, H 2001, Ethiopian Investment Climate, Opportunities and Challenges, Addis Ababa

Tesfaye Abate (2009), investment laws, Addis Ababa.

thesis, adiss Abeba University.

Todaro M. 1995 Economic Development, New York.University. what can be done? Policy
discussion paper of international money fund.

Workie Mitiku (1996) “Determinant and Constriant of private investment in Ethiopia” Master
thesis (AAU).

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

UNIVERSITY OF GONDAR

FACULITY OF AGRICULTURE

DEPARTMENT OF AGRICULTURAL ECONOMICS

INTERVIEW SCHEDULE

DEAR: RESPONDENTS
This questionnaire is prepared by university Of Gondar department of Agricultural Economics

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Under graduating student in an attempt to conduct a survey of the constraint of private
investment, In case of Gondar City. And know that it is only for academic purpose and your
response will be kept confidential.
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. Certificate E. diploma F. degree
4. Marital status A. Married B. Single C. Divorce D. Widowed
5. Family size or number of family A.1-3 B.3-5 C.6-10 D >10
6 .The business type, know you are working? A. Industry B. Service C.
Agriculture
7. Year of business establishment -------------------------------
8. Initial startup capital of the business ----------------------------------------------------
9. How much is the current capital ------------------------------
10. What are the sources of initial capital for your business A. Borrowing from bank
B. owing saving C. Partnership contribution D. From micro finance E. Credit from local lender
F. others specify-----------------
11. If you borrow from bank or micro finance, have you faced any difficulty in acquiring
loan? 1. Yes 2.No
12. If you yes what were the problem? Pleas rank them.
A. collateral requirement of bank B. high interest rate C. need special connections with banks
D. credit E. bank required detailed feasibility study information on customers
13. Who do 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 licensed how long did it take to obtain year ……………………………..
16. Is this licensed by the authorized body of government offices? A. yes B. No
17. If your answer is no, who give the license? ………………………. .
18. If licensed, how long did it take time ---------------------
19. What is your impression about the time it takes for licensing?

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A. short B. long C. too long D. all right
22. How do you see the profit trade in this investment through time?
A. satisfactory B. good C. unsatisfactory D. bad
23. What was the main source of finance to pay credit?
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
24. Did you face any problem in these investment activities? A. yes B .No
25.If yes what kind of problem is it appears? ------------------
26. Do you believe support of government is important to solve the problem? A. yes B. No
If yes what way--------------------------------------------------------------------
If no what way---------------------------------------------------------------------
27. What is the most significant obstacle to expanding your investment? Pleas rank
A. government attitude towards private investment B. high level of tax C. problem of credit
D. interest rate to high E. lack of demand F. lack of row materials G. lack of foreign exchange
H. if others specify --------------------------

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