WOLAITA SODO UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS DEPARTMENT OF

ACCOUNTING AND FINANCE.
TITLE:-THE ROLE OF PRIVATE SECTOR INVESTMENT ON THE
DEVELOPMENT IN THE CASE OF BODIT TOWN IN WOLAITA ZONE.

BY:- AREGASH TESFAYE

I.D NO ACC/WE/O75/09

ADVISOR:-LAILA JEMALI (MA)

DEC /2020 G.C

WOLAITA SODO

1
 COLLEGE OF BUSINESS AND ECONOMICS DEPARTMENT OF

ACCOUNTING AND FINANCE.

TITLE:-THE ROLE OF PRIVATE SECTOR INVESTMENT ON THE
DEVELOPMENT IN THE CASE OF BODIT TOWN IN WOLAITA
ZONE.

A SENIOR ESSAY RESEARCH SUBMITTED TO WOLAITA SODO

UNIVERSITY DEPARTMENT OF ACCOUNTING AND FINANCE IN
PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE
BACHELOR OF ARTS DEGREE IN ACCOUNTING AND FINANCE.

BY:- AREGASH TESFAYE

ADVISOR:-LAILA JEMALI (MA)

DEC /2020 G.C

WOLAITA SODO

2
 COLLEGE OF BUSINESS AND ECONOMICS DEPARTMENT OF
ACCOUNTING AND FINANCE.

TITLE:- THE ROLE OF PRIVATE SECTOR INVESTMENT ON THE

DEVELOPMENT IN THE CASE OF BODIT TOWN IN WOLAITA ZONE.

APPROVED BY BOARD OF EXAMINERS SIGNATURE DATE

HEAD OF DEPARTMENT

ADVISOR

EXAMINER

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 ACKNOWLEDGEMENT

First and for most I would like to submit all the glory and honor to my Lord and Savior Jesus
Christ, whose grace sustained me and helped me throughout the way I passed and stand by my
side this all. Next, I would like to acknowledge MS LAILA JEMALI (MA) my Senior Essay
Advisor, whose consistent advice and guide helped me to complete this paper. In addition, I
would like to extend my sincere appreciation and honor to all my friends who were special to me.
My grateful thanks and heartfelt appreciation go to my husband Tesfaye Toru for that I am
indebted to his kindest moral and financial support throughout my education and this study. I also
beholden my dad and mum for their advice and prayer.

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 ABBREVIATION/ACRONYMS/
AIB-Awash International Bank
CBE-Commercial Bank of Ethiopia
DBE-Development Bank of Ethiopia
GDP-Gross Domestic Product
FDI- Financial Development Institution
FY-Facial Year
KGR-Capital Growth Rate
LCDs-Lesser Developed Countries
MOE- Ministry OF Education
No. - Number
PASDEP-Plan for Accelerated and Sustained Development to End Poverty
PPP- purchasing power parity
SDPRP-Sustainable Development and Poverty Reduction Program
TGE-Transitional Government of Ethiopia
UN- United Nation
WCGR-Work Creation Growth Rate

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 ABSTRACT

Investment in the Lesser Developed countries (LDCs) is the major variable of the economy that
tries to increase the level of the income of poor people. The Ethiopian government policy is clear
about the importance that it attaches to the development of the private sector. In the country, the
regional governments and local authorities are doing for the betterment of the country. The main
purpose of the study lies in revealing the investment opportunities and the investment activities
being carried out in Bodit town. The sources of data entirely depend upon the secondary sources
of data. The period under consideration pertains for about ten years that is from 20002/03-
20011/12. The method of presentation and analysis used by the researcher is based on
descriptive method of analysis. Based on the type of the data percentages, ratios and simple
descriptions have been adopted in the discussion part of the paper.
Bodit town is one of those Ethiopian towns that are growing in a relatively better rate. 176
private investment projects are approved from the year 20002/03-20011/12 in the town. The
amount of registered capital for these approved projects is about 412,202,581 birr with estimated
employment creation for 3130 people of the town and the surrounding villages. These projects
engaged in almost all sectors that are industry, hotel and recreation, social services, agriculture
and others sectors. The study pointed out some measures that are believed to be appropriate for
solving problems like weak incentive structure, lack of good credit facility, lack of information
and difficulty of bureaucratic procedure.

Key words: Private, Investment And Development

CHAPTER ONE
1. INTRODCTION
1.1 BACK GROUND OF THE STUDY
Investment in the most Less Developed countries (LDCs) is the major variable of the
economy that tries to increase the level of the income of poor people. It is believed to moderate

6
the living standards and promote the development of a given nation. As Ethiopia is one of the
LDCs, it is not yet achieved the remarkable stage in the development of the investment sector.
Even, the growth level of the sector is very much lower than that of the developed and middle-
income earner economies of the world. Currently, the federal and the regional governments in
Ethiopia devoted much of their efforts on accelerating the growth of the investment sector.
Actually, private investment is the recent phenomenon in the history of Ethiopia, because of
political unrest, backwardness the technology in use and reign of different regimes with different
economic ideologies, policies and strategies. (Kinfe A.; 2006)
The most significant time in relation to investment was the Imperial regime of Hailesselassie (I)
to the federal government. During the Imperial Era (1923-1974) investment is believed to be a
starting point for the country. But it was owned and operated either by foreigners or the
government. (MOE; 2008) .
After the Imperial regime, Derg came to power in1974 with command economic policy. Though
investment was relatively better, it limited the participation of the private sector in the economy
in which public enterprises were the dominant. The development of the public enterprises was
considered as an appropriate policy response to bring about development in the economy. There
appeared to be economic consequences around the world accepting public enterprises as an
inevitable part of the economy of Ethiopia. Although the public sector significantly contributed to
the development process, the low rate of returns on such investments and the inability of the
government to finance the growing demands of such industries changed the consensus in favor of
economic liberalization and privatization, which forced the then government to introduce mixed
economic policy. The need for a review of the continued presence of the public sector in wide
range of activities was fallen. A new strategy for encouraging the private sector investment was
adopted after the Transitional Government of Ethiopia (TGE) over throw the Derg regime and
took power in the 1991. With the new economic policy, it marked a turning point in the policy
guideline in the country. (Ibid; 2006)
The private sector respond to the new reform immediately and the activities were seemed to be
promising compared to the pre-reform period. The participation of the private investors and the
approval rate of projects showed dramatic changes. The problem, however, was with the
commencement of the approved or licensed projects. Identifying viable projects, and managing
and implementing them require good entrepreneurial skills. (Kinfe A.; 2008)

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Bodit town is one of those Ethiopian towns that are growing in a faster rate. The town is found in
the southern Ethiopia, in woliata zone and far away from regional capital Hawassa city 156 kilo
meter and 372 kilo meters far to the southern part of the country from the capital city-Addis
Ababa. The town’s administrative body and the investment bureau of the bodit town are
employing their best efforts for the promotion and development of the private sector investment
in the town.
Since investment is one of the variable that contribute much to the development of a given
developing country, like Ethiopia, due attention should be placed on the role, problems associated
with and status of investment carried out. Therefore, it is the above stated idea that initiated the
researcher to asses the private sector’s investment role and problems associated with the sector in
the Bodit town.
1.2 THE STATEMENT OF THE PROBLEM.
The present investment environment tresses its starting point back to the time after the over
thrown of the Derg regime, in 1991. Since then, Ethiopia changed the way of economic activity
from public ownership to free market economy through privatization of the former government
owned factors of production and the production centers. Then the government has also
implemented a wide range of economic reforms targeted to the promotion of economic
liberalization and motivation of the private sector investment.
Even if it takes some longer time (from 1991-2010; about 19 years), the growth trend of
investment in the administrative town of Bodit is not that much satisfying. Normally, the current
investment condition reveals that, according to the investment bureau, the number of investments
that have really started operation is by far lower than the total number of projects that have given
license or approval by investment bureau of the town. Many investment projects that have been
licensed or approved do not commence their proper operation. Based on the above mentioned
ideas, this study will be aimed to showing the problems that could be the causes for the slower
growth of the town’s development in the private sector investment.

1.3 OBJECTIVE OF THE STUDY

1.3.1 The General Objectives of the Study.
To assess the private sector’s investment role and problems associated with the sector in the
development in the case Bodit town in woliata zone.

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 1.3.2 The Specific Objectives of the study.
 To identify the investment capacities of the town;
 To asses the range to which the investment potentials of the town are allotted to the
development of the private sector investment;
 To forward some measures that are believed to be appropriate for solving problems
identified.

1.4 RESEARCH QUESTIONS

1. What is the role of private sector investment in the study area?
2. How private sector investment facilitate to development of the town?
3. Is there any measure taken to control the problem associated with the sector in the town?

1.5 THE METHODOLOGY OF THE STUDY.

The study was entirely depends on secondary data that are obtained from different kinds of
published and unpublished sources of data
.The data that was used pertains the period of 10 years that is from 2002 to 2012, because of the
inavailability of the compiled data.
Finally the analysis will be based upon the descriptive method of analysis. Based on the type of
the data percentages, ratios and simple descriptions would have been adopted to reach the desired
end of the study.
1.6 SIGNIFICANCE OF THE STUDY
This paper was significant in such a way that it provides some essential information and major
prospective regarding the town’s investment situation those decision makers in the private
investment sector. It is also aims to suggest certain solution for the major problems that the
private sector is confronting with; and tries to point out major constraints, which are affecting the
development of the town’s private sector investment. More over, other researchers for further
study, who are interested in similar and related topics, may use it.

1.7 THE SCOPE OF THE STUDY

The scope of the study was limited to the Bodit administrative town. It is concerned with the
investment that are currently undertaking and that have been undertaken in the past decades

9
within the town. The period under discussion covers the times to which the compiled data is
found, i.e. for 10 years, since the research is entirely based on the secondary data sources.
1.8 THE LIMITATION OF THE SUDY
Some of the constraint that force the researcher to limit the area are time, financial and other
problems which may lead to unmanageability of the work to be perform. Even though
large sample is essential for in-depth understanding of the assessing the role of private
investment to development in the study area, the study is limit only bodit town due to time and
financial limitation selected
1.9 THE ORGANIZATION OF THE STUDY
The paper contains four chapters. The first chapter that presents the introductory part contains
back ground of the study, statement of the problem, objective of the study, the research question
of the study , methodology, significance of the study, scope. The chapter is deal with the review
of related literatures. The third chapter is entitled to deal with the discussion and analysis from
the findings. And finally, the fourth chapter will forward some conclusions from the analysis and
discussion part and present some recommendations for taking measures in order to solve
problems identified.

CHAPTER TWO
2. REVIEW OF RELATED LITERATURE
2.1 THEOROTICAL LITERATURE
2.1.1 DEFINITION

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 Investment is defined by different scholars differently. Yet, it revolves around similar ideas.
According to John Black, investment is the process of adding to stock of real productive assets.
This may be acquiring fixed assets such as building, plant, or equipment, or adding to stocks and
work in progress. This is the Keynesian definition of investment; it is a flow concept. Investment
goods are goods designed to be used for investment rather than consumption. Gross fixed
investment spending on new capital investment; net investment is gross investment minus capital
consumption, an estimate of the loss of value of capital goods through wear and tear, the passage
of time, or technical obsolesce. Investment allowances are tax allowances which lower taxation
on the project of firms which invest. Foreign Direct Investment is investment spending carried
out abroad. According to stock concept investment can be defined as the acquisition of financial
assets, such as company shares. Investors are the people who own assets, investments are that
they hold. (John B; 2002)
Investments on the financial senses are often used to fund investment in the Keynesian sense,
for example when companies sell shares to finance the building of new factories. The two senses
of investment are not invariably linked, however, real investment can be paid for from retained
profits without the use of financial intermediaries, and firms can use the proceeds of the share
issues to pay-off debt or the acquisition of other firms rather than spending the on physical
investment.(Ibid; 2002)
Investment is often considered in conjunction with savings. At the world economy level,
investment and savings export, in some definitions, must be equal. At the level of the individual,
firm, government, or country, however, there is no reason why investment and savings should be
equal. (Encyclopedia of Economics; 2004)

2.1.2 KINDS OF INVESTMENT

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There is no clear cut distinction on the kinds of investments. However, different scholars have
different base for classifications of investments. According to the world book of Encyclopedia
(1994), there are seven major kinds of investments. These are;

1. Savings account: also called time deposits; are common kinds of investment in which
money is placed in a saving account at a bank, credit union, or saving or loan association
earns interest at a certain annual rate. Many banks provide such special savings instruments as
money market account and certificates of deposits. And based on certain conditions in the
money market which deals with incorporate and government short-term securities, money
market account earns interest. Money market account and certificates of pay higher interest
rates than do regular savings account. Most of commercial banks that offer both checking and
saving accounts are privately owned. Credit unions, saving banks, and many saving and loan
associations are cooperative organizations operated for the benefits of the members. A person
invests in the organization by making deposits or buying shares in the association. The
organization than loans the funds to the borrowers or makes another investment. Then
interests earned less operating expenses are returned to the members as interest and
dividends. In words of the world book, these kinds of investments yield small profits
compared to other kinds of investment. They also may provide little protection against rapid
inflation that is a sharp general rise in prices. People who leave money in the savings account
is suitable for investors with moderate means because of its less risky ness of the money
being lost.
2. Business investments: the purchase of small business may be the most demanding kind
of investment. Investors, when choosing how to work, should be sure that the business will
provide both a satisfactory income and a reasonable return on their investments. The industry
as a whole should be studied before buying a business. People should become familiar with
the demand for specific product or service that they plan to offer. They also must consider
their operating costs, including the interest they pay to borrow money to start the business.
Moreover, people should determine realistically whether they have the ability to properly
operate the business.
3. Real estate: people invest in this kind of investment when they buy a home, land or rental
property. Real estate may have considerable resale value. It also may produce income directly

12
 in the form of rent; or indirectly, in the form of crops, minerals or timber. A higher return can
be brought about by real estate than other forms of investment. It is considered as an
especially good investment during a period of inflation, when the value of properties tends to
rise. But it falls sharply during a recession or depression. There are some major shortcomings
of this kind of investment. For example, it requires large sums of money. Most of the time the
cost of home or land is several times the buyer’s yearly income. A majority of commercial
properties are financed by commercial banks, finance companies, pension funds, or insurance
companies. Another problem with real estate investment is that reselling the property may
take considerable time. Thus, it liquidity rate is low and the investment can not easily be
turned into cash.
4. Bonds: it is of two kinds; government securities, and corporate bonds. Government
securities are issued by the federal government or local governments. They pay interest at a
specified rate after a certain period of time. Corporate bonds on the other hand are loans made
by the investors to business firms. A corporation pays each bond holder interest every year
until the bond matures. At that time, the corporation must redeem the bond by paying its face
value. If the company fails to meet its obligation, the bond holders are rendered with legal
rights to take-over the business and sell assets pledged as security on the bonds. There may
be changes in the price of bonds issued by corporations or governments due to variations in
the market interest rates. Consequently, if the bonds are before the maturity date, there is a
probability investors fail to get back the purchase price of their bonds. Moreover, investors
may also loose money if the government or corporation defaults.
5. Stocks: are those, which include two types of corporate security; common stock and
preferred stock. Common stock refers to shares of ownerships in a company. The stock
holders of a firm shares in the profits and looses of the company. If the company has a year of
high earnings, the stock holder receives cash dividends. Dividend and price on the stock
market determine the exact rate of return for any common stock. But if the company suffers
losses during the year, it may not have any profits to pass on its stock holders.
A company chooses to use its profits to expand the business rather than pay dividends.
But some stock holders do not care much about annual dividends as long as the price of the stock
rises. The increase of the value of the stock permits a capital gain, the received from the sale of
the stock. Preferred stock is a form of corporate security that has features of both bonds and

13
common stocks. Like a corporate bond, preferred stock has a fixed rate of return. This return
must be paid before any common stock dividends can be disturbed. Thus, the preferred stock
holders can expect a more assured income than common stock holders. However, the holders of
this kind of stock do not have the legal right to make the corporation pay them annual return if
the firm has not earned enough to do so.
6. Mutual funds: involve companies that invest in different securities and sell shares of
their own stock. They are advantageous for small investors in that they employ specialist who
select stocks or bonds that they consider most likely to yield profit. They also enable
investors to own securities of many corporations in different industries. In such cases the risk
of loss is reduced for price increases for certain securities may offset a decrease in the value
of others. Mutual funds pay cash dividends to their share holders, where share holders may
automatically reinvest in additional shares of mutual funds. Moreover, these funds are open-
end funds in which share holders can sell their shares back the shares for approximate net
asset value. This amount is based on the current value of the securities that are involved.
Mutual funds invest only on government and corporate short term securities. They provide an
alternative to the savings account offered by banks. But they pay higher rates of interest than
do bank saving accounts. Further more, they allow investors to write checks against their
investments found in the fund. (The world book; 2001)
On the other hand, according to other scholars investment has of three types; fixed, residual and
inventory investments. Fixed investment refers to the expenditures made by firms on equipment,
and structures; residential investment is planned expenditure on residential housing; and
inventory investment refers to expenditure on inventory of raw materials, parts and finished
goods over a specified accounting period. (Mankiw; 2006)

The other classification is between domestic investments and foreign investment. Domestic
investment is an investment undertaken by domestic investors. According to the Ethiopian code
of investment, domestic investment is investment undertaken by Ethiopians or foreign national

14
permanently residing in Ethiopia. The code defines the foreign investors as a foreign national or
an enterprise owned by foreign nationals having invested foreign capital in Ethiopia. This also
includes an Ethiopian permanently residing abroad and preferring treatment as foreign investor.
(The Ethiopian Code of investment;1996).
Again, foreign investment is of two type; wholly foreign and joint investment. The former is an
investment that is fully owned by foreigners, where as, the later is foreign investment made in
collaboration with domestic investors. In which, according to the investment law of the country,
the shares of the domestic partners should not be less than 27 percent of the total capital. (EIA;
2001)
2.1.3 GROWTH LINK TO INVESTMENT
Over the past centuries, most countries in the world have enjoyed substantial economic growth.
Real income has risen from generation to generation; their higher incomes have allowed people
to consume greater quantities of goods and services; and higher levels of consumption enabled
them to have a higher standard of living. However, the reverse was true in Ethiopia until recently
[S.Patterson, 2000]. Patterson states that the economic growth of these countries is due to the
growth of inputs, such as labor and capital, and to improvements in technology. The engine of
growth for these countries was mainly the increase in capital accumulation through savings and
investment. They could exhibit sustainable growth through their ability to accumulate greater
capital for investment.
Many countries followed different modalities to achieve economic growth through capital
formation. Early capital accumulation assisted by colonization helped England to achieve
industrialization parallel with invention. Capital formation through an effective usage of banking
system has helped Germany greatly. Russia in the nineteenth century trusted the taxation power
of the government to launch industrialization. Latina America countries make use of financial
institutions to mobilize resources while sub Saharan African countries relay on government
budget. In china, rural industries make spare parts using foundries. South East Asian countries
make use of their human resources; and their effective use of an interventionist state to launch
industrialization [Gills, et-al; 19:23] as quoted [World Development Report, 2006].
Gills also states that “…although capital accumulation is viewed as a panacea for poor countries,
it is nevertheless clear that even mildly robust growth rate in income can be sustained over long
periods. This happens only when society are able to maintain investment at a sizable proportion

15
of GDP. This proportion can rarely be mach less than 15%and in some case, it must be as high as
25%, depending on the environment in which capital accumulation takes place; and on what rate
of income growth is deemed essential to allow progress towards basic societal goals. ...”
According to students of investment process there are three important stagers in the investment
process of capital formation that need to be successfully completed if countries hope to a chive
the desired level of investment and its fruits. These are the stage of saving – a stage where
resources which might be used for consumption are put aside; the stage of canalization or
resource mobilization- a stage where savings that secured in the first stage are assembled and be
ready for investors; and the investment itself which is the final stage. This is the stage where
resources that are mobilized are utilized for the production of capital goods [Missr and Puri,
1991:226-8, as quoted from Dawit Shegu, 2005]
An economy can have problems of mobilizing and using investment resources because of failure
in any one of these stages. Accordingly, the usual recommended level of investment ranges from
12% to 15% and even as high as 25%. However, the level of saving and hence investment is very
low in developing countries associated with little growth rate. Even worse; the quality of capital
so accumulated is not dependable in the sense that these resources might not be used efficiently.
More over with out finding away to mobilize resources to such a high level effectively and utilize
this savings thus mobilized, countries such as Ethiopia cannot hope to achieve successful rapid
economic growth and sustainability over social and economic development [Annual Report on
the Ethiopian economy, 2004\2005].
P.Todaro [2006] also assures that the mobilization of domestic and foreign saving to generate
sufficient investment to accelerate economic growth is one of the principal tricks of development
necessary for any take off. As has been seen, sub Saharan African has made important progress in
the buildup of human capital. However, this is to the extent that this capital formation has been
only imperfectly accounted for the unconventional measures, Africa’s investment and savings
have been seriously under estimated. It will be important to preserve and utilize this capital and
of course to continue to build it in any future strategy for long term African development
[F.Stewart, S.Lall and S.Wangewe, 1992].
This shows that even in the contemporary situation where “capital fundamentalism” is criticized
it is still accepted that capital accumulation explains a significant part of economic growth.
2.1.4 THE LINKAGE BETWEEN INVESTMENT SECTORS

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The linkage approach targets investment in a key linkage as a start to over come coordination
failure on generating positive feedbacks. Such a policy would select industries with a large
number of links with to other industries and the greater strength of those links. In choosing
among industries with several strong links and cost benefits, one policy would generally select
sectors that have a similar likely hood of private sector investment, because that is where the
most intransigent bottlenecks are most likely to be found. If an investment is a profitable, it is
more likely that an entrepreneur will come along to fill the niche. This observation [provides a
reason to interpret with some caution studies that shows government enterprise to be less efficient
than private once. If government system actively enters vital but less profitable industries because
of their beneficial effects on development, it is unreasonable to hold these enterprises to the same
profit standards as those of private sectors. This is certainly not to say that state owned
enterprises are generally as efficient as privately owned once. In fact, there is much evidence to
the contrary. Some one can however that a blanket of problems/ statements such as; has often
been made in publication from agencies such as the world bank, the government should be in the
business of production, even temporarily in any sector is some times unreasonable in the light of
linkage and other strategic complementarities that a developing country needs to address.
Baro(1994) also says that an explanatory economic policy characterized by large public
investment, support of small agriculture units, and incentives for private industrial investment
played an important role in the early stage of growth. 7% GDP growth in the first decade after
independence along with the oil price shock, a lack of domestic adequate saving and investment
slowed the growth of the economy of Nigeria. Various economic policies designed to promote
industrial growth lead to neglect of agriculture and consequent decline in farm price, farm
production and farm incomes.
Early.H.Fray also states that in a golden age of international investment the MNCs will continue
to be the main initiator of direct investment.

According to Ago sin and Mayer [2000], FDI in non-extractive sectors in developing
countries tends to crowd domestic investment in rather than out. On the other hand, there is no
doubt that aid can stimulate growth, investment and job creation. If it is used appropriately, flows
of capital in the form aid can finance resource gaps and results in higher level of investment and

17
ultimately, increase economic growth. Aid flow can potentially stimulate job creation through
increased investment (private and public) and accelerated economic growth. But to be appropriate
the aid flow must be allocated to public investment since it is complementary with private
investment for rapid economic growth [World Bank, 2001].
2.2 THE EMPRICAL LETIRETURES
Ethiopia, among the poorest countries in Africa, presents one of the biggest development
challenges in a region beset by frequent drought and food shortages and hobbled by inadequate
roads and communications. A landlocked country of about 100 million people, sandwiched
between Sudan and Somalia in the Horn of Africa, Ethiopia has suffered bloody upheavals and
famine over the past two decades and is still recovering from a bitter border war with neighboring
Eritrea. It ranks in the bottom 10 of the UN’s Human Development Index, a composite measure
of per capita income, health, and education (in 2004, it was listed as 170th out of 177) [Brihanu
Nega and Seid Nur, 2004].
Until recently, Ethiopia is one of the poorest nations in the world. In terms of per capita income,
the country ranks 210[world development report, 1999; p.274] when purchasing power parity
(ppp) is used to measure per capital income, Ethiopia is ranking to 208(Ethiopian public
expenditure review, 1997). An agrarian economy characterized by labor-intensive production,
and low productivity is prevalent in the country. More than 65 millions of people eke out there
living in this sector. The sector accounts 50%of the GDP and about 90% of the export earning.
More than 50% of the people live under poverty line [Quarterly Report on the Macroeconomic
Performance of the Ethiopian Economy, 2005].
The reason for this level of poverty line is something like low productivity. Low productivity is
the result of many factors in Ethiopia. It includes low real wage, poor health, poor energy level,
scarcity of capital (such as machinery, and financial capital) inadequate accessibility to education
and so on. Low productivity also leads to low level of income earning and, and low rate of
savings which intern results to low level of investment.

Investment is an increase in the national stock. With more capital, workers produce more up to a
point. The countries gross domestic product is prone to vicissitudes for many years. For instance
the annual average percentage growth of GDP was2.6 in 1990, 2.7 in 2002 and. However, it was
4.2 for the year 2005.the gross capital formation to GDP was 12, 21, 20 and 26% respectively for
the period s under review [Annual report on the Ethiopian economy, 2007]

18
The country is now showing an increase in its economy. Empirical findings by Thirwall,
Pensmazogu and Madison have come up with a result that 30% to50%of the growth of more than
20 countries is the share of capital formation in 1970s [Thirwall, 1974: 6]. This indicates that
there is no doubt that the rise in GCF is the case for economic growth of these days [United
Nations Human Development Report (2005)].
In terms of macro-economic performance, the Ethiopian economy recorded an average growth of
4.5 percent, in real terms, during the period FY00 to FY04. Between FY04 and FY05 the
economy registered an average growth of about 10 percent in real terms ranging from 11.6
percent in FY04 to about 8.9 percent in FY05. In spite of significant improvements in economic
performance over recent years, the country remains amongst the poorest countries in the world.
According to the United Nations Human Development Report (2005) Ethiopia, ranked 170th out
of 177 countries and is at the bottom in terms nearly of all economic and social indicators
including life expectancy (42 years and declining due to the prevalence of HIV/AIDS pandemic),
adult literacy (about 40 percent), etc. Ethiopia has continued as backwardness and poverty
remains a concern to the Government. In order to face the challenges of backwardness and
poverty, the Government adopted a long-term development strategy in the 1990s supported by
sector-specific policies and strategies, and more recently, a medium-term program aimed at
sustainable development and poverty eradication.
Reforms aimed at transforming Ethiopia from a centrally planned economy to a market-oriented
one were launched in 1991 after the overthrow of the former pro-Soviet Derg regime, boosting
the overall GDP growth rate to an annual 4.0 percent in 1991–2003 from 2.8 percent during the
Derg rule (1974–91). The structure of the economy also changed, with the contribution of
agriculture to real GDP falling from 57 percent in 1991 to 42 percent in 2003, while that of
services rose from 34 percent to 47 percent. However, the contributions of industry and the
private services sector remained essentially unchanged, and Ethiopia’s growth potential remained
largely untapped.

The overall performance of the macro economy, as measured by the GDP growth was more than
satisfactory for many years. More specifically, according to revised national data, GDP growth
nowadays more significantly. The GDP growth for the previous three years was about 10.28%.
This shows that the countries economic growth is now improving.

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2.2.1 INVESTMENT INCENTIVES OF ETHIOPIA
The investment policy of Ethiopia has some packages of incentives that are aimed at encouraging
private investment and promoting the inflow of foreign capital and technology into the country.
The following incentives are granted to both domestic and foreign investors
 Custom import duty
 One hundred percent exemption from the payment of imports custom duties and
other taxes levied on imports is granted to an investor to import all investment
capital goods.
 Investment capital goods imported without the payment of imports custom duties
and other taxes levied on imports may be transferred to other investors enjoying
similar privileges.
 Some investment areas such as hotels, wholesales, retails, and import trade,
maintenance service, etc, are not eligible for exemption from customs duty.
 Exemption from customs duties or other taxes levied on imports are granted for
raw materials necessary for the production of exported goods.
 Exemption from payment of export customs duties;
 Ethiopian products and services destined for exports are exampled from the
payment of any export tax and other taxes levied on exports
 Income tax holiday;
 Any income derived from an approved new manufacturing and agro industry
investment or investment made on agriculture shall be exempted from the
payment of income tax.
 Profit tax holiday is granted subject to the council of ministers Regulation Number
84/2003 issued on the basis of the investment proclamation number 280/2002.
This proclamation is issued mainly to give more incentives for domestic investors.

CHAPTER THREE
3.1 RESEARCH METHODOLOG

The researcher used both qualitative and quantitative research design methods. This is because
one of my data gathering instruments is questionnaire that the responses obtained from investor

20
and concerned bodies from the investment bureau, through it is needed to be analyzed by
quantitative method. This is by using statistical tools like percentages.
3.2 SAMPLING SIZE AND TECHNIQUES

In order to get representative and reliable information and to draw important conclusion about the
study. Employing round methodological principle is pre –requested. Thus, there searcher used
both probability and non – probability (purposive) sampling methods as techniques of sampling.
Purposive sampling methods is used to select Bodit town from five reform town of woliata zone
and Simple random sampling from probability sampling is used to select investors from the
Bodit town particularly the study from misraki and mirabi sub- city. The target population of the
study is 176 who in habited in the Bodit town and who, private sectors investor and other
concerned bodies were included as informants. Because of too many large number of private
sector investors in the study area, it is difficult to administer questionnaires and conducting
interview to all of them.
The sampling size is prepared by using above methods was to avoid the homogeneity of the
population in the study area.
3.3 TYPES AND SOURCE OF DATA
To achieve the desired goals in this study the researcher used both primary and secondary source
of data. It is the best ways of data collection method. In which the researcher interviewed. Some
governmental officials and other related persons, in that they would provided accurate
information when they interviewed from different sectors of town administration offices such as
the investment bureau, labor and social affairs offices and etc. In this method the researcher
would used different data collected as books, journals, magazines and might from earlier
researcher.

3.5 DATA COLLECTION PROCEDURE

A structured and self administered questionnaires of (76) closed ended and (100) open –ended
questionnaires was distributed to 176 sampled individuals. The questions prepared in ease,
understandable way and it was translated into Amharic or as possible into Wolaitagn during

21
interviewed to avoid confusion among the respondents and interviewer to as to explain the role of
private sector investment to development.
3.6 METHOD OF DATA ANALYSIS
In this research work the research would used both qualitative and quantitative method of data
analysis to get brief information about the role of private sector investment to development in his
study areas. The role of private sector investment to development of the town in
3.7 ETHICAL CONSIDERATION
While conducting this research the following taken into account. The researcher would keep
personal information like names. To conduct this study acceptance from research committee and
department of accounting and finance obtained. Information would collect from the voluntary
person. To conduct the study permission from Social affairs office is important.

CHAPTER FOUR
4. DATA ANALYSIS AND DISCUSSION

4.1 INTRODUCTION
The Ethiopian government policy is clear about the importance that it attaches to the
development of the private sector. This is articulated in its latest and important policy-cum-plan

22
document, the SDPRP (Sustainable Development and Poverty Reduction Program) for 2002-
2005 and the newly approved PASDEP (Plan for Accelerated and Sustained Development to End
Poverty) for 2006-2010. Thus there is no question about the government’s commitment, at least
in principle, to private sector development. The question is whether this is implemented in
practice.
Following this the regional governments and local administrative authorities have been doing and
still are doing for the fulfillment of government plan. Normally, the private sector investment is
one of the important variables of the economy. The development this sector may lead to the
overall economic growth and development. The sector investment involves the use of the
country’s resources like land, labor and capital in the way it perceives best. Through the use of
those resources by the private sector investment, the idol and unemployed resources of a country
will be placed in a more productive position. Development in this sector leads to the increase in
the wages and salaries of laborers and return on capital which in turn leads to the improvement of
quality of life and thus reduction in the level of poverty.
Accordingly, the Bodit town administrative bodies together with the investment bureau are
employing their best efforts for the development and promotion of the private sector investment
in the town. The town is one of those towns that are growing in a relatively better rate of growth.
Although the growth rate of investment projects approved annually fluctuates, the number of
projects approved annually is increasing. Regarding the commencement of the approved projects,
the investment bureau reported that it is at far lower than the number of approved projects. This
creates retardation in the desired development of the private sector development.

4.2 THE PRIVATE INVESTMENT POTENTIALS OF THE TOWN

To bring about development in the private investment sector there should be certain level of
annual growth in capital and increase in the number of projects. The economies of most LDCs
are characterized by fluctuations and even decline in their economic activities making the
development activities difficult. In Ethiopia after reform period participation of the private sector
increased due to the favorable environment created through the transformation of political system

23
from the socialist way to the free market economic system. The new system encouraged the
private investors to participate in the economic activities of the country.
In Bodit town there are 176 private investment projects that are approved from the year 2002-
2012. The amount of registered capital for those approved projects is about 412,202,581 birr. It is
estimated that those licensed projects will create job opportunities for 3130 people of the town
and the surrounding villages. These projects are engaged in almost all sectors like industry, hotel
and recreation, social services, real estate, agriculture and others. The industrial sector includes
medium and large scale manufacturing firms, small handicrafts and cottage industries. Like wise,
the social services sector includes private health care centers and hospitals, and education-that
includes education from kindergarten and primary school to colleges.
Taking into account the aforementioned general information the fore coming sections of this
paper will try to analyze trends and performances of the approved projects of private investments
in Bodit town. The period under consideration starts from 2002-2012 for which the compiled data
is available even if the data is available in lesser quality.

4.2.1 THE TRENDS OF PRIVATE INVESTMENT SECTOR

Table 4.1 below contains the investment sectors, the number of projects and their respective
registered capital and estimated job-opportunities. In the table there are 176 approved projects
with the total capital of 412,202,581 birr and the total job-creation of 3130 laborers.
As illustrated in the table, the industrial sector that includes different kinds of manufacturing
firms, shares the largest amount of capital i.e. 140,130,858 birr with the highest percentage share

24
of 34%. The sector also provides job-opportunities for 1052 with the percentage share of creation
of job-opportunity amounting to 33.6%. This shows that the industry sector plays an important
role in providing the society not only with products to meet needs and wants but also with the
ability to do so by creating job opportunities to them.
Table 4.1: investment sectors and their capital and job-creation
Sectors Number of Capital(birr) Job-creation
projects In figure % In number %
Industry 32 140130858 34 1052 33.6
Hotel& 44 100416511 24.4 870 27.8
recreation
Social services 47 80000100 19.4 538 17.2
Real-estate 8 48705000 11.8 220 7
Agriculture 23 24000000 5.8 192 6.1
Others 22 18950112 4.6 258 8.2
total 176 412202581 100 3130 100
Source: Bodit town investment bureau
As can be seen from the above table, the number of approved projects in the social services sector
is 47 out of 176 approved projects. The number of projects in this sector is higher (26.7%)
relative to the other sectors. In contrary, the number of projects in real-estate sector is 8 with the
percentage share of 4.5% out of the total number of approved projects within the years under
consideration.
The town’s agricultural sector includes animal fattening, horticulture and some cash crop and
mixed food and cash crop farming. Referring to the table above, the agriculture sector creates the
lowest job-opportunity that is only for 192 people i.e. 6.1% of the total job-creation. The reason
for this may include:
 Absence of land for larger scale food and cash crop production in the boundary of the
town, and
 Lack of interest from the side of private investors to involve in the agricultural sector of
the town.
Besides the lower creation of job-opportunity, the agriculture sector registered capital amounting
to 24 million birr; i.e. 5.8% of the approved projects of the town.

25
According to table 4.1, the others sector of the approved projects of the town registered the
lowest capital (18,950,112 birr) relative to the other sectors for the years under study. The
number of projects in this category is 22 projects with a percentage share of capital and job-
creation of 4.6% and 8.2% of the total, respectively.
In general, table 4.1 is evident that the performance of the industrial sector with respect to capital
share (34%) and creation of job opportunities (33.6%) reflect that the sector an important and
decisive role in the development of the town. This is followed by hotel and recreation and social
services sectors. These three important sectors cover 78.6% of the total work creation and 77.8%
capital share of the total approved projects in the town from 2002-2012.
4.2.1.1 The Annually Approval of Projects in the Town
The private investors who are employing their capitals in Bodit town are involved in different
kinds of investment sectors. According to table 4.2 that shows the annually licensed projects,
investors are involved in all sectors i.e. in the sectors of industry, hotel and recreation, social
services, real-estate, agriculture and others. As also stated earlier, the table provides that from
2002/03-2012/13 investment projects were approved in Bodit administrative town.
As to the table below, the growth rate of industrial sector, agricultural sector and others sector
follow a similar pattern with a little ups and falls in agriculture and others sectors. For example,
for agricultural sector, the number of approved projects in the year 2007/08 was three but in the
next year, it falls to two and again rises to three in the year 2009/10, and in the others sector the
fluctuation started in the year 2002/03 and continues until the year 2012/2013.

Table 4.2: annually approved investment projects (2002/2003 -2011/2013)

Year Sectors Total Growth
industry Hotel & Social Real- Agri. Others rate
recreation services estate (%)
2002/03 1 2 0 0 2 2 7 -
2003/04 0 1 2 0 1 1 5 -28.6

26
2004/05 1 3 2 0 1 1 8 60
2005/06 2 3 3 0 1 2 11 37.5
2006/07 1 4 3 0 2 1 12 9.1
2007/08 3 3 4 0 3 2 15 25
2008/09 3 4 5 2 2 2 18 20
2009/10 4 5 6 2 3 2 22 22.2
2010/11 5 5 6 1 2 3 22 0
2011/12 5 6 7 2 3 3 26 18.2
2012/13 6 8 9 1 3 3 30 15.4
Total 32 44 47 8 23 22 176 -
% from 18.2 25 26.7 4.5 13.1 12.5 100 -
the total
Source: Bodit town investment bureau
The growth rate of the total investment projects approved from year to year as indicated in table
4.2 the presence of fluctuations, but the percentage change in the growth rate of investment
projects approved annually is the result of the higher or the smaller the total number of approved
projects in the preceding year when compared to the reference year. As a result the growth trends
of projects that are approved annually involve exaggerated fluctuations. For example, in the year
2004/2005 growth of investment projects approved relative to the year 2003/04 was 60% but the
marginal increment was only 3 investment projects. In contrary, marginal increment in the year
2012/13 relative to 2011/12 is 4 projects whereas its growth rate is only 15.4%.
The number of projects that decrease relative to the preceding years showing relatively higher
fluctuations are the years 2007/08 (-28.6%) and 2010/11 (0%) and the others follow some
positive figures of growth rate.
As the table above reveals, the majority of investment projects approved annually are involved in
industry, hotel and recreation and social services sectors with the total numbers of 22, 44 and 47
projects, respectively. The increase in the distribution of projects among sectors started in the
year 2012/13.This result from the quality of information about investment condition in the town,
increase in the promotion of investment incentives by town’s administrators, convenience of the
environment and the relative betterment of the entrepreneurial capacities.

27
Generally, industrial, hotel and recreation, and social services sectors share about 69.9% of the
total investment projects approved annually from the year 2002-2013, and the social services
sector took the lead by sharing 26.7% of the approved projects.
In large, there are three major divisions of investment sectors. These three major kinds of
investment are primary, secondary and tertiary sectors. The primary sector is solely dominated by
the agricultural activities like cash crop production, food crop production, animal fattening and
horticulture. In the secondary sector there are industries like medium and large scale
manufacturing firms, small handicraft and cottage industries, and all other that are involved in the
manufacturing of products to meet needs and wants of people of the town. On the other hand, the
tertiary sector encompasses all the service activities of the private investors of the town. It
includes hotel and recreation, real-estate and social services.
The following figure reflects the number of annually approved or licensed in the three main
divisions of the investment sector of the town for the years 2002-2013. The vertical axis (y-axis)
measures the number of projects approved annually within the three major sectors and the
horizontal axis (x-axis) depicts the years of the approved projects.
4.2.1.2 Investment Flow of the Town
The performance and trend of the annually approved investment projects can be seen from
another point of view. By taking into account the yearly-approved projects, we can analyze them
in terms of their annual flow. Table 4.3 below contains the number of projects annually and their
respective capital and job creation.

Table: 4.3 Investment Flow

No. of Capital (birr) Work creation
Years projects In number KGR In number WCGR
20002/03 7 13,190,482.89 - 182 -
20003/04 5 11,953,874.85 -9.4 98 -46.2
20004/05 8 18,549,116.15 55.2 172 75.5

28
 20005/06 11 25,556,56.02 37.8 194 12.8
20006/07 12 30,915,193.58 20.9 202 4.1
20007/08 15 34,625,016.80 12 243 2.3
2008/09 18 40,395,852.94 16.7 298 22.6
2009/10 22 49,052,107.14 21.4 378 26.8
2010/11 22 50,288,714.88 2.5 370 -2.1
20011/12 26 58,944,969.08 17.2 480 29.7
20012/13 30 78,730,692.97 33.6 513 6.9
Total 176 412,202,581.00 - 3130 -
Source: Bodit Town Investment Bureau
According to the above table, the number of projects approved increases through out the period
under study (2002/03-2012/13), except for the year 2003/2004. In this year the registered capital
was 11,953,874.85 birr with -9.4% of growth rate. The growth rate of this year is the lowest of all
other years. The reason in the decline in the growth rate of capital is the decline in the number of
projects approved relative to the preceding year (from seven projects to five projects).
The pattern of the growth rate of capital reflects the existence of variations from year-to-year. As
it is evident in the above table, the highest capital growth rate is recorded in the year
2004/2005(55.2%). Although the capital growth rate for a given year is higher, it might not hold
for the marginal increment of capital. For example, capital growth rate for 2004/2005 is 55.2%
with respect to 2003/2004 where as the marginal increment in capital in capital is only
6,545,241.30 birr. In contrary, the marginal increment for 2012/13 of capital is 19,785,723.89
birr in relation to 2011/12 whereas the capital growth rate is only 33.6%.

In addition, growth rates for the estimated job-creation of approved projects also show similar
variations as the growth rate of capital. The years in which the growth rate of estimated creation
of job opportunities decreases indicating relatively higher fluctuations are the years 2003/04(-
46.2%) and 2010/11(-2.1%). Besides, the number of employment opportunities created increases
annually except for 2003/04(for 98 people) and 2010/11 (for 370 people).
4.2.2 THE CURRENT STATUS OF APPROVED PROJECTS

29
The other mechanism to look in to the development of private investment sector is by analyzing
the current status of approved projects in the town. Analyzing the current status of projects can
best explain the performance of the investment sector in the town. Table 4.4bellow presents the
status of projects and their respective registered capital and estimated creation of employment
opportunity.
Table 4.4 the current status of projects
Status No. of projects Capital ( birr) Work creation
In No. % In No. % In No. %
Not started operation 36 20.5 100,165,227.20 24.3 750 24
On construction 72 40.9 161,583,411.80 39.2 1095 35
Started operation 60 34.1 133,553,636.20 32.4 997 31.8
Cancelled 8 4.5 16,900,305.80 4.1 288 9.2
Total 176 100 412,202,581.00 100 3130 100
Source; Bodit investment bureau
According to table 4.4, the approved projects are found in four different conditions or stage of
operation. The first status illustrates the approved projects that are not yet started their operation.
In this status there are 36 approved projects that are about 20.5% of the total number of approved
projects in the year 2002/03- 2012/13. 24.3% of the total registered capital is covered with those
projects. The estimated employment creation by those 36 projects is about 750 i.e. 24% of the
total employment creation.
As can be seen from the above table, the other category is a group of projects that are currently
on construction. They are about 72 projects with the total registered capital of 161,583,411.80
birr. These approved projects, which are 40.9% of the total number of the projects, are estimated
to create job opportunities for 1095 people that is 39.9% of the total estimated employment
creation.
This category is higher in the number of projects (40.9%), registered capital (39.2%) and
estimated creation of employment (35%) for the people of the town. This indicates that the
largest number of projects is on construction or getting reedy to start operation.
Actually some sort of lags can be detected from their work. Some projects start construction and
in the middle they stop it for a year and even more. The causes for this discontinuation of their

30
construction might be due to financial problems, erroneous with the design of their construction,
difficulty of bureaucratic procedures after getting started construction and the like.
In table 4.4, the number of projects that have commenced operation is 60 projects. These
projects are 34.1 % of the total approved projects with in the period under study. This group
projects cover the capital of 133,553,636.20 birr which is 32.4% of the total registered capital.
These projects have opened job opportunities and have employed about 997 people of the town.
These projects mainly include hotels, health centers, KG and primary schools, colleges and small
handicraft and cottage industries.
On the other hand, there are another group of approved projects which are completely cancelled
out in the period under study. These projects are 8 in number which is 4.5 % of the total approved
projects. The amount of capital they registered to get licensed is 16, 900,305.82 birr that is 4.1%
of the total registered capital for the approved projects with in the period specified. It was
estimated that these projects would have created job opportunities for 288 job seekers of the
town. It was 9.2% of the total job creation by the approved projects. The cancellation of these
projects may be due to shortage of finance and lack of confidence in returns from the projects by
investors. On the other side, some of the projects were canceled by the administrators of the town
and deprived the right of the investors to start construction for the matter of maturity of the time
that they were allowed to start there construction.
Generally, as it is evident from table 4.4, the number of investment projects commence operation
is by far lower than the approved investment projects that are not yet started operation.
4.3 FINANCIAL SOURCES OF INVESTMENT PROJECTS
Finance is the core element of any investment process. The financial sector in Ethiopia has been
weak to support the private sector. Stringent collateral requirement to get access to credit from
banks for investment projects are major impediments. The banking system is very poor in using
current technology and providing effective services for its customers.
Financial sector strength and the private sector investment are found to be different sides of the
same coin as far as their growth is concerned. One of the functions of financial institution,
mobilization of resources, particularly savings, is carried out with the ultimate objective of
channeling financial resources.
In the past regimes, especially the Dergue regime (1974-1991) banks and other financial
institutions were nationalized and thus executing the economic plans as out lined by the central

31
planning organ. Since the financial institution were under the control of the government, there
contribution for the growth of the private sector was not significant. On the other hand the current
government has made a lot of amendment in the transferring the central planed economy towards
a more liberalized economy. Both the financial sectors and the private sectors have benefited
from this paradigm shift.
There are many, both privately and government owned financial institutions in Bodit town.
These financial institutions are working together in channeling the financial resources of the
town. The privately owned banks that are found in the town include Awash International Bank
(AIB) and the recently opened united Bank. There are also privately owned insurance companies
like Awash Insurance Company (AIC) .The government owned banks and insurance company
that are found in the town include Commercial Bank of Ethiopia (CBE), Development Bank of
Ethiopia (DBE), and Omo Micro Fiancés Institutions.
The commercial private and government owned banks are engaged both in mobilization of
deposit and disbursement of credit for the town’s investment projects and other business
activities. Thus, the private sector investment of the town is the beneficiary of this merit.
Regarding the disbursement of loans, the commercial banks place some criteria and those who
fulfill the criteria will get the loans. As pointed out by the studies of the investment bureau, the
criteria used by most banks for the issuance of loan are:
1. Physical collaterals that should be amount to at least 25% and above of the credit.
Example, buildings, vehicles etc.
2. The individual or the investor should contribute 30% investment cost.
3. Good commercial credit report from other commercial banks.
4. Renewed investment and trade licenses

For the mater of the secrecy of data of commercial banks and also time constraint, the study
could not provide the detailed analysis and discussion about the relations of the banks and the
private investment sector. Nevertheless, without the provision of financial services by financial
institutions the expectation of the rapid growth of the private sector would be ridiculous.
4.4 CONSTRAINTS FOR THE DEVELOPMENT OF THE PRIVATE SECTOR
INVESTMENT

32
Economic stability of a given economy can foster the development of the private sector.
Maintenance of prudential investment policy not only helps to provide much needed
infrastructure and human capital for use the private sector, but also provides a stable and
predictable economic environment. In Ethiopia, as a whole, the private investment sector is faced
with some fundamental problems. Of this economic instability, weak institutions and institutional
arrangements, weak and inefficient market, and the political environment are found to be the
major problems for the growth of the sector. These problems are found to be hampering fulfilling
the desire of developing the sector. Investment by its very nature is a forward looking activity
whose out come is uncertain. In an environment of economic instability, the private economic
agent can not predict the future profitability of its projects it will thus be less motivated to engage
in productive investment projects particularly on these private investment projects with longer
maturity.
Like anywhere else in the country, the private sector investment faces many problems in Bodit
town. According to studies carried out by the investment bureau the major problems that are
constraining the private investment in Bodit town are:
I. weak incentive structure
For the reason that the private sector has evolved only recently in the nation wide, the sector
needs a lot of support if indeed thus the administrators of the town aim to achieve a sustainable
development of the town. To spur up the development of the private sector in the town the
government bodies should provide incentives that encourage the participation of investors in the
sector. Although the government was doing in this regard, expanding that is worth considering.
Different kinds of scheme of support for the private sector have to be provided, but these
incentives need not be result oriented.

II. Credit facility

Most projects face a major financing constraints both at their initial stage of development and
latter in the form of working capital. Unless the government manages to design and provide them
with access to credit facilities, these projects would not be in a position to continue their
operation. The absence of good credit facilities could be the main reasons for projects to work

33
bellow their full capacity. For the available credit institutions, the required collateral and other
restrictive criteria of these institutions constrain the flow of investment projects.
III. Lack of information as well as inability to utilize and process the available
information
Other factors that become a challenge for private investment sector in the town is their inability
to process and utilize market information either due to lack of information or access to those
information as well as inability to appropriately and timely utilize and efficiently use it if it is
obtained.
IV. Bureaucratic Procedure
As specified in the study of the investment bureau, the investors face relatively moderate
bureaucratic procedures during licensing or approval of their projects. However, the difficulty of
bureaucratic procedures comes after the investors started operation. The problem is while leasing
a land to investors or after leasing, as an examination of the performance of the approved
projects.

CHAPTER FIVE
5. CONCLUSION AND RECOMMENDATIONS
5.1 CONCLUSION
The Ethiopian government is clear about the importance it attaches to the development of the
private sector. This is articulated in its latest and very important policy-cum-plan document, the

34
SDPRP (Sustainable Development and Poverty Reduction Program) for 2002-2005 and the
newly approved PASDEP (Plan for Accelerated and Sustained Development to End Poverty) for
2006-2010. Following this the regional governments and local authorities are doing for the
fulfillment of the government plan.
Bodit town is one of those Ethiopian towns that are growing in a relatively better rate. There are
176 private investment projects that are approved from the year 2002/03-2012/13 in the town.
The amount of registered capital for these approved investment projects is about 412,202,581 birr
with the estimated employment creation for 3130 people of the town and the surrounding
villages. These projects engaged in almost all sectors that are industry, hotel and recreation,
social services, real estate, agriculture and others sectors.
The majority of annually approved investment projects involved in industry, hotel and
recreation and social services sectors with a total number of 32(18.2%), 44(25%) and 47(26.7%)
projects, respectively. Specifically, the performance of the industrial sector with respect to capital
share (34%) and employment creation (33.6%) reflect that the sector plays an important and
decisive role in the development of the town. In terms of the three major divisions of investment,
projects of the town can be categorized in to primary, secondary and tertiary sectors. In previous
chapter table 3.1 illustrates that the number of annually approved projects in the tertiary sector is
positioned at a higher place where as, that of the primary sector is placed at a lower position.
Currently, the approved projects of the town are found in pre implementation or not started
operation (20.5%), on construction (40.9%), on implementation or started operation (34.1%) and
cancelled (4.5%) group of projects. However, the number of projects commenced operation
(34.1%) is by far lower than the number of projects that are not yet started operation.
Financial sector strength and the private investment sector development are found to be different
sides of the same coin as far as their growth is concerned. There are many, both private and
government owned, commercial banks that are engaged in mobilization of deposits and
disbursement of loan.
Finally, as anywhere else in the country, the private investment sector faces many problems in
Bodit town. Of these problems, weak incentive structure, lack of good credit facility, lack of
information as well as inability to utilize and process the available information and difficulty of
bureaucratic procedures are the major ones.
5.2 RECOMMENDATIONS

35
In this study problems and constraints were identified which considerably hindered the
development of the private investment sector in Bodit town. If the necessary remedies are given
and implemented the investment activities of investors will be improved to a great extent.
Therefore, based of the discussion and findings, the following recommendations are forwarded;
 in order to increase the participation of investors in the private investment sector the
investment bureau should provide good incentives structures,
 adequate public investments on those necessary infrastructures such as road, power,
water, communication and the like should be provided by the government for the smooth
functioning of the private investment sector in the town,
 since it covers the largest share of registered capital and estimated employment creation,
special attention should be placed on the industry sector of the town,
 to enhance the development of the agriculture sector, which is the least developed one, the
administrators of the town should provide suitable land, important infrastructure as well
as incentives to investors,
 necessary remedies should be taken to reduce the difficulty of bureaucratic procedures
after investors get started implementation of their projects,
 from financial institutions side, the restrictive criteria and collateral requirements that are
required for the disbursement of credit should be reduced to the level that helps investors
to cope up with financial problems,
 Investors themselves should be able to use and efficiently utilize the available market
information modernize their staffs through training and skill development.

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Birtukan L., 2006, Role of private investment on the development of SNNPR,
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Douglas Greenwald (2002), Encyclopedia of Economics, McGraw-Hill Book
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