ASSESSMENT OF FACTORS AFFECTING PRIVATE

INVESTMENT IN CASE OF MODJO TOWN,

A RESEARCH PROPOSAL SUBMITTED FOR THE PARTIAL

FULFILLMENT FOR THE REQUIREMENT THE COURSE
ADVANCED RESEARCH METHODOLGY

BY;
DANIEL MOSISA

SUBMITTED TO: ROBSAN M/(ASST.

PROFFESSOR)

RIFT VALLEY UNIVERSITY MODJO CAMPUS

FAULTY OF BUSINESS AND ECONOMICS
DEPARTMENT OF ACCOUNTING AND FINANCE

JULY, 2023 MODJO,

ETHIOPIA
 ABSTRACT

Investment is very essential to mobilize human and natural resource to more productive efficient and
effective utilization of available resource by allocating them in investment activity. So the government of
Ethiopia has given much concern to this activity. However, this activity is in its low level in the country
and in one of the urban center and Modjo town. For this reason, the purpose of this research proposal is
to assess the factor that affects the domestic private investment activity in the town. In collecting data, the
researcher will use primary source of data through questionnaire. To distribute the questionnaire, the
researcher will take the total population of the investors. The data will be carry out based on tabulation,
percentage, frequency and interpreted accordingly. The investment can have affect by different social
problems, market problems, infrastructural problems, in adequate promotion to attract investors and tax
burden. To solve the problems, the investors should be clearly identified investment policy and strategy.
Key words: Investment, Private, domestic

i
 Table Contents
Content Pages

ABSTRACT.......................................................................................................................................i

Table Contents................................................................................................................................ii

CHAPTER ONE.............................................................................................................................1

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

1.1. Back ground of the study..........................................................................................................1

1.2.Statement of the problem..........................................................................................................2

1.3.Research Question....................................................................................................................3

1.4.Objective of the study...............................................................................................................3

1.4.1General objective....................................................................................................................3

1.4.2.Specific objectives.................................................................................................................3

1.5.Significance of the study...........................................................................................................3

1.6.Scope of the study.....................................................................................................................4

1.7.Limitation of the study..............................................................................................................4

1.8.Organization of the paper..........................................................................................................4

CHAPTER TWO............................................................................................................................5

2. Literature Reviews......................................................................................................................5

2.1. definition and concept of

investment......................................................................................5

2.2. Theoretical

literatures..............................................................................................................6

2.2.1 The classical theory of

investment.........................................................................................6

2.2.2 The Keynesian theory of

ii
investment.....................................................................................7

2.2.3 Accelerator theory of

2.4 Determinants of Investment 9

2.5 Importance of Investment.......................................................................................................11

2.6 Investment Guarantee and Protection.....................................................................................11

2.7 Empirical review of literature.................................................................................................12

2.7.1 Accessibility of credit..........................................................................................................12

2.7.2 Infrastructural facilities........................................................................................................12

2.8 Investment in Ethiopia............................................................................................................13

2.9. Constraints and Determinants of Private Investment in Ethiopia..........................................13

2.10. The role and contribution of the domestic private sector in Ethiopian economy and in the
Second GTP..................................................................................................................................14

2.11 The role of the private domestic sector in economic development......................................16

CHAPTER THREE......................................................................................................................17

3. RESEARCH METHODOLOGY.......................................................................................17

3.2. Source of Data....................................................................................................................18

3.3. Data collection method......................................................................................................19

3.4. Target population................................................................ Error! Bookmark not defined.

3.5. Sampling techniques and sample size................................. Error! Bookmark not defined.

3.6. Method of data analysis.....................................................................................................19

Reference ...................................................................................................................................... 22

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 CHAPTER ONE

1. INTRODUCTION
1.1. Back ground of the study
The economic grows reform make in Ethiopia in 1992 with the support of and pressures from World
Bank and various donors including united nation development program (UNDP) to free market
economy. Their reform is make with the following main aim to bring about macroeconomic stability
and socio economic recovery as well as create conducive environment for Scio economic for private
sector participation. So that the private sector becomes actor in the productive sector of the economy
with public sector concentrate on the social sectors and infrastructural development (Tesfaye
A.2009).

Privet investment is plays a great role is country development especially in developing countries
whose capital is scares and their government lack enough to cover all constraints and bring economic
change for development thus, if privet investment (sector) involve in investment, the out and growth
domestic product (GDP) country is increase. Investment is a critical determinant of a long run
economic performance. Investment involves the information of capital; fixed (tangible) capital, such
as reputation or technical knowledge capital such as skill or education (bond and junkinten, 2001)

In order to have sustainable investment even the investment code has been revise there are many
complex bottle necks of constraints and opportunities of domestic privet investment in Ethiopia. The
problems are from both sides that raisesraises from natural rules and regulation government others
social and political factors. Because of this problem the investment distribution is an equal in all
regions, zones and Woredas. (Ibid, 2009)

The main factor that hindering investment in development in developing country, it is a doubt less
that investment is a key factor for the growth the economy of one country or nations and with the
problem that hindering investment is necessary and also important in the investments sectors before
making decisions. So investor should consider some

required point, required rate of return, rate of expected inflation, lack of infrastructure access, unfair
competition, inability to compete with cheap import, difficult to obtain land at a reasonable

1
cost, the risk involved that can have an effect on the investor decision. There is exist other factors that cut
down the growth of investment sector. In generally, market is also one of the basic factors for the
determination of not investment activity that means an efficient market is one in which investment is
higher expect return and also less level of risk. It is also necessary to deal with the market characteristics
and market condition (Bodikne Arcus, 1998).

In less developing countries like Ethiopia shortage of capital accumulation for inevitable fund is the root
cause of backwardness of the country economic development in our countries. There is large amount off
idea resources still which not mobilized into investment activities due to in efficient utilization of which
results allocate their income for investment activity out of their consumption (Fassle. Among, 1999)

1.2. Statement of the problem

The expansion of investment is important in bringing sustainable economic development especially

in developing country like Ethiopian, success full investment requires clearly identified policy,
strategy and infrastructures. Investment plays a great role for development of economy such as open
new job opportunity, reduce unemployment rate, increase the income of the people and bring
economic growth through reducing poverty (Samuelson, et al 2010).

Investment has paramount importance in the process of bringing economic growth and development
of the nation. Different investment can be practice in countries in which rapid economic development
policies are correctly formulate, programs appropriately plan and resource manage, allocate and
implement. But the fact prove that many Ethiopians are still suffer from absolute poverty, lack of
clean water, health problem, limit infrastructure, and the like. (EIA, 2004)

Modjo town has many investment opportunities which can attract investors. The major investments
in the town are service, industry, trade, such as import of equipment.

For education, the service, such as agriculture, stationary office, manufacture, The service such as
cotton factory, flour factory. However, the town is many investment opportunities the private
investment activities is not as much expect because of several challenges like inappropriate
government policies, absence of basic infrastructural facilities, lack of finance, un proper use of land
lack of public good supplies such as water, electricity, lack of entrepreneurial skills. So that

2
those listed problems affect the town economy in adverse way because the town cannot have benefit as
much expect and plan for instance those investment project is not creating employment opportunity and
not generate the expect profit from this project and as well as not register they require benefit at country
level. So the government and all responsible bodies should consider these problems and must be give
quick appropriate response for investors’. Unless it simple to predict the town statement growth
dominates by few people and the rest one is leave out of the market. Consequently, the government should
give high attention and should have quick solution for these problems.

According to the researcher knowledge there is no study in the opportunity and challenges of private
investment activity in Modjo town. Due to this the researcher motivate to study in this area to know the
opportunities and challenges of investment activity in Modjo town.

1.3. Research Question

1. What are the major investment opportunities available to private sector?

2. What are the major factors that affect the private investment in Modjo town?
3. What is the role of investment for the economic development of the town?
1.4. Objective of the study
1.4.1. General objective

The main objective of the study is to asses, Factors which affects private investment in Modjo town.
1.4.2. Specific objectives

The specific objectives of the study are as follow

1. To identification the major investment opportunities available to private sector.
2. To very define the factors of private investment that face in Modjo town.
3. To assess the role of private investment for economic development of the Modjo town.

1.5. Significance of the study

This study tries to identify investment problem prevailing is Modjo town and suggest some feasible
solution as recommend that can help increasing the rate of investment.

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Once the problems are identified in every direction as much as possible the solution forwarded by this
research can be used at least minimize the problems that affects the development of investment. It also
help the private investors to identifying the potential investment areas. That its shows direction for willing
and able investors to invest potential areas with higher.

1.6. Scope of the study

This study only incorporates domestic private investment activities in the Modjo town. The study
will cover only on the domestic private investors who are living or investing in Modjo town and also
will focus in Modjo town private investment challenges especially social and economic problem such
as infrastructure facilities.

1.7. Limitation of the study

There are some constraints the researcher face at the time gathering information. This constraint rise
from the case of target population. Some private investment in doubt to respond neutrally, because
they hesitate by relating the objective of the study with the purpose of private investment policy.
There are difficulties secondary data document which more than two years in order to get available
sufficient information and the researcher bias to primary data is one limitation of the study.

1.8. Organization of the paper

This research proposal is contains three chapter. The first chapter is containing an introduction to the
study pare which contains general background of the study, statements of the problem, objectives of
the study, significance of the study, scope of the study, limitation of the study and organization of the
paper itself. The second chapter deal with reviews of related literature all cases The third, contain the
methodology and source of data.

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 CHAPTER TWO
2. LITERATURE REVIEWS
2.1. Introduction

This chapter incorporates two parts that are theoretical review and empirical review. Theoretical
review contains theory of investment, types of investment and determinants of investment. On the
other hand, empirical review contains private investment in Ethiopia, constraints and determinants of
private investment in Ethiopia, regional distribution of investment in Ethiopia and finally this chapter
include the role and contribution of the domestic private sectors in Ethiopian economy in the second
GTP.

2.1.1. Definition and concept of investment

Many scholars and academic has define the form investment differently some of them are Investment
is most commonly used to describe investment the follow of expenditures devoted to increasing or
main tainting the real capitals stock in fact more accurate definition which clearly encompasses the
above is that investment is the follow of expenditure, devoted to projects producing goods which are
not intended for immediate consumption. This investment project may take the form of adding to
both physical and human capital as well as investors. Investment is flows the volume of which is
determined by all those projects which yield appositive net present value or an internal rate of return
greater than the interest rate (David Pearce 1986).

Investment is the current commitment of dollars (birr) for a period of time in order to drive future
payments that will compensate the investor for the time they found is committed and the uncertainty
of the future payment. In all cases investments is trading a known dollar (birr) amount to day for
same expected future stream of payment that will be greater than the current out lay. In this point we
have answered for the question about why people invest and what they want from their investment.
They invest to can a rerun form saving due to their differed consumption. The fund to be invested
aimed from asset already owned, borrowed money and savings. By foreign consumptions today and
in investing their savings investors expect to enhance their future consumption possibilities by
increasing their wealth (Alex and Zvibodie, 2008)

5
Various writers have defined investment in different ways. Investments have no definite meaning in
different field of study its specific definition differs from each other. Investment in economics refers to
“purchase as a physical asset such as firms’ operations acquisition of a plant, equipment or inventory”.
(Herbert, B. Moyo, 1997).

According to Teodoro, investment is part of national expenditure devoted for the production of capital
goods over period. Capital accumulation results when some proportion of present income saves and
invests in order to augment future output and income. New factories, machinery equipment and material
increase the fiscal capital stock of nation and make it possible for expand output level to achieve. This
directly productive investment is supplement by investment in what is known as social and economic
infrastructure, road, electricity, water and sanitation, communication and the like with facilitate and
integrated economic activities. (Todarro, M.1995).

Investment is multi various in nature, it may be under taken by private enterprise company’s in fixed
capital like machinery, equipment and building and working capital, raw material, semifinished products
and finished goods. It may also undertake by public authorities in social capital like school buildings,
housing, hospitals, roads and bridges etc. Then there is investment by nationalizing industries and the
public taking in fixed as well as working capital. Investment can be autonomous that is sonly under taken
by without any profit motive.

2.2. Theoretical literatures

Theories of investment are varied and immense, there exists a considerable variation in thought
among economists as to what determinants of investment. One reason can be the complex nature of
the subject itself. another reason can be disparities among societies in their intuitional and structural
setting which makes the development of universal theory of investment impossible here it has to be
noted that investment in physical stock of capital having this in mind some of the theories of
investment are briefly rived as fallows.

2.2.1. The classical theory of investment

According to the classical economists, the capitalist make investment because they expect to earn
profit in the future depends on good they produce now. Among the classical economists, the founder
one is Adam smith. For example, Adam smith in his book “the wealth of the nations” he elaborates
this felt by arguing that investment is make because the capitalist expect to earn profit

6
and the future expectation with regard to profit depend up on the present climate of investment as well as
the actual profit (Ibid,2000)

2.2.2. The Keynesian theory of investment

Keynes (1936) was probably the first person who systematically analyzes the issue of investment by
considering of saving and rate of infest to increasing the employment opportunities on the country. In his
book “the general theory of employment, interest and mange” key her observed that the quantity of
designed investment depend on the prospector marginal efficiency of investment or capital MEC) relative
to some interest rate, reflecting the opportunity cost of invested funds. On the basis of this, Keynes
analysis, the factor that governing the output and employment is explode by using saving and interest rate
as the marginal propensity of consumption of the people decaling it leads to rising in investment because
many credits available for investors. These investments have multiple effects on the economy of the
nations like expansion of output and increase in the opportunity of employment (Ibid, P.422)

2.2.3. Accelerator theory of investment

After Keynes, the accelerator principle was the dominant theory of investment theory, especially during
the 1960’s. the theory asserts that investment spending is proportion to be change in output and is not
affect by the cost of capital i.e. rate of interest, this means the change in the rate of growth of income
produces a magnified change in investment. As in come falls quite significantly and rise income resects in
a magnified rise on the absolute level of investment. (Dorm Busch, 2004)

2.2.4. Types of Investment

The world of encyclopedia (1994) divides investment into seven major categories.
Life insurance: - its services as a form of investment for many people. A person may buy life insurance
to provide financial protection for his family members in case the person dies or disabled.
Business investment: the purchase of small business may be most demanding kind of investment. Real
estate: - the people invest in real estate when they buy a home, land or rental produce. Real estate may
have considerable resale value.

7
Bonds: - This include government requires and corporate bonds. Government securities are issued by the
federal government or by state or local government.
Stocks: - represent share of ownership in the company the stockholder of a firm shares in the form profit
and losses of the company.
‘Mutual funds: - these are companies that invest in a Varity of securities and sell shares of their own
stock.
Saving account also called time deposit are common kind of investment more paced in a saving account a
bank, credit union saving and loan association earns interest at a certain annual rate.
In economics, there are three types of investment spending business fixed investment residential
investment and investor investment (Ibid, 2000)

Business fixed Investment

These include the equipment and structures that business buy to use in production. The largest pica of
investment spending account for about three quarters of the business fixed investment. Residential
Investments
Residential investment includes the purchase of new housing both by people who plan to live in it by
themselves and by land lord who plan to vent it top others.
Inventory Investment
Inventory investment the goods that business put aside in storage at the sometime legible and of great
significance. It is one of the smallest components of spending averaging about one percent of GDP.
According to student of the investment process, there are three important stages in process of capital
formation that need to be successfully compute if countries hope to achieve the desired level of
investment and its expected fruits. These are:
Stage of saving: - the first stage resources which might be used for consumption are put a side.

Stage of canalization: - Resource Mobilization is the second stage where saving that is secured in the
first stage are assembled and be ready for investors.

The investment: - a stage where resources that are mobilized are utilized for the production of capital
goods.

8
An economy can have problem of mobilizing and using investible resources as a result of failures in any
of their stages. Though the usual recommended rates of saving and investment range from 12% to 15%
and even as high as 25% but in developing countries saving and investment rates are low. Even worse the
quality of the capital accumulated is not dependable in the sense that these resource may not be use
efficiently in fact there are low investment vote which rise from low level income. (Berhanu N. 2000).

2.2.5. Determinants of Investment

According to Ethiopia Journal of Economics vol-VI, 2002 to economist Hajela in broadly speaking, an
investor before making decision to undertake investment is gilded by three factors, namely: -
The expected income flow from the capital asset
The purchase price of asset, and The market rate of
interest
According to Yishak, 2002 writes as Timothy Tree
gather, in his book macho economics in 1996,
describes the following determinates of investment
are the most important.

Intersect rate: - interest rate pals a key role in the

determination of the desired capital stock and thus
of investment. According to him the relationship
between interest rate and investment is negative.
The relationship applies to all form of investment;
higher interest rate tends to all forms of investment
reduce while lower interest rate increase quantity of
investment (Ibid).

National Income: -This also another major

influence on investment is beloved to be the change
in national income. Low level of income causes low
demand for capital and low level of investment
leading to low level of the output (Ciaran and paw,
1999).

Infrastructure Facilities: - The existing

development infrastructure in Ethiopia is to sustain.9
Now economic activity is adequate. The availability
of read, electricity, water, and telecommunication is
spent on capital goods. Because a firm recoups part of its expenditure on new capital. Thus the investment
tax credit reduces the cost capital and raises investment (Ibid, 2000).

Access to Land: - land is an important input for investor so as to implement their projects. Since it fixed
asset it is not possible to increase supply, government should adopt sound and establishing industrialize
zone. That helps to improve land provision process to inventor (MOFED, 2002).

The level of Economic Activity: -An increase in the level of production is likely to boost demand for
capital and thus lead to greater investment.

An increase in investment boosts real GDP, and increase in real GDP is likely to stimulate investment.

Expectation: -A plan to change the capital stock is a plan to change future production capacity. It
therefore depends crucially on expectations about the future. As expectation change in a way that
increases the expected return from investment demand curve shift to the right.

Uncertainty: - investment is the decision mad4e today to be justified by the outcome of tomorrow for
which the future outcomes is not full predictable that is investment decision in uncertain climate entails
the option of waiting additional information. To the extent that in centimes lag behaved the risk premium
of uncertainty the decision of investment likely to be postponed (Ibid, 2000).

The cost of Capital Goods: - As the cost of acquiring capital goods rises relative to other prices, the
demand for capital will be fall a reduction in construction cost would increase demand for new building.
In fact, the above determinates are the major ones that hindrance to private investment.

The stock of capital: - The quantity of capital unready in use affects the level of investment into two
ways. First because most investment replaces capital that has depreciated greater capital stocks is likely to
lead to more investment there would be more capital can tend to reduce investment. That is because,
investment occurs to adjust the stock of capital to its desisted level. Given the demised level the amount
of investment needed to reach it would be lower when the current capital stock is higher.

Devaluation: - devaluation affects investment through several channels. That is by altering the real
supply prices of capital goods, by razing the real prices of imported inputs by altering the real

10
product wage and them by affect profitability by producing goods and by affecting nominal and real
interest rate which affect the supply price of capital. (chibber and Dailam, 1190 cited in Anwar, 2001).

Technological Change: -change in technology can thus increase the demand for capita. Advance in
computers technology have encouraged massive investment in computers. The development of tuber
optics, a new technology for transmitting signals, has stimulated huge investments by telephone and cable
television companies.

2.2.6. Importance of Investment

Hirchman (1958) stressed the role that investment plays in development process of economy. Investment
is a many sided actor on the economy. If there is simultaneous performance as income generation and
capacity creator is the foundation of modern growth theory. Different economists have emphasized the
importance of investment for the development of the country.

2.2.7. Investment Guarantee and Protection

According to the low of the country, the following guarantee and protection are given to investors in the
country. No asset of an investor may be nationalizing expected in accordance with general policy and low
issued by the state upon payment of adequate and promotes compensation.

Ethiopia is at any time ready to conclude bilateral investment promotion and protection agreements with
any country and is in fact currently concluding such agreements with a number of develop countries.

Ethiopia ratified the convention establishing the multilateral investment guarantee agency (MIGA), which
provides protection agonist political and non-commercial economic risk, such as currency transfer risk,
expropriation and nationalization wars civil disturbance and break of contrast. (Tesfaye A., 2009).

That means that in Ethiopian today, there is suitable condition for private for both Ethiopians investors
and non-Ethiopians (foreigners) investors.

To increase a number of investors the city investment office should advertise their own city and invite
investors in al direction.

11
2.3. Empirical review of literature

The empirical researcher on investment has invariably been limited in the developed country.
However, many studies have been making in the developing country. Bleyer (1984) examined the
impact of government economic policy and private investment in some developing country and
found a complementary relation between public and private investment is true only where public
investment involves useful infrastructure that raise the expected rate of return on private investment.

2.3.1. Accessibility of credit

The effect of financial of lows domestic private investment is the basic issue conduct by many
researchers’ Blajer and khan (1994) found that domestic credit has positive and statically significant
at 5% in affecting domestic private investment. According to their result a decrease such credit will
most probably result in fall of total investment as well due to control over domestic credit of banking
system over in most developing countries as their principal of monitory policy. Koya (1984) show
that the domestic credit availabilities in the major factor of private investment in low income
countries and middle income countries.

2.3.2. Infrastructural facilities

Infrastructure defined here to include the sector of transport, water and sanitation, power and
telecommunication etc. Infrastructure development has been high communication etc. Infrastructure
development has been high priority in Malaysia over the last two decades. Due to the rapid growth of
the Malaysia economy, pressure infrastructure is also growing particularly in electric supply, posts,
high ways; telecommunication and water supply power and transportation are identified as
infrastructural sectors to be private often under (BOT) schemes According to seventh Malaysian plan
covering the 1996-2000 period the private sector is expect to contribution dollar 27.2 billion most
major concession have been awarding to local firms).The Malaysia governments has emphasized
local participation in infrastructure development in order reduce reliance foreign findings and exports
and also provide indigenous industries. Thus has been larlar997997 in 1996. The government
approved the listing on the kuallumper stock exchange infrastructure power companies (IPC) to
facilitate large of partial markets provided the project meets certain governments and securities
commission requirements the IPC listing is designed to

12
encourage now strategic infrastructure project the muartongkahur segment high way, KL elevated high
way the panderridor high way private infrastructure in East Asia.

A country expenditure construction new machinery, equipment and investors will be raise the
accumulation of capitals of the country. Accumulation of capital raises not only the productive capacity
but also helps a country to introduce technical progress in the production sectors. Acclamation of capital
increase the capital increase the capital labor ration of capital per worker in such types of situation a little
increase labor productivity and total capital. Therefore, investment increases productivity enhances
technical progress, increase labor productivity and total output. Thus investment accelerate rate a country
economic growth (Aldobait (2001).

2.3.3. Investment in Ethiopia

Because of political and ideological resources, the importance of private investment internationally
undetermined by previous region it is assumed that time public enterprises world plays a very important
role interims of contribution to output.

Investment employment the contribution of private investment is a after 1992 economic reform program
that the academic interest in private sector, private investment increase slightly in 1990 and 1991 as the
“Derg” regime started reform early in 1989 and proclaimed a mixed economy, in March 1990 and tails
private investment also influence by substantial change in economic police, that traditional government
and the present government on Ethiopia which emphasis worked principles and the encouragements of
private sector investment proclamation of private sector investment.(Befekedu and Degefe 2000).

2.3.4. Constraints and Determinants of Private Investment in Ethiopia

According to Ethiopian journal economics T. Gahsaw, made a research on constraints of PI and policy
implication in Ethiopia, Addis Ababa University and clearly pointed out the constraints of PI growth in
Ethiopia. The major constraints are the following: -

-Poor infrastructure facility -

Low level of saving - Absence of
effective demand -Land problem

13
-Bureaucracy
-International image of the country
- VII. Lack of investment promotion
capacity -Macro-economic and political
uncertainty
- XI. Weakness in financial sector

2.3.5. The role and contribution of

the domestic private sector
in Ethiopian economy and
in the Second GTP
Ethiopia has implemented a five year
(2010/11 - 2014/15) broad based growth and
transformation plan that was aimed to sustain
a rapid and a double digit economic growth
that could enable the nation to attain
millennium development goals (MDGs)
(MOFED 2010). The fundamental principles
of the first growth and transformation plan
(GTP I) were to sustain faster and equitable
economic growth, maintaining agriculture as
a major source of economic growth, creating
favorable conditions for the industry to play
key role in the economy, enhancing expansion
and quality of infrastructure development,
enhancing expansion and quality of social
development, building capacity and deepen
good governance and promote women and
youth empowerment and equitable benefit.
(MOFED, 2010).

During GTP I, the government has been

engaged in huge infrastructure development 14
and the Private sector development has been
constrained due limit access to finance. The
Regarding the industrial sector, during GTP I the government had believed that Micro and Small
Enterprise (MSE) development is a springboard to create vibrant large and medium manufacturing
enterprises. To this end, the five-year interventions towards promotion and development of MSEs enabled
the enterprises to create about 4 million new jobs (MOFED 2010).

Although the government initiative towards private sector development has not been satisfactory during
GTP I, there has been a plan to encourage the private sector to play a key role in the development of large
and medium enterprises. To this end, the government has tried to strengthen the existing industry
development institutes (like textile and leather industry development institutes) and establish new
institutes that would support private investors engaged in or interested to invest in food and beverage,
chemical, pharmaceutical, cement, and meat and dairy industries (MOFED 2010).

Moreover, the government had tried to develop industrial parks that will be contribute for the growth and
development of private sector in the manufacturing sector. Because industrial parks avoid the hassles to
acquire land, finance for construction of working premise, and the intended one-stop-shop service within
the parks will also avoid unnecessary bureaucracies at various government institutions.

However, as the primary strategic pillar of the first GTP is sustaining rapid and equitable economic
growth, the government had given a greater emphasis on the development of growth enhancing sectors
such as infrastructure (hydro-power, telecom, road and railway) and social sector (education and health)
developments. From the key informant interviews we have learned that these overambitious public
investments resulted in a serious liquidity constraint for private sector development during GTP I
implementation period. To further support the private sector, the government developed the industrial
park -the first one in Bole Lemmi in Addis Ababa City Administration- in collaboration with the Chinas
government. The government as also facilitates the establishment of

Eastern Industry Zone at Dukem. The construction of the other industrial parks was also begun in
different parts of the country. The government had also encouraged the private sector to involve in the
privatization process of public enterprises. In this regard, within the first GTP

15
implementation period, it had privatized a total of 32 public enterprises in the form of direct selling and
joint venture (National Planning Commission 2016).

Considering the challenges and opportunities that are learned from the first GTP implementation and by
taking the global economic condition into account, the second growth and transformation plan (GTP II) is
formulate to realize Ethiopia’s vision of becoming lower middle income country by 2025 (National
Planning Commission 2016). The next section briefly discusses the strategic pillars of the second growth
and transformation plan of the country.

2.3.6. The role of the private domestic sector in economic development

There are several definitions of the private sector available in the literature, according to Petkoski &
Jarvis (2005) private sector is defined as: A portion of a country’s economy which is not controlled by the
government; All organizations in an economy that are not controlled by the government, including
privately owned businesses and non-profit organizations; A part of the economy not under the control of
government and that functions through market processes; The firms in an economy own by shareholders
or individuals.
More succinctly, Lienert (2009) defines the private sectors those entities of the economy that are owned
by the private sector. In broad terms, there are four key groups of private sectors relevant to local and
international development (Kolli 2010):
Multinational small, medium and large enterprises; Locally based small, medium and large enterprises;
Individuals, including the self-employed, Diaspora groups, volunteers, experts, etc.; and Non-
governmental organizations.

16
 CHAPTER THREE
3. RESEARCH METHODOLOGY
3.1. Introduction

This chapter contains research design which refers to the overall plan or
structure of a study, and research approach which concerns to the specific
strategy or method used to conduct the research. The chapter also includes the
population or sample that will be used for the study and how to choose
participants. In this chapter there is also data collection methods which describe
the methods that will be used to collect data. The topic also provides the data
analysis procedures to be used that explains the techniques and tools the
researcher will use to analyze the data going to collected. The chapter also,
discuss any ethical considerations associated with the research, such as
maintaining participant confidentiality and obtaining
informed consent.
3.2. Description of the study area

The study is conducted at Mojo a town located in the East Shewa Zone of the
Oromia Region it has a latitude and longitude of 8°39N 39°5'E with an
elevation between 1788 and 1825 meters above sea level. It is the administrative
center of Lume district. Mojo is not only accessible by road (a road connecting
the town to Adama was built before the Italian conquest) but has been the
location of a train station of the Addis Ababa - Djibouti Railway since the line
was extended from Dire Dawa to Akaki in 1915. With the railroad,Modjo now
has a dry port. Based on figures from the Central Statistical Agency in 2005,
Mojo had an estimated total population of 39,316 of which 20,038 were
females.

3.3. Research Design and approach

In this study the researcher will use mixed research approach with descriptive
type of research design. Mixed approach is is the general term for when both
quantitative and qualitative data collection techniques and analysis procedures
are used in a research design. The data will collected from both primary and
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secondary sources in order to tests the main factors that affects private
investment in Mojo Town and surrounding kebeles. Qualitative and quantitative
3.4. Target population

The target population will be Investors and investment office employees of Modjo town. There are 120
investors who have a license in Modjo town. Additionally Employees of ModjoTown Investment office
will be target for this particular study. There are 20 employees in the office. The researcher targets all of
the investors that are actually engaged the investment activity.

3.5. Sampling techniques and procedures

For this study non-proportionally sampling technique, stratified random sampling method will be used. A
population will first divided in to subgroups. Because this method guarantees representation of each sub-
groups views. Accordingly the number of project licensed in the study area will be classified into groups
based on their project states: Group 1 encompasses investors who invested in industry and the total
number is 74. Group 2 investors who consists service sector and total number 34. Group 3 investors who
invest in agriculture and the total number are 12. Thus, after taking this sample proportion the researcher
purposively select the investors to examine.

called strata, and a sample is selected from each stratum and this guarantees representation of each
subgroup. Stratified sampling technique has the advantage in some cases, of more accurately reflecting
the characteristics of population than do simple random or systematic random sampling. Involves a
process of stratification or segregation,followed by random/purposive/sample from each stratum. 1st:
divide or classify the population into strata, or groups, on the basis of some common characteristics such
as sex, race, or institutional affiliation, level of management, or income, etc.

The research therefore focused on the employee of the organizations by using simple random sampling
techniques to acquire the necessary information to make clear investigation for the current research.
3.6. sample size

The sample size was 90 investors and 5 employees from Modjo town investment office. A Total 95
respondent will be selected for the study.

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3.7. Source and types of Data

To achieve the mention objectives, the researcher is used primary source of data and secondary source of
data, in order to get real information from higher investment official and investors that exist in Modjo
town with also use in order to discuss in detail with different concerning body about the issue.

3.8. Data collection method

To conduct the study, the researcher will use questionnaire and interview. The questionnaires contain both
opened end and closed end questions. Structured and unstructured interview will be conducted to the
employees of investment office.
3.9. Method of data analysis

After necessary primary data are collect the most important activities of data analysis is start by editing
and classifying the collected data in to more meaningful and relevant information as to depending on the
analysis of tools the categories, so that the general analysis of data is facilitated and relevant information
is analyzed through descriptive method the research result complies in the form of table and percentage
method to assess the factors of domestic private investment in Modjo town.
3.10. Data Quality Assurance Trust worthiness, Validity & Reliability

3.11. Ethical Consideration

3.12. . Dissemination of Results

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3.13. Work Plan & Budget Breakdown
3.13.1. work plan
No Action/ Activates
Time break down in month 2023

June July August Remark

Problem Identification ✓
1
Prepared research proposal ✓
2
3 Read related research activities books, and other literatures ✓

4 Design questionnaire ✓

5 Data collect, edit, coding and classify ✓

Analyze and interpret the result ✓

6
7 Write first draft of the research report ✓

Write final research paper ✓

8
9 ✓
Present of the Final research paper

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 4.2. Cost
No Material / activity Quantity Unit Unit Price Total price(Birr)
Stationary

1 Paper (duplicating) 2 Pack 500 1000

2 Pen (blue) 5 Number 25 125
3 USB flash 16 GB 1 Number 300 300
4 Internet service 40 Hours 15 600
Sub total 2,025
Data collection Cost
5 Transportation 25 Days 100 2500

6 Questionnaire photo copy 500 Pages 5.00 2500

7 writing of the first draft of paper 50 Pages 5 2500

8 Printing the first draft 100 Pages 5 500

9 printing of the final paper 120 Pages 5 600
10 Miscellaneous services 500
Sub total 9100
Total 11.125.00

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 References

Alexander (1993) fundamental investment 2 nd edition New Jersey

Berhanu Nega (1996/2000), Annual report of Ethiopian economy, journal of economics

BodikneArkus,(1998) the main factors of the investment.

Bond&Jnkinson (1996), assessment of investment performance and policy, oxford. Bulletin of Ethiopia
economic association (1999), economic focus (Article)

Degefe and Befekadu (1999/2000) Annual report on Ethiopian Economy.

Eshetu chloe (2004), under development in Ethiopia, Addis Ababa.

Fassel Aming, (1994) Shortage of capital accumulation.

Herbert B. Mayo (1997) introduction to investment 5 th edition the Dryden press.

Ibid,(2009) internal and external problems of investment.

Mankiw, (1987) theory and practice journal quarterly of economics prospective.

MOFED,( 2010) 1st growth and transformation plan (GTP).

Modjo town investment office,2010) factors affecting growth of domestic private investment Samuelson,

et al (2010) role of the investment for economic development.

Seven and Solimon, (1992) private investment and macroeconomics.

Tesfaye Abate, (2009) investment law Addis Ababa.

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