POTENTIALS AND CONSTRAINTS OF PRIVATE INVESTMENT (IN

CASE OF ARBAMINCH CITY, SOUTHERN ETHIOPIA)

A RESEARCH PROPOSAL SUBMITTED TO THE DEPARTMENT OF

FINANCE AND DEVELOPMENT ECONOMICS OF ARBA MINCH
UNIVERSTY IN PARTIAL FULFILEMENT OF THE REQUIREMENT FOR
BACHELOR ART DEGREE IN FINANCE AND DEVELOPMENT
ECONOMICS

BY: FANTAHUN DOGISO

ID NO: RBE/452/10
ADVISOR: MIHRETU.T (MSc)

JANUARY, 2020
SAWLA, ETHIOPIA

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 ACKNOWLEDGEMENT

First and for most I will like to thank to give glory to almighty God for his presence in
all my works and for my success. Next, I will express my deepest gratitude to my
advisor Mihretu .T (MSc) who has helped me to organize and improve my research
work. Furthermore I will like to express my appreciation to my family for their ability
to accept my delay and difficulty peacefully and assistance throughout my education
and also for their assistance for my study. And I will like to express my appreciation
to my friends for their moral and idea assistance. At last I will like to gratify for all
persons contributing in writing and printing my research porposal.

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 ACRONYMS

LDS Less Developed Country

NGO Non-Governmental Organization

SNNPR South Nation Nationality people Region

EIA Ethiopian Investment Agency

MPC Marginal propensity to consume

MPS Marginal propensity to save

WB Western Bond

IMF International monetary Fund

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 TABLE CONTENT

Contents
ACKNOWLEDGEMENT........................................................................................................2
ACRONYMS...........................................................................................................................3
TABLE CONTENT..................................................................................................................4
CHAPTER ONE.......................................................................................................................5
INTRODUCTION................................................................................................................5
1.1 Back Ground of the study...............................................................................................5
1.2 Statement of the problem................................................................................................7
1.3 Objectives of the study....................................................................................................8
1.3.1 General objective.....................................................................................................8
1.3.2 Specific Objectives..................................................................................................8
1.4 Significance of the study.................................................................................................8
1.5 Scope of the study...........................................................................................................9
1.6. Organization of the study...............................................................................................9
CHAPTER TWO....................................................................................................................10
2. LITRATURE REVIEW......................................................................................................10
2.1 Theoretical related literature.........................................................................................10
2.1.1 Definition of investment........................................................................................10
2.1.2 Determinates of investment....................................................................................11
2.1.3 Private Investment Demand...................................................................................12
2.1.4 Determinants of Private investment.......................................................................13
2.1.5. Constraint of private investment in developing countries.....................................15
2.2 Empirical related literature............................................................................................17
CHAPTER THREE................................................................................................................19
3. METHDOLOGY...............................................................................................................19
3.1. Description of the study area...........................................................................................19
3.2 Sources and types of data..............................................................................................19
3.3 Data collection technique..............................................................................................20
3.4 Sampling technique and sample size.............................................................................20
3.5 Data analysis.................................................................................................................21
CHAPTER FOUR..................................................................................................................22

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 CHAPTER ONE
INTRODUCTION
1.1 Back Ground of the study
In most developing countries the development issues are the most crucial. In order to
excite out from their deprivation situation these regions have been making continual
efforts on one hand and the assistance of multilateral institution like WB, IMF,
bilateral and multilateral cooperation with donor countries on the other hand, these
regions are unable to use existing capital accumulation and skilled man power and
low level of saving. The growth of output of any economy depends on capital
accumulation and capital accumulation requires investment and an equal amount of
saving to match it. Two of the most important issues in development economics and
for developing countries are how to stimulate investment and how to bring an increase
in level of saving to found increased saving.The paper tackled the issue of foreign
saving and the conditions that need to be met for borrowing from abroad(A P
Thirlwall,2010)

Most developing countries face lack of capital accumulation and this is the main
cause for their backwardness. Improving capital accumulation means improving the
investment of the nation and then socio- economic performance of the nation. It
primarly focus on the growth of existing wealth through the investment of earnd
profits and saving.This investment focused by the variety of ways through out the
economy ,one method of growing capital is through purchase of tangiable goods that
drive production (Alica Tuovila,Jun,2020)

Like any city of the country Arab Minch city makes its effort towards development.
Even if investment is not a recent phenomenon, several private investment have been
undertaking currently, but like most less developing countries Arab Minch city is also
with problems of lack of capital .

In this regard the development processes of cities (towns) of fewer developing

countries are highly constrained by lack of capital accumulation and shortage of
skilled man power(www,Ethiopian city organization).

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Which are factors of production. In other words the constraints are lack of productive
factors (Todaro, 2002)

Capital can accumulate through saving. In our country, however, the voluntary saving
is highly constrained by low income. In addition the attitude of Ethiopian people
towards saving is also indispensible for low level of saving. In our society there is
pervasive extravagant practice with unwise consumption and this can leads to

Investment activity a crucial role in the economic growth growth of the

country.Economic literature shows that investment is both empirically theoretically,
the key determinant to economic growth .

Investment is increase the countries productive capacity,provide that investment

expenditure and durable goods that have comparatively lives and embody the latest
technological advances .

In Ethiopia and foreign direct investment has been steadily growth federal and
regional gov't encourage investment the provide land incentive such as tax holding
and improved bureacray at federal regional investment office.

In Ethiopian gov't special focus on investment and private investors both Ethiopian
gov't and non Ethiopian national undertaken investment activities in the agriculture,
construction and manufacturing sectors flower farm,cement factory steel melting and
rolling mills are becomes more and more command in Ethiopia.Investment in flawless
speaking is the back bone of Ethiopian economy growth and pipeline to technology
transfer.Due to different reasons, however ,regional disparity of investment is critical
problem in Ethiopia.The aggregate data shown that there was increment of investment
investment in Ethiopia interns of number of projects ,capital and job.Creation with
significant deviation in regional growth and distribution from (2002-2017). Most
investment projects and capital were placed in a few developed regions,SNNPR,Addis
Ababa,Oromiya ,Amhara.The study also showed that developing regions like Afar,
Somali,Gambella etc..were founded at lowest level of investment in all aspects.
Therefore in order to diminish these unequal distribution of investment regional
policy makers of Ethiopia should analyze scientifically(Mohamed seid and Tigezaw
Lamesgen, 2019/Regional disparity of inv't in Ethiopia from (1992-2018,Nobel
information Journal).The SNNPR,regional government which understand the

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irrplacable dominant role of the private investment sector for the over all economic
development of the region established our agency in 1985 E.C. The agency since its
establishment has been making varoius efferts to promote investment activities in the
region. Arba Minch is attractive location for investment in tourism,agro-forestry
recreation and real estate.The city's main industrial branches concentrates on textile
production based at the 193 million birr.Arba Minch textile mill and weaving
agricultural production and tourism.(www.Ethiopian cities organization).

1.2 Statement of the problem

Ethiopia is one of the developing countries and experienced fundamental economic
and political transformation, liberalization and widening opportunities to private
sector in order to actively participate in different development activities. The country
abundant low cost labor and plenty natural resources are some of the indicators of the
favorable condition for investment. Investment in Ethiopia over the past year is not
sufficient as compared to the size of the country. Investment over the last 13 years
period was only $225 million on average. This figure of investment is quite small
contribution to the GDP of the country. Compared to the gross capital formation in
the country, this encompasses all investment (private, government, NGO`s) in all
sectors of the economy. It is only 15% for the nine years period between 1995/96 and
2003/04 or as appropriation of GDP are only 3 %,( EEA, 2016)The private sector also
has a great contribution to the GDP of the country Ethiopia. From the above figure
about the 10% is contributed from private sectors. This figure is also quite small in the
country. This may be due to political instability, lack of appropriate government
policy to establish development institution and lack of incentives that favor private
investors, (EEA, 2016)

Since Arba Minch city is located in Ethiopia, it is countered by the same problem
such as incentive problems, lack of appropriate government policy and financial
problems of the investors(www.Ethiopia city organization).

Even if there are abundant low cost of labor force and investment land for private
investment in the city which attract investors to invest in different sectors such as in
agriculture, construction, industry ,trade and service, the level of private investment
is still low in the city,(wikaiafida organization)

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Different studies conducted before tries to assess the determinants of private
investment (Keynesian Model), but this study will tries to identity the major reasons
behind potentials and constraints of private investment in Arba Minch city. Ultimately
the study answers the following questions
• What are the potentials of private investment in the town?
• What are the main constraints affecting private investment in the study area?
• What are the techniques incentives for attracting investors by the investment
agency of the town?
• Which sectors possess highest potential regarding capital amount and
employment creation capacity in the town?
1.3 Objectives of the study
1.3.1 General objective
The general objective of this study will be to assess the overall existing potentials of private
investment and its constraints in Arba Minch town, southern Ethiopia.
1.3.2 Specific Objectives
The specific objective of this study will be;

 To identify private investment potentials in Arba Minch town.

 To identify the main constraints of private investment in the study area.
 To assess the incentives for attracting in investors given by the investment
agency of the town.
 To identify the sectors it has the highest potential regarding capital amount and
employment creation capacity in the town.
1.4 Significance of the study
This study will provide information for policy makers regarding private investment.
The study will initiate investors to invest in Arba Minch city. It will also pave the
ways for further study in this area. This study will motivate foreign private investors
to invest in the city by helping to understand the current investment situation of Arba
Minch city and challenges private investors and investment agency of the city has
confronting. It also provides further information and guide line regarding investment
incentives and techniques to attract investors.

1.5 Scope of the study

This study will delimites to Arba Minch city who are engage in private sector
activity. It includes the private investment and investors of the city. The more part of

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the study shows the whole situation assess private investment potential and
constraints, techniques to attract private investors, investment incentives as well as
the contribution of private investment in terms of employment creation in the city.

1.6. Organization of the study

The study will be prepares in five chapters. The first chapter is introduction; which
includes background of the study, statement of the problem, objectives of the study,
significance of the study, scope of the study, limitation of the study and organization
of the paper. Literature review is second chapter and the third chapter deals with brief
description of the study area and research methodology. And the fourth chapter deals
with budget plan and time schedule.

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 CHAPTER TWO

2. LITRATURE REVIEW

2.1 Theoretical related literature

2.1.1 Definition of investment

Many scholars and economists defined the term investment in much related concepts.
Investment will be a new addition or it is an increase in capital stock. The term
capital investment refers to human capital as acquisition of long term assets such as
real estate manufacturing plants and machinery (Marshall Hargrave, 2019). This
study identifies investment as a gross investment and net investment. Gross
investment spending is total invesment on new capital inputs. Net investment is the
amount spent company on capital assets gross investment (will Kenton,2019).

Another definition of investment is an expenditure on all types of capital goods. That

is expenditure on three types of capitals, machinery and equipment construction
including parts of house, factories, shops etc. and on inventory. According to this
investment the second largest element of the aggregate expenditure represented on the
national income account (Ayale Kuris, 2008)

GDP= C+I+G+NX
Where C= Consumption
I= Investment
G= Government expenditure
NX= Net export i.e. (x –m)
X= Export
M= import
According to Ayale Kuris, from the above national income identity, investment does
not include the purchase of the corporation securities and opening saving accounts in
the banks.

Another theory on investment is a theory that is developed by N. Giegory

Mankiw. He identified three types of investment in the economy. These are business
fixed investment, residential investment and inventory investment.

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 Business fixed investment means investment in the machines, tools and
equipments,that businessmen buy for use in further production of goods and services
according to neoclassical theory business fixed investment is determined by the
marginal products of capital on one hand and users cost of capital on the other. The
users cost of capital merely dependes on the prices capital goods,the interest
rate,depreciation. Resdential investment refers to the expenditure which people make
on constructing or buying new houses or dwelling apartment for the purpose of living
or renting out to others. Is form of real estate investment that constitutes one of the
worked most valuable assets due to its durability .Houses are assets that throw off
streams of income representing future earning in the in the form of houses price
appreciation and renting. Inventory investment is the part of investment it includes
currently produced goods or consumer goods which are not consumed but added to
stock. In this firms hold inventories of raw materials ,semi-finished goods to be
processed in to final goods.The firms also hold inventories of finished goods to be
sold shortly.(Mankiw,N Gregory ,Macroeconomics,2019)

2.1.2 Determinates of investment

A decision to invest is decision to use a more capital in producing.As explained in
(section 14.2 the book Macroeconomics principle,(V.2.0.)) there are four determinant
of investment these are detailed below.

Interest Rate: we often hear reports that low interest rates have stimulated housing
construction or that high rates have reduced it,such reports imply a negative relation
ship between interest rates and investment in residential structure.This relationship
applies to all forms of investment: higher interest rates tend to reduce the quantity of
investment while lower interest rates it(wall streat Journal,2005).

Exepectation: a change in the capital stock changes future product capacity.Therefore

the plans to change the capital stock depend crucially on expections.An expectation
change in away that increases the expected return to from investment,the investment
demand curve shift to the right similarly expectation of reduced profitability shift the
investment demand curve to the left(New York times,2010).

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Stock of capital: The stock of capital already it use affects the level of investment in
two ways first because most investment replace capital that has depreciated,a greater
capital stock is likely to lead to more investment there will be more capital to
replace.But second a greater capital stock can tend to reduce investment.that is
because,investment occurs to adust the stock of capital to its desired level.Given the
amount of investment needed to rich it will be lower then the capital stock is higher
(wall street journal,2007).

The level of economic activity: firms need capital to produce goods and services.An
increase in level of production is likely to boost demand and thus lead to greater
investment (The New York times,2018).

2.1.3 Private Investment Demand

According to N.Giegory Mankiw private investment demand depends on three factors.

The demand for investment depend on interest rate which measures the cost of
the funds used to finance investment.

Investment demand depends on technological innovation. If there is more

technological innovation there will be more investment to produce the
technology.

Investment demand also depends on tax laws. Investment demand may change
because the government encourages or discourages investment through the
tax laws. If the government increases personal income tax and use the
extra revenue to provide tax cuts for those who invest in new capital. Such
change in the tax laws makes more investment projects profitable and like
a technological innovation, increases the demand for investment. Why
investment demand is unstable? The reason is there are several volatile
determinants that cause the investment demand cave to be quit unstable.
The major factors that can shift the investment demand curve are:-
expectation, technological change and business taxes.

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2.1.4 Determinants of Private investment
In discussing the concepts of investment, it is worth reviewing that the view of
different schools of economic thought and the major factors that determine the
demand for investment. The neoclassical models of investment concentrate on the
role of price mechanism. To the neo-classical interest rate is the major determinant of
investment demand. According to the arguments of this school the decision of firms
whether to invest or not will depend on the rate of return on investment. If the return
on investment is greater than the interest payment on the loans used to finance the
investment then the planned investment spending will be encouraged otherwise it
will be discourage. The Keynesian model on the other hand has cyclically analyzed
the concept of investment demand from the aggregate point of view. Keynes in his
analysis has attempted to show that investment spending has direct impact on the
aggregate demand (Fredric’s Mishkin 3rd edition) .To justify his hipbath is he
classified the aggregate demand in to four major component parts. These are
consumption expenditure (C), planned investment expenditure (I) Government
expenditure (G) and the net export (NX) which together constitutes the aggregate
demand. Yad = C+I+G+NX

As per Keynes conclusion there is stable empirical relationship between consumption

and income (MPC): however the marginal propensity to save (MPS) changes in a
greater population as income changes. A planned investment which is basically
dependent on saving rate promote economic growth in the long by increasing the
stock of fixed capital of a nation and that in turn increase income and employment
creation.

As the most volatile component of aggregate spending, investment is dependent on

the following determinant as viewed as Paul .A. Samson and William D.Nardhous,
1996 availability of finance, revenue, cost and expectation. There are other factors
with an ambiguous effect on investment. Among these are public investment and
devaluation.

Availability of finance: - in many developing countries firms fail to generate

adequate self-financing. In addition the amount of resource available for investment
financing in these countries is limited because of low income and saving. This is
further exacerbating by the absence or inefficiency of capital market that mobilize

xii
saving and direct them to productive investment. Thus financing is an important
constraint facing the promotion of investment of developing countries. If these
countries where financial market is generally repressed, credit policy affects
investment directly through the stock of credit available to firms. Generally, as the
total amount of financing is demitted the labor of available bank credit restricts the
private investors in the developing countries.

Revenue and cost: - now investment or expansion of existing one will depend on the
amount of revenue expected to generate from the investment project and the cost of
investment. When the revenue actually earned increase the investment activity also be
promoted. Since most investments are made on borrowed capital, the interest rate
which is the cost of capital will be one of the major determinants to be considered in
investment decision. Other types of cost that may be caused due to inefficient
licensing bureaucratic procedures can also influence investment decision.

Foreign exchange constraint: - One of the key factors determining private

investment is the availability and real price of foreign exchange. Because of inelastic
export supply, if foreign exchange were not available on demand at the prevailing
exchange rate, there would be a limit on import capacity, an exogenous rise in export
and external credit rationing by international institutions and exogenous rise in
interest rate on outstanding determinant .Thus it is likely that foremost developing
countries investment will be highly responsive to the foreign exchange constraints in
negatively related to private investment.

Domestic inflation rate: -According to the ( bureau of labor statistics,the inflation

rate from 2017-2018) was about 2.9 percent,but this rate can swing up and down
depending on the state of the economy. it is argued that macro- economic stability
such as low and predictable inflation is paramount importance in ensuring strong
response of private investment to economic incentives. High inflation effects the habit
of voluntary saving and hence investment adversely. The reason is that households
tend to consume more and save less during high inflation, since price is typically go
up with future.This most noticeable wirh cash.If you keep 10,000 under your bed that
money may not able to buy as much 20 years in to future,while you haven't lost your
mony actually.you end up with smaller worth because inflation eats in to your
purchsing power.when you keep your money in the banks you may earn interest,

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which some of effects of inflation(western and southern finance group,2017-
2020).High and unpredictable inflation also has been site as a factor, which increase
riskiness of long term projects and distorts information about relative prices and so it
may dampen private investment especially in developing countries.

Risk and uncertainty: - a rational investor, living in a world where the factors that
affect investment decision are random has to take the effect of risk in to account. The
reason is that risk affects investment adversely.

Devaluation: - It may have deferent effects in the short run and long run. In the short
run, devaluation tends to dampen investment by raising the price of capital goods and
intermediate inputs. But, if the economy responds to its competitiveness with higher
exports the long run effect on private investment can be favorable.

Other determinants:- The government policy with respect to maintain stability of

general price condition and public investment, civil and political stability and
protection of property rights are also the factors that affect investment decision
directly or indirectly.

2.1.5. Constraint of private investment in developing countries

A good investment climate provides opportunities and incentives for firms to invest
profitably, created jobs and expand output, thereby increasing private investment and
groth. The literature shows that the better investment the higher the levels of private
investment are likely to be.Investment constraints serve to depres the potential rate of
return on investment,increase risk/prevent the entrepreneur from capturing the
returns on offer.

The literature highlights five investment constraints that affect the macro indictors of
the rate private investment and growth and the survival and growth of firms:

1. Macro level Instability: macro instability( economic,social and political)deters

investment by making future rewards more uncertain or undermining the value of
assets.Studies shows that the greater the level of instability,the lower the rate of
private investment and growth.Instability also increases the risk of firms going
bankrupt.suffering slower growth or contracting if political complicit ensues.Fiscal
and monetary policy that reduce inflation,polices that help to establish a competitive

xiv
exchange rate and poltical and social stability needed to sustain high rate of
investment and growth.

2. Crime and corruption: represents substantial risk to earning attractive returns to

investment and increase the cost of doing business,whether through the payment of
bribes,the direct goods or the cost crime prevention.There is strong evidence that,at
macro level, these factors reduce the rate of private investment,job creation and
growth.Greater transparency and accountability,simplification of administrative
procedures and merit based human resource management in public adminstration
make it possible to curb corruption.

3. Financial constraints: Firms need to be able to access external finance to invest

more ,moreover the higher the cost of capital the lower expected rate of return to the
entrepreneur.There is a robust of literature that shows the financial deepening
measured by the ratio of private credit to GDP.Result in higher rates of growth and
faster growth in the incomes of the poor. Studies shows that firms able to access
external finance are more likely to survive,invest and grow than those denied access.

4. Taxation: Exessively high rates of tax exact high cost interms of lower
investment and growth.They reduce incentive to invest because the after tax returns
to investors are lower.The literature shows that lower rate tax can increase
investment and growth.higher rate of tax can decrease business entry and the growth
of established firms with medium sized firms hit hardest,as the small can trade
imformally, and the range avoid taxes.As well as reducing the tax rates, polices that
broaden the tax base simplify the tax structure,improve adminsration and give greater
autonomy to tax agencies help to reduce this constraints.

5. Institutions and legal systems: There is a strong cross country evidence in the
literature that weak institution, particularly for the protection of property rights and
an ineffective judiciary that is unable to enforce contracts, reduce investment and
growth.

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2.2 Empirical related literature
The study by Eric Kwaku Attefah(2016) in the case of Ghana show that private and
public investment are complimentary and thus there is the need for the government
to continue to develop the infrastructural base of the economy to boost the private
sector. The growth of real credit to the private sector had a positive and statistically
significant effect on private investment. The most important variable (in terms of
magnitude of their influence on private investment) is the trade regime, growth of
real credit to the private sector, macro-economic instability and political instability.
It is also clear from the survey that such factors as official attitude towards private
investors and lack of credibility in government policies are hindrances to private
investment. If the private sector is to be ``engine of growth `` in the economy, then
these lapse, among others need to be given serious attention.

But according to Daniel Sakyi, Kofi Boachie, Mustaph, Immurana(Dec,2016), in the

case of Ghana, private investment and public investment are not complimentary.
Rather public investment crowded out private domestic investment in Ghana. This
indicated that poor infrastructure has been a problem and remains a problem for
domestic private investment on Ghana. Individual components of macroeconomic
instability and political instability were found to be inhibitors to private investment.
However, the overall measures were identified as major hindrance to private
investment. This reveals a poor investment climate and its determinant effect on
private investment. Thus, the investment climate constitutes a bad indicator for
current investment decision policies that address only some components of
macroeconomic instability and political instability may not be enough to improve
private investment. For policies to improve private sector response, all components
the real exchanges rate, the inflation rate, the lending rate, the voting system etc.
must be addressed simultaneously.

Another study by AC Floyed (2016), in the case of Benin shows that the importance
of the quality of the business climate in making investment decision, it would be
useful to carry out deeper study of it. From an analysis of 2015 doing business
indicators for Benin and assessment of the investment climate in Benin that was
carried out by the world bank (world bank 2016) the following recommendation can

xvi
still be made improving the availability and the quality of utilities such as electricity,
water, and telecommunication as well as reducing their price, setting up a
commercial court in Benin to settle disputes between business people or between
these and other corporate partners, notably banks. Finalizing the land legislation,
since plots of land are largely used as a security for obtaining bank loans and
strengthening strategies to fight corruption.

The study by Folorunsho M Abide(sep,2016) in the case of Nigeria shows that the
result provides evidence that private investment in Nigeria is constrained by
availability of financing and that the monetary policy could be used to influence
private investment decision. In order to attract the private investment a country must
formulate and implement suitable policies. In addition, cost of financing, i.e. interest
rate is expected to be low because it will induce private investors to invest. Therefore,
government should reduce the borrowing and lending charges, the government is also
advised to create conducive environment that will attract domestic and foreign
investors.

2.3. Conceptual frame of the Study

xvii
 CHAPTER THREE

3 METHDOLOGY

3.1. Description of the study area

Arba Minch is one the major zonal city in the SNNPR.It is located at 505 km south of

Addis Ababa at 278 km from the regional center,Hawassa.It's elevation range from 1200

m from sea level at the northern end to 1320 m avove sea level at the southern end.The

town is enclosed by two rift lakes abaya chamo in the east and south west

respectively.The city adminstration has an area of 557 sq km and divided in to four sub-

city and 11 kebeles.such sub-cities are Sikela, Secha, Nechsar and Abaya sub-cities.The

mean annual precipitation is 818 mm.Temperature vary between 23.2c° in march and

20c° in summer.The average annual temprature is 21.8c°.It gets rainfall 11 twice a year

(www.Levogager net/whether city Arba Minch 2017).according to Arba Minch city

adminstration the projected population of the city in 2018 will reach 209,000 people out

of this population 102,000 are males and 107,000 are females out of the total number of

population of the city adminstration,74,879 people live in the urban area.The remaining

number of people live in rural area of the adminstration and the annual population

growth rate is 4.8 with 4.8 urban and rural.(Source)

3.2 Sources and types of data Types of data and methods of data collection
technique

While conducting the study the researcher used both primary and secondary source of
data so as to make the study more accurate and reliable. Primary data was collected
from private investors and investment officials.
Secondary data source are also use for this study as they hold immense information in
a documented form. This data was collected from annual and quarterly investment

xviii
report of Arba Minch City investment bureau and periodical related with private
investment from Ethiopia investment agency (EIA).

3.3 Data collection technique

Both primary and secondary data will collecte to reach on intended conclusion.
Primary data will collecte by interviewing and distributing organized questionnaires.
Both open and close ended questions are. prepared and distributed to the potential
respondents such as private investors and investment officials of the town to know
the existing constraints and investment potentials.

The Researcher also made key informant interview to investment officials of the city
to know current investment progress of the town. Secondary data was collected from
different written source and documents such as annual investment reports and
quarterly investment report of investment bureau of the town. The researcher will
employes this source of data to study further about current investment progress,
investment incentives and investment potentials of the town.

3.3 Sampling technique and sample size

Target populations for this study are private investors & investment office the study
will uses stratifie sampling techniques of data collection in the area. The reason for
the selection of these techniques is that the population from which the sample drawn
does not constitute homogeneous group. This technique of sampling will uses in
order to obtain a representative sample. With this the area of the study will divide in
to four (4) strata, such as Agriculture, industry, Construction, and service sector.
Then the study was follow the method of proportional allocation under which the
size of the sample from the different strata are kept proportional to the size of the
strata and the sample size is respondents in the town. Hence ,sample size will
determine using the following formula provided by Yamane (1997) which is given
by ;

n= N/ 1+N (e)2

e= is level of precisin

Let n= sample size

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N=total population

3.5 Methods of data analysis

The study will use qualitative and quantitative type of data analysis as the study is
descriptive. First the data will collecte and arrange. The study will further analyzed
the data using different forms of expression such as tabulation & percentage.

xx
 CHAPTER FOUR
4. Budget Plan and Time Schedule

xxi
REFERENCES

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