Determinants of Private Investment Implementation

Performance in Oromia Regional State: A Case Study of

Jimma Town

by:

badhaso

A Thesis Submitted to the School of Post Graduate Studies

of Jimma University in Partial Fulfillment of the
Requirements for the Award of Degree of Master of
Science in Economics( Economic Policy Analysis)

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ENDORSEMENT
This thesis has been submitted to Jimma University, School Of Graduate Studies for
examination with my approval as a University advisory.
Adviser's Name and Signature:
------------------------------------

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Table of Contents Page

ACRONYMS /ABBREVIATIONS/...............................................................................................

ABSTRACT....................................................................................................................................

CHAPTER ONE..............................................................................................................................

INTRODUCTION...........................................................................................................................
1.1 background of the study...................................................................................................5

1.2. Statement of the Problem................................................................................................9

1.3. Research Questions.......................................................................................................12

1.4. Objective of the Study...................................................................................................13

1.4.1. General Objective of the Study.............................................................................................................13

1.4.2 Specific Objective of the Study...............................................................................................................13
1.5. Significance of the Study...............................................................................................13

1.6. Scope of the Study.........................................................................................................13

1.7 Organization of The Study.............................................................................................14

CHAPTER TWO...........................................................................................................................

RELETED LITERATURE REVIEW...........................................................................................

2.1 Introduction....................................................................................................................15

2.1. Theoretical Literature Review.......................................................................................15

2.1.2. Accelerator Theory of Investment.........................................................................................................16

2.1.3. Cash Flow Theory..................................................................................................................................17
2.1.4. Neoclassical Theory...............................................................................................................................17
2.1.5. Modified Neoclassical Theory...............................................................................................................18
2.1.6. The Role Of Investment In Economic Growth.......................................................................................18
2.1.7. Investment Demand and Output Growth..............................................................................................18

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 2.2. Empirical Literature Review.........................................................................................19

2.3. Conceptual Framework for the Study............................................................................23

CHAPTER THREE.......................................................................................................................

RESEARCH DESIGN AND METHODOLOGY.........................................................................

Introduction..........................................................................................................................24

3.1. Description of The Study Area......................................................................................24

3.2. Research Design...........................................................................................................25

3.3. Types and Source of Data..............................................................................................25

3.4. Method of Data Collection............................................................................................26

3.5. Sample Determination and sample techniques..............................................................26

3.7. Methods of Data Analysis.............................................................................................27

3.8. Model Specification.......................................................................................................28

3.9. Definition , Measurement and Hypothesis of the variables..........................................29

3.9.1. Definition and Measurement of Variables............................................................................................29

Access to finance:.................................................................................................................30

Access to land.................................................................................................................................................30
Access to market...................................................................................................................30

Investment incentive:The availability and effectiveness of investment

incentives(example ,tax breaks ,subsidies ,grants)in the town. Incentives..........................31

3.9.2 Research hypotheses.............................................................................................................................31

3.10. Ethical Consideration.............................................................................................................................34

CHAPTER FOUR.........................................................................................................................

4. RESULTS AND DISCUSSIONS..............................................................................................

4.1. Descriptive Statistical Analysis.....................................................................................35

4.1.1. Investors status by implementation......................................................................................................35

4.1.2. Categorization of investment status......................................................................................................36

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 4.1.3. Descriptive Analysis on Determinants of Investment Status.................................................................38
4.2. Results of econometric model.......................................................................................45

CHAPTER FIVE CONCLUSION AND RECOMMENDATION...............................................

5.1. Conclusion.....................................................................................................................48

5.2. Recommendations.........................................................................................................48

REFERENCES..............................................................................................................................

APPENDIX 1:...............................................................................................................................

APPENDIX 2.................................................................................................................................

VIF TEST......................................................................................................................................

APPENDIX 3: ECONOMETRIC ESTIMATION RESULT........................................................

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ACKNOWLEDGEMENT
First my innumerable praise to the Almighty God for giving me the opportunity, capacity and
guidance throughout my life. And also my family mom dad and my little brother thanks for
everything. Next I am deeply grateful and indebted to Dr. ___________(Assoc. Prof.), my
advisor, for his encouragement, suggestions, guidance and overall assistance.
Successful accomplishment of this research would have been very difficult without his
generous time devotion from the early design of the proposal to the final write-up of the
thesis by adding valuable, constructive and ever-teaching comments; and thus, I am indebted
to him for his kind and tireless efforts that enabled me to finalize the study.
I am greatly indebted to my friends ______________for giving their sharing of idea and
supporting by any materials and finally I would like thanks ______________My sincere
appreciation and thanks also goes to my colleagues for the remarkable memories and constant
moral support during the study period. I also feel great to express my thanks to the peoples
who participated in the study for sparing their precious time and for responding positively to
the lengthy for filling the questions patiently.

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LIST OF TABLE
Table 4- 1: Private investor distribution by investment status ............................................27
Table 4- 2: Respondents’ investment status delay .................................................................28
Table 4- 3: Gender of respondents’.........................................................................................29
Table 4- 4: Age of respondents...............................................................................................29
Table 4- 5: Distribution of respondents’ according to Area of investment.............................30
Table 4- 6: Level of education and investment delay status...................................................31
Table 4- 7: The effect of education level on investment implementation delay.....................31
Table 4- 8: -Source of finance of private investors.................................................................32
Table 4- 9:-Request for credit by private investors ................................................................33
Table 4- 10: Access to credit impact on investment status delay............................................34
Table 4- 11: Constraints of private investors due to bank loan access ...................................34
Table 4- 12: The impact of infrastructure facilities on investment status delay .....................35
Table 4- 13: constraints of private investors due to infrastructural problem ..........................36
Table 4- 14: Bureaucratic red tape impact on investment status delay .................................37
Table 4- 15: Public services delay due to bureaucratic red tape ............................................37
Table 4- 16: Corruption impact on investment status delay ..................................................38
Table 4- 17: The impact of access to land on investment implementation.............................39
Table 4- 18: Duration model results of private investment status (implementation and
operation..40

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 Acronyms /Abbreviations/

OECD Organization for Economic Cooperation and Development

GTP Growth and Transformation Plan

EIC Ethiopia Investment Commission

FDI Foreign Direct Investment

GDP Gross Domestic Product

SDGs Sustainable Development Goals

IMF International Monetary Fund

NBE National Bank of Ethiopia

PI Private Investment

OLS Ordinary Least Square

SSA Sub-Saharan Africa Countries

UNCTAD United Nations Conference on Trade and Development

NGO Non-Governmental Organizations

MSE Micro and Small Enterprises

EIA Ethiopian Investment Authority

ECM Error Correction Model

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 Abstract

This study investigates the key determinants influencing private investment implementation
performance in Jimma Town, Oromia Regional State. By identifying and analyzing factors
such as regulatory environment, access to finance, infrastructure quality, and socio-economic
conditions, the research aims to provide insights into how these determinants affect the
success of private investments.

This research thesis attempts to identify the Micro level variables that determines the private
investment implementation performance status delay using Cross Sectional Data in case
study of Jimma Town, Oromia Regional State. The sample consists 224 selected private
investors using stratified and simple random sampling method. Related literatures show that
investment is both empirically and theoretically the key determinant to economic growth.
Investment can increase a country’s productive capacity, provided that investment
expenditure regards durable goods that have comparatively long useful lives and embody the
latest technological advances .The researcher apply descriptive and explanatory research
design for this study. The Logistics Regression model was used for this study together with
other appropriate econometric techniques to explain factors that determine private investment
status delay implementation performance. The research is investigated the micro level
determinants of private investment implementation performance status delay in
Manufacturing sector in the Jimma town. For this study both primary and secondary data are
used. The sample size will computed by using (Yamane, 1967) formula. Analysis of data
was carried out using STATA 14.0 and SPSS software Version 26 to investigate the
relationship between dependent and independent variables.

Keywords: investment delay, implementation Performance and manufacturing sector.

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 CHAPTER ONE

Introduction

1.1 Background of the Study

Private investment plays a crucial role in economic development, job creation, and poverty
alleviation. In Oromia Regional State, particularly in Jimma Town, understanding the factors
that influence private investment performance is essential for fostering a conducive
environment for business growth. This study seeks to identify the determinants that
significantly impact the implementation and success of private investments in the region.

Investment is the commitment of resources made with the hope of realizing benefits which
are expected to occur over a reasonably long period of time. It is an economic activity where
an individual, group or government buys assets with the hope of receiving adequate risk
premium (returns) overtime and the key determinant to economic growth. Investment is the
source of manufactured goods that will be used to produce other goods. It is the major
foundation of enhancement in the level of literacy, improvement in technology and increase
in the capital stock (Reilly, 2002).

Domestic private investment has important roles for developing countries as it enhances
economic growth by increasing human capital formation and by stimulating domestic
investors and access to local market. Domestic private investment is a device for measuring
the level GDP (Sohail et al., 2014). In the process of economic growth of countries,
investment plays a crucial to raise productivity through encouraging technological progress
and promotes new techniques of production (Majeed & Khan, 2008). Furthermore it also
plays a great role in the long run capital accumulation since investment increases productive
capacity and creates new capital goods .The determinants of domestic private investment
have been debated extensively over the years. This debate covers both developed and under
developed economies. However, a lot more have been put into the study of domestic
investment since it seems that a sustainable domestic private investment will reduce wide
spread poverty in the economy.

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A rate of investment is one of the key factors that differentiate developed countries from
developing countries. In high-growth countries investment is high, where as it is low in low
growth countries. The implication of low investment is that the productive capacity of the
economy fails to increase. This in turn leads to lower rates of growth and job creation, and
fewer opportunities for the poor to improve their livelihoods (White & IDEAS, 2005).

Investment is important part of development economics, especially on increase of economic

growth. Through investment, several of production facilities will be provide, thus will give
optimally production output and value added, as a result can improve the economic growth.
Investment activities can be done by two main sectors, government and private. Majority of
government or public investment commonly focused to finance physical and non-physical
development infrastructure which could not be conducted by society. However, Private
investment, both foreign and domestic, plays an important role in the economy. It increases
the productive capacity, creates employment opportunities, promotes technical advancement,
and reduces poverty in the country. The private investment is usually more volatile than
consumption spending and is responsible for much fluctuation in economic growth (Amin et
al., 2021).

The growth of capital import and GDP are the most important determinants for the private
investment (Majdzadeh et al., 2014). On the other hand inflation rate, money growth, interest
rate and tax rate does not have important on private sector investment but output/national
income, public investment and exchange rate are the critical variables affecting the
performance of private investment and others variables such as interest rate, credit, inflation
rate, international trade and money supply are also slightly important in explaining the
performance of private investment. Private investment in the long run was influenced by real
GDP, real exchange rate, ratio of private sector credit to GDP, private external debt; inflation
and trade openness have significant impact on private investment (Karagoz, 2010).

The Organization for Economic Cooperation and Development (OECD, 2006) also indicated
that a strong investment sector contributes prominently to the economy of a country through
creating more employment opportunities, generating higher production volume, increasing
export and introducing innovations, increasing employment opportunity .Both practically and
conceptually, economic literatures suggest that investment is the most important factor for
economic growth. Economic growth is defined as an increase in a country's output or per
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capita income. The total output of goods and services of an economy is commonly quantified
by gross national product or gross national income, which are used interchangeably.
Investment is a source of manufactured goods that can be utilized to make more things. It is
the primary foundation for raising literacy levels, improving technology, and increasing
capital stock (Hashmi et al., 2012).

For developing countries like Ethiopia the basic question in their economy is to increase the
production and hence improve the standard of living of their people so that there will be
dramatic change in their economic, political and social conditions . Investment promotion is
one key instrument and primary engine of economic growth (Mustefa, 2014).

Investment activity is critical to a country's economic development. Investment can help a

country's productive capacity grow if the money is spent on durable goods with extended
useful lives and incorporate the most recent technical developments. Furthermore, through
changing the demand for capital goods, changes in investment expenditure can possibly result
in alterations in employment and personal income. Despite the fact that gross fixed capital
creation accounts for a far smaller portion of an economy's overall expenditure than
consumption expenditure, it is a highly volatile component that generates significant swings
in a country's economic activity (Kosma, 2015).

In today’s fast changing environment, financial products have gained significant attention
from individuals, and attracted individuals to make investment by way of different
instruments in order to gain extra income and earnings. In addition, investments have been
used as an instrument by individuals as part of their personal financial planning (Annamalah
et al., 2019).

According to World Bank (2022) pointed out that Ethiopia has a young private sector whose
growth and ability to create jobs are hampered by constraints on the business climate and
competitiveness. Public investment, GDP growth, public spending, population growth rate,
unemployment rate, trade openness, tax rate, exchange rates, and real interest rates have both
short and long-term effects on private investment. Microeconomic determinants of private
investment in Ethiopia include access to finance, investment areas, access to credit,
infrastructure facilities, the judicial system, corruption, investment incentives, and
bureaucratic hurdles that affect the private investment landscape. Most micro and small
7
investors struggle to access finance because they lack the collateral to obtain loans (Singh,
2019).

Although private investments play an important role in economic growth, there are factors
affecting the status of private investment operations (Frimpong & Marbuah, 2010).

Many empirical studies have been carried out on the determinants of private investment with
a view to enhancing its performance and benefits. However, the validity of investigations into
the determinants of the private investment sectors in Ethiopia are affected by time constraints
and no study has been conducted to determine how the delay of operations in each investment
status affects private investment. Moreover, the gap between approved investment permits
and implemented project operations provides insight into the fact that the implementation
aspects of private investment is problematical in Ethiopia (Deneke, 2001). Deneke’s research
also shows that out of the total domestic private investment projects approved, only 32%
were operational in eight years. The rest (68%) had either been terminated or were lagging
well behind schedule because of numerous reasons which have yet to be studied.

The standard period/duration for private investors to move from the pre implementation to
operation status is determined by the Ethiopian Investment Agency. Accordingly, the period
allowed to proceed from pre implementation status to implementation status is 6 months and
the period to proceed from implementation status to the operation status is 30 months. The
investor is required to enter the operation status within 36 months of collecting the
investment permit from the investment office (Authority, 2012).

However, although the government provides different support and reform mechanisms,
around 71.13% of the total private investments in the manufacturing sector are in the pre-
implementation and implementation status of investment (Jimma Town Investment Office,
2023).

The researcher observed that private investments in the manufacturing sector did not progress
from one status to the next as per the requirements set by the concerning body and Jimma
Town Investment and Industry Office. Consequently investors are held back and their
investments delayed for long periods of time. Despite the importance of these facts, the
researcher is unable to find any research in to the identified problems or gaps in the Jimma

8
Town. Therefore, The researcher decided to focus on private investment in manufacturing
sector in this area. The researcher take all this in to account in this study and focused
specifically on the determinants of Private Investment at micro economic level and the
constraints for private investors in the Jimma Town, Oromia Regional State. Therefore the
objective of this study is to determine the microeconomic determinants that affect the private
investment implementation status delays in manufacturing sector of of Jimma Town, Oromia
Regional State.

1.2. Statement of the Problem

The private investment sector plays a vital role in the growth process of developing countries
and it determines the rate at which physical capital is accumulated. Private investment has
been a major economic heart for developing countries. Private investment has a stronger,
more positive effect on growth than government investment, because private investment is
more efficient and less closely associated with corruption. In Ethiopia, private investment
sectors also have an important contribution to make to economic development and poverty
reduction (Assefa et al., 2013).

According to (Fuji, 2018),studied on “The determinants of private investment in Ethiopia”

over the period ranging from 1996-2016 motivated modified flexible accelerator model by
applying OLS econometric technique. According to his study the coefficients of real GDP,
external debt servicing, national reserve, public investment and access to bank credit rate
found to be statistically significant positive effect. On private investment in the study period,
while foreign direct investment, interest rate and inflation rate had negative effect on private
investment in the study period.

According to (Adugna, 2013) have studied, the determinants of private investment, by

analyzing data using descriptive and inferential statistics(OLS estimation).However the
researcher didn’t use primary data, but in this study the data will gathered from both primary
and secondary sources.

(Hod, 2015) examined the relationship between demographic variables and personality traits
on investors’ attitude towards risk that may have an impact on the investment growth. The
author found that there is a positive relationship between education and investment decisions.
9
According to the study conducted by (Getachew, 2020) on the “Assessment of the Ethiopian
Investment Policy and Investment Opportunities for Foreign Direct Investment ” Ethiopian
investment policy stated investment laws and policy, as a policy it is good, but it is not
properly implemented. In addition, the availability of adequate labor force, raw materials,
rapid population growth, huge market demand, and availability of resource, investment
guarantees and incentives are considered as an opportunity to attract foreign investors and
play positive role to realize Ethiopian investment goals. On the other hand, shortage of
foreign currency, capital market, credit access from financial institution, lack of adequate
power supply, shortage of infrastructures are some of the factors that hinder FDI investors to
invest in Ethiopia.

According to (Nigussie Jobir, 2023) studied on the “determinant of private investment

performance in Ethiopia “and his regression results show that Growth GDP, and access to
Domestic credit have significant positive effect on private investment, while Trade openness
external debt, and real effective exchange have significant negative effect on performance of
private investment .

Ethiopia's current financial sector consists mainly of state-owned banks, which makes it
difficult for private companies to access credit. Inadequate infrastructure, including
transportation systems and electricity supply, poses a major challenge to private investment,
and the limited supply of skilled labor in the country hinders innovation and technological
development. In addition, Ethiopia's small domestic market and limited access to
international markets pose further obstacles for businesses. In recent years, Ethiopia has
experienced political unrest, which has contributed to a difficult business environment and
uncertainty for investors (Chen, 2018).

According to (Simatupang et al., 2023) explain that the level of education has a significant
influence on investment in economic growth.

The study conducted by (Gebreslassie et al., 2015) on “Assessment of Domestic Private

Investment in Wolaita Zone: Case of Sodo, Areka and Bodity Cities” concluded that
infrastructural problems are the major constraints hinder investment activity in the town. The
study utilized descriptive method of analysis and collected cross sectional data from 96
investors in the town using questionnaire. Thus, the study lacked addition of personal
10
investors’ characteristics in affecting investment in the town and only have used descriptive
analysis method. Having the approximately revised all these literatures, the researcher
examined the following research gaps. Firstly, the studies conducted in Wolaita Sodo town
are descriptive one and they only analyzed factors which are common to all investors in the
town and nothing is done regarding the study of individual behaviors in affecting investment
decision of Firms. Most researches done in Ethiopia on the topic is greatly confined to
obvious macro-economic determinants of private investment and gave little attention to firm
level determinants. Thus, having these considerable gaps is existing in the area of study, but
this study is make the gap narrower and for those want to increase investment in the study
area by studying micro level investor’s characteristics.

According to (Gizachew Yirtaw G., 2017) studied micro-level determinants of private

investment in manufacturing sector in the State of Tigray, Ethiopia, were analyzed using both
descriptive and econometric methods , an econometric result revealed that infrastructure
facilities, the judicial system, and investment areas negatively and significantly delayed the
entire private investment status. However, interest rates and investment location were
positively and significantly supported to continue their status of the entire private investors in
the manufacturing sector.

According to (Abinet, 2022)Studied on “ Determinants of Domestic Private Investment in

West Gojjam zone (The Case Of Finoteselam and Bure towns)” access to infrastructure,
access to finance and access to land are problems of domestic private investments in the
study areas.

According (Lesotlho, 2006) identified that private investment sectors are affected by various
factors that delay projects and so affect the importance they provide to economic
development.

According to the empirical data analyzed by (Deneke, 2001), the process of investment from
preparation to implementation must pass through a long and bulky bureaucratic process .This
accounts in part for the large gap between approved and operational projects and also for the
fact that the number of projects completing the project cycle is low .This is due to the realities
shows that, there are problems which should be analyzed so as to encourage and promote
private investors at each investment status .Moreover ,the gap between approved investment
11
permits and implemented project operations provides insight in to the fact that the
implementation aspects of private investments are problematical in Ethiopia(Deneke,2001).
Deneke’s research also shows that out of the total domestic private investment projects
approved only 32% were operational in eight years .The rest 68% had either been terminated
or were lagging well behind schedule because of numerous reasons that the number of
investors become decline or increase from time to time.

By hold up the problem explained above, the data gained from Jimma Town Investment and
Industry Office in December 2023 shows that out of the total number of Investors registered
and licensed as a Private Investment, 35% are in pre-implementation, 11% in implementation
and 54% in operation status. In addition, the number of private investments is increasing from
year to year, but the status of investment has shown a slowdown in progression from one
status to the next according to the requirements of investment in the Jimma Town.

In sight of that, the primary aim of this research study is to investigate the main micro level
determinates of private investment status delay projects performance in Jimma Town. This
research study may helpful in providing relevant information about policy options for
concerning body such as government, policy makers, and other institutions working to
improve private investment.

Currently, the perception of investors about investment activities and the major determinants
that affect private investment status delay projects performances in Jimma town are not still
well known. Previous study had not been conducted on the micro level determinants of
private investment status delay projects performances in Jimma town. This shown that, there
is still literature and knowledge gap.

Therefore, this study is plan to fill the above listed Knowledge and literature gap by studying
micro level determinants of investment implementation performance status delay such as
education level ,access to infrastructure ,access to finance , Investment incentives ,access to
land and access to market on private investment implementation performance in Jimma
Town.

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 1.3. Research Questions

1. What is the relationship between micro level factors and investment delay
implementation performance?
2. How does the quality infrastructure affect the duration of investment delays?
3. To what extent does microeconomic factor influence the probability of experiencing a
delay in investment projects?

1.4. Objective of the Study

1.4.1. General Objective of the Study

To identify the key microeconomic factors that influence private investment implementation
status delays in the in Jimma Town of Oromia Regional State.

1.4.2 Specific Objective of the Study

1. To examine the relationship between microeconomic factor and investment

implementation performance delays.
2. To investigate the role of infrastructure quality on investment delays.
3. To assess the impact of microeconomic factor on investment delays.

1.5. Significance of the Study

Private investment has a great role in the growth of economy of one country. Because of this
in most developing nation like Ethiopia an empirical study on the area contributes a lot for
supporting the economic growth. As the same time, this study also help to find out major
microeconomic variables that delay investment status of private investment in the Town .This
study will give direction for policy implications and other researchers. Lastly, the study also
help as a reference for similar researches.

1.6. Scope of the Study

This research focused only on the private investment implementation performance status
delay in the case of Jimma Town Oromia Regional State , because this town is priority

13
areas for industry expansion .Private investment is affected by both macroeconomic and
microeconomic variables, but this study aims to study microeconomic level determinants of
private investment status delay implementation performance in Jimma town.

Because of many microeconomic variables data are difficult to quantify (measure), this study
only used limited variables. This study is not include micro and small enterprises (MSE),
public investment, endowment fund investments, non-governmental organizations (NGO).For
the purpose of this study, the investors selected to be respondents are only those private
investors registered by the Ethiopian investment and Jimma Town Investment and Industry
office . The researcher has try to investigate which variables are the determinant factor that
influences private investment status delay implementation performances in Jimma town.
Variables included are level of education , access to infrastructure ,access to finance ,access
to market , access to land and Investment incentives .The data are collected from private
investors and concerned employees of Jimma Town investment and industry offices .

1.7 Organization of the Study

The research theses is organized in to five chapters. Chapter One includes Background of
the study, statement of the problem ,Research Questions ,objective of the study ,significance
of the study , scope of the study and organization of the study. Chapter two presents
theoretical and empirical related literature review, Chapter discusses the implementation
process of the study, findings of the analysis and discussion of the study is and Chapter Five
contains Conclusion and Recommendation.

14
 CHAPTER TWO

RELETED LITERATURE REVIEW

2.1 Introduction

Investment has been defined variously by different authors. According to (Reilly, 2002)
defined investment as the current commitment of money for a period of time in order to
derive future payments or benefit that would compensate the investor . In Economics class
the term investment refers to the purchase of a physical asset while in a Corporate Finance
course, the investment could apply to any asset including market securities. Private
Investment therefore, is investment by individual or firms as opposed to the government as
an entity (Fabozzi & Fabozzi, 2021).

2.1. Theoretical Literature Review

Many Scholars, and academicians have defined the term investment differently. According to
Ma nkiew, the term investment is defined as “spending today for future benefits and it’s the
component of national income that links with future”. (Mankiw et al., 2007) .Investment has
been viewed and defined by different ways. It has different meaning in finance and
economics. In economics investment is related to saving and deferring consumption it
involved in many areas of the economy, such as business management and finance whether
for households, firms or government. In finance investment is putting money into something
with the expectation of gain, usually over a longer term. The term investment refers to a sum
of funds committed on the physical and human cavity by both profit and no profit oriented
individuals and institutions. It is applied to production of goods not meant for immediate
consumption but further production of goods such goods are called, investment goods. The
investment of business firms usually comprises of capital goods and inventories (Baddeley,
2005).

Investment is spending on capital equipment, inventories, and structures, including household

purchases of new housing. Investment consists of goods bought for future use. Investment is
also divided into three subcategories: business fixed investment, residential fixed investment,
15
and inventory investment. Business fixed investment is the purchase of new plant and
equipment by firms. Residential investment is the purchase of new housing by households
and landlords. Inventory investment is the increase in firms’ inventories of goods (if
inventories are falling, inventory investment is negative). Investment is the component of
GDP that links the present and the future. Investment spending plays a key role not only in
long-run growth but also in the short-run business cycle because it is the most volatile
component of GDP . Economists study investment to better understand fluctuations in the
economy’s output of goods and services. Determinants of investment are;- First, all types of
investment spending are inversely related to the real interest rate. A higher interest rate raises
the cost of capital for firms that invest in plant and equipment, raises the cost of borrowing
for home-buyers, and raises the cost of holding inventories. Second, An improvement in the
available technology raises the marginal product of capital and raises business fixed
investment. An increase in the population raises the demand for housing and raises residential
investment. Third, it is natural to expect investment to be volatile over the business cycle,
because investment spending depends on the output of the economy as well as on the interest
rate(Mankiw et al., 2007).An increase in the interest rate should reduce the level of net
investment associated with a given growth rate of output (William, n.d.).

2.1.2. Accelerator Theory of Investment

In accelerator theory of investment behavior , desired capital (Kt*) is proportional to output

(Yt) expressed as Kt* = αYt (as in the Aftalion Clark simple or rigid version); and, actual
capital, Kt = μα Yt (as in Chenery and Koyck flexible version), where α is the desired capital
output ratio and μ is a constant parameter of adjustment (Sisay, 2010). The main implication
of the model is that the investment expenditure of an investing firm is proportional to its
output while its output is a function of demand. The accelerator theory suggests that
investment is a function of past changes in income(Samuelson, 2015). It follows the
Keynesian view that changes in investor‘s expectations about future economic conditions
influence the levels of investment. The desired investment stock depends on planned output.
Neoclassical writers believed that investment is very sensitive to the interest rate while
Keynes and his followers took the position that changes in investor‘s expectations about
future economic conditions are far important in explaining changes in levels of investment.
Both groups agreed that equilibrium investment occurs when the expected rate of return in

16
investment equals the rate of interest.

2.1.3. Cash Flow Theory

Current and past profits or cash flows have been thought of as good proxy for future profit
expectations which in turn determine investment (Bischoff, 1971). Additionally, cash flow is
also seen as a source of funds so the cost of funds to the firm rises when internal funds are
exhausted given imperfect market condition. According to(Cherian, 1996), the managerial
and the information theoretic approaches to investment were the latest. Both approaches
emphasize the role of internal finance as the fundamental determinants of investment and can
be regarded as the modern versions of liquidity theory. In the managerial view, internal
finance is preferred as it facilitates discretionary behavior by managers while in information
theoretic viewpoint, due to information asymmetries between insiders and outsiders.

2.1.4. Neoclassical Theory

According to (Seruvatu & Jayaraman, 2001) to formulate the neoclassical theory of business
fixed investment in which net investment is proportional to the gap between actual and
desired capital stock. This model combines the user cost of capital and the accelerator effect
to explain investment behavior. According to this theory, net investment is proportional the
gap between actual and desired capital stock. This relationship given by: It: Kt-Kt-1 = n (Kt-
1)

Where It: the net investment

Kt: the existing capital stock at the end of the current period

Kt -1: The capital stock at the end preceding period

K*: the desire level from of capital stock and

η: measures the fraction of the gap between the actual and the desired level of capital
stock that is closed each period (Mankiw et al., 2007).

The basic notion behind this theory is that larger the gap between the existing capital stock,
the more rapid a firm’s rate of investment. So any factor that increases the desired capital
stock such as an increase in expected output or a reduction in interest rate will increase the
17
rate or investment. This theory is criticized on the grounds that it makes the following
simplifying assumptions. The assumption of perfect competition and output is exogenously
determined (Which are inconsistent with the business cycle) as well as expectations regarding
price interest rate and output are static (which is invalid because economic agents have
rational expectation about the future) (Haile, 2015).

2.1.5. Modified Neoclassical Theory

The Modified Neoclassical model is a version of Neoclassical model in which the distributed
lag is altered to accommodate the empirical observation that capital-output ratio are
embodied in new equipment and structures rather than the existing ones (Clark, 1917). Since
factor proportions are fixed at the time the equipment is designed, changes in factor
intensities dictated by changes in the price of capital take place only as the old capital is
replaced; so called the putty-clay hypothesis. Bischoff suggested that real output and the cost
of capital should have separate lag structures in the determination of investment expenditure
(Fazzari et al., 1987).

2.1.6. The Role of Investment in Economic Growth

Investment is considered as one of the principal and important factors in economic

development of a nation. Investment as it brings about fuller utilization of available
resources, it paves the way for large scale production and technical progress, increases
specialization, creates employment opportunities helps to have a more diversified economy,
etc. and also, it can be considered as a source and mechanism to ring about economic growth.
Due to this fact many economists agree on the fact that every nation should invest in order to
achieve a sustainable economic growth (Wiafe et al., 2015).

2.1.7. Investment Demand and Output Growth

The relationship between the growth rate of output and the level of net investment is called
the accelerator principle since it suggests that an increase in the growth rate of output an
acceleration is needed to increase the level of investment. The PV criterion suggests that this
relationship between output growth and net investment is not a fixed one, however. An
increase in the interest rate should reduce the level of net investment associated with a given
growth rate of output. This variable relationship between the growth rate of output and the
18
level of net investment is frequently called the flexible-accelerator model. There are two
distinct and virtually independent steps in the development of the flexible-accelerator model.
The first involves the determination of the level of desired capital stock, KE. The second step
is the translation of movements Investment in desired, or equilibrium, capital stock into a
flow of realized net investment.(William, n.d.).

Economists study investment to better understand fluctuations in the economy’s output of

goods and services. The models of GDP, such as the IS–LM model, were based on a simple
investment function relating investment to the real interest rate: I = I(r). That function states
that an increase in the real interest rate reduces investment. There are three types of
investment spending. Business fixed investment includes the equipment and structures that
businesses buy to use in production. Residential investment includes the new housing that
people buy to live in and that landlords buy to rent out. Inventory investment includes those
goods that businesses put aside in storage, including materials and supplies, work in process,
and finished goods (Mankiw et al., 2007).

2.2. Empirical Literature Review

The growth of capital import and GDP are the most important determinants for the private
investment (Majdzadeh et al., 2014). On the other hand inflation rate, money growth, interest
rate and tax rate does not have important on private sector investment but output/national
income, public investment and exchange rate are the critical variables affecting the
performance of private investment and others variables such as interest rate, credit, inflation
rate, international trade and money supply are also slightly important in explaining the
performance of private investment (Batu, 2016). Private investment in the long run was
influenced by real GDP, real exchange rate, ratio of private sector credit to GDP, private
external debt; inflation and trade openness have significant impact on private
investment(Karagoz, 2010).

According to (Gizachew Yirtaw G., 2017) studied micro-level determinants of private

investment in manufacturing sector in the State of Tigray, Ethiopia, were analyzed using both
descriptive and econometric methods Thus, an econometric method of data analysis using a
duration model was applied and also he conclude the econometric result revealed that
infrastructure facilities, the judicial system, and investment areas negatively and significantly
19
delayed the entire private investment status. However, interest rates and investment location
were positively and significantly supported to continue their status of the entire private
investors in the manufacturing sector.

According to (Abinet, 2022) Studied on “Determinants of Domestic Private Investment in

West Gojjam zone (the case of Finoteselam and Bure towns)” access to infrastructure, access
to finance and access to land are problems of domestic private investments in the study areas.

A study by (Sioum, 2002) on the macro and microeconomic determinants of private

investment both at national and regional levels in Ethiopia showed that at the micro level the
probability of individual‘s to invest is significantly and positively influenced by the level of
education, access to land and investment incentives. The influence of bureaucratic red tape
was also found to be negative and significant. Moreover, (Deneke, 2001) concluded that
unclear land policy, compounded by investors‘ fear of political instability, has impeded
Private sector development.

According to (Getachew, 1997) studied the determinants of private industrial investment in

Ethiopia using descriptive statistics to analyze micro-level determinants. He found that the
real interest rate did not have a significant impact on private investment in Ethiopia. The
study revealed that private investment was positively affected by credit disbursement to the
private sector in Ethiopia. It also found that severe constraining factors to private
manufacturing investment were market, financial, infrastructure, policy, technology, and
input related ones.

The study carried on the determinants of private investment in Ethiopia by (Sisay, 2010), by
using modified flexible accelerator model by applying multivariate single equation ECM
estimation methodology ,private investment is positively influenced by the domestic market,
infrastructural facilities and FDI and negatively by macroeconomic uncertainty. The study
also identified that domestic credit given to the private sector reduces domestic private
investment because the credit may be diverted to non-productive activities. The study further
identifies that the appreciation of the real exchange rate discourages domestic private
investment and vice versa. In short, the high value of local currency constrains domestic
investment.

20
According to (Dawit, 2010) study showed that the following are the success factors for
private investment: the maintenance of good accounting records by firms, good managerial
skill, experience, government support and training. The major problems are a lack of proper
planning and feasibility studies, lack of skilled staff, delays in securing bank loans, a lack of
market for products and service, infrastructure problems and inflation.

According to (Adugna, 2013) undertook a study on the determinants of private investment in

Ethiopia ,covering the period from 1981 to 2010 using Ordinary Least Square (OLS)
regression model ,the study showed that public investments in basic infrastructures and
social overheads are essential for private investment. In addition, the rising real per-capital
income of the people has a crucial positive effect on private investment by way of increasing
market demand for goods and services. These in turn trigger private investment. Likewise,
external debt has a favorable effect on private investment in countries like Ethiopia where
there is a serious shortage of finance.

According to (Mustefa, 2014) tried to evaluate the inter-relationship between private

investment and economic growth both in the long and short run and his findings showed that
both private and public sector investment have a positive significant impact on real
output/economic growth while in the short run public investment has a negative impact on
growth and private investment has a positive impact on investment.

Increasing total investment, promoting private-sector development and increasing its share of
total investment are important for long- term growth. But in many developing countries,
investment rates are too low, incentives for innovative are insufficient and even returns on
investment are not so predictable which is the major cause of slow growth of a developing
economy (Majeed & Khan, 2008)

According to (Agidew, 2014)carried on studies on the macroeconomic determinants of

private investment in east Africa region with panel data set from the period of 2000-2012.
According to his studies macroeconomic factors such as variation in the output and real per
capita growth fiscal and monetary policy as well as exchange rate are the most determinant
factors for the variation of private investment in eastern African countries over the study
period. His study confirmed that domestic private investment is positively influenced by real
GDP growth, financial availability as measured by credit to the private sector as the
21
percentage of GDP and the development of human capital as measured by school enrolment
has significant positive influence on the private investment of the region. On the other hand
variable such as unstable macroeconomic environment, as measured by the inflationary
situation, high external debt, fluctuation in the terms of trade, real exchange movement,
public investment and real interest rate are found to hinder private investment significantly in
East Africa.

Ethiopia's current financial sector consists mainly of state-owned banks, which makes it
difficult for private companies to access credit. Inadequate infrastructure, including
transportation systems and electricity supply, poses a major challenge to private investment,
and the limited supply of skilled labor in the country hinders innovation and technological
development. In addition, Ethiopia's small domestic market and limited access to
international markets pose further obstacles for businesses. In recent years, Ethiopia has
experienced political unrest, which has contributed to a difficult business environment and
uncertainty for investors (Chen, 2018).

Table 2.1 Summary of Empirical Literature Reviews

Independent Variables Authors Relation to dependent

variables (Private
Investment Status delay
Level of education Heena (2015, Mohamad Rizaldy (2020), Positive
Admasu (2002)

Access to infrastructure Dawit Getachew (2020), Sisay G. (2010), Positive

Adugna (2013)

Access to finance/Credit N.Mikyas(2023), Esubalew(2014), positive

Woldemariyam (2018), Muhidin (2016)

Ambachew (2018) Negative

Investment incentives Ephrem and Andualem (2015), positive

Admasu(2002),Gizachew(2017),Dawit
Getachew (2020)
22
 .Access to land Genetie Alemu(2014),Admasu(2002) Positive

Access to market Dawit Positive

Getachew(2020),Gizachew(2017),Sisay
2.3. Conceptual Framework for the Study

A conceptual framework is used to comprehend the place and clarify the direction of a
research project. It makes usage of past research to conclude a theory and methodology for a
current research study (Magher, 2018).

Private Investment may influenced by numerous factors. But for this study selected factors
are Level of education, Access to infrastructure, Access to finance/Credit, Investment
Incentives, access to land and Access to market .

 Based on the theoretical and empirical literature review the following conceptual framework
of this study is constructed.

Independent Variables
Dependent Variable

-Level of education
-Access to infrastructure
Investment implementation delay
-Access to finance 23
-Access to land
-Access to market
-Investment incentives
Figure: 2.1 Conceptual framework of the study

Source: Own Design, 2024

CHAPTER THREE

RESEARCH DESIGN AND METHODOLOGY

Introduction

This chapter includes description of the study area ,research design, Population and Sample
size ,sample techniques, data collection procedures and methods of data analysis .According
to (Dawson, 2002) wrote that, a research methodology provides a framework or a blueprint
for conducting a research. The aim of this chapter is therefore to provide arguments for the
approaches that the researcher adopt in gathering and treatment of the data in order to answer
the research questions and objectives. This chapter also describes the types and sources of
data and the methods and techniques used in the estimation of the models.

3.1. Description of The Study Area

Jimma town is the largest town in South western part of the Oromia Regional State and far
away 356 KMs from Addis Ababa, capital city of Ethiopia .The study is carried out on the
micro level determinates of private investment status delay implementation performance in
manufacturing sector in the the Jimma Town . Since investment activities affected by
different variables in dynamic environment , the researcher give more emphasis to the
important variables determining the investment activity of the area. Quantitative and
qualitative data will be gathered from primary and secondary source of data.

24
Fig.1 Map of Jimma Town

Source: internet

3.2. Research Design

This study is used quantitative and qualitative research with descriptive and explanatory
research design method of data approach, which is collected from primary and secondary data
sources in order to tests the main micro economic variables that determine private investment
implementation delay in the case of Jimma Town ,Oromia Regional State. Quantitative
research is a means for testing objective theories by examining the relationship among
variables. These variables in turn can be measured typically on instruments, so that numbered
data can be analyzed using statistical procedures. The final written report has a set structure
consisting of introduction, literature and theory, methods , results and discussion (Creswell &
Zhang, 2009) . The Primary data is collected through structural questionnaires distributed to
individuals investors who engaged in investment activity in the town and structured
interview Questions for the managers of Jimma Town Investment and Industry Office .The
secondary data is gathered from various sources such as Ethiopian Investment Commission
(EIC) (through online/internet) , Oromia Investment and Industry Commission(through
online) ,Commercial Bank of Ethiopia (CBE) Jimma Main Branch , Jimma Town Finance
Office , Jimma Town Investment and Industry Office and from other reliable sources. The
collected data are summarized through using tables and charts.

3.3. Types and Source of Data

Primary and secondary data are used for the research purpose, primary source of data

25
 obtained through questionnaires from individuals investors in in the Jimma town up to the
end of 2023 and the interview for the manager of the Jimma town Investment and Industry
office is also taken into consideration. However, the secondary source of data includes all
types of published and unpublished materials related to private investment.

3.4. Method of Data Collection

Questionnaire is used to collect primary data from individual investors/respondents. In

addition to questionnaire, structured interview is also used to seek information from selected
interviewees of manager of Jimma town investment and industry office. Respondents are
asked to show their level of Likert scale responds .The secondary data are accessed
manuals ,bulletin, reports by town’s investment and industry offices .

3.5. Sample Determination and sample techniques

The population under this study is an individual private investors in Jimma Town are
responsible for making decisions on private investment status delay implementation
performance.

Thus, an individual investor is the basic sample unit or unit of analysis. Because of
heterogeneity among investors, a stratified sampling technique is applied in order to obtain a
representative sample. Since each stratum is more homogeneous than the total population, it
is able to get more precise estimates for each stratum. The method of proportional allocation
under which the sizes of the samples from the different strata are kept proportional to the
sizes of the strata (Kothari, 2004).

The total number of private investment population is 511 in jimma town in May, 2024
according to data gained from jimma town investment and industry office. According to this
study investment type /sector is divide in to Investment in agro/services type and investment
in manufacturing sector . The total number of private investments in agro/services sector are
396 and the total number of investment in manufacturing sector are 115 .

The samples size is determined by using the (Yamane, 1967) formula as follows :
N
 n¿ 2 at 95% confidence level
1+ N ( e )
26
 Where:-
n=is the sample size
N =is the population size
e=is margin of error , for a 95% confidence level , e=0.05
511
n¿ 2 ,n= 224
1+ 511 ( .05 )
Therefore, n=224 were the sample size of participants of this study.
The Sample size of each investment type/sector determined by using simple proportional
Xn
Formula ,where X represents the number of investors in each investment type.
N
The proportional distribution of sample size by investment type is calculated as follows:-
396(224)
Investment in agro/services sample size= =174
511
115(224 )
Investment in manufacturing = =50
511
Therefore ,from the totat sample size the participants 174 select randomly from agro/services
investment type/sector and 50 participants select randomly from manufacturing sector.

To sample participants for this study the researcher employed both probability and non-
probability sampling techniques. To sample investors from each investment type/category,
the researcher employed a simple random sampling technique. The strong reason behind this
is that, probability sampling technique was free from personal bias (Cohen et al. 2006). In
addition ,the researcher purposefully selected 2 Managers/employee from Jima town
investment and industry office.

3.7. Methods of Data Analysis

Both Descriptive and Inferential statistics were for analyzing the collected data.

The collected data were coded, tabulated, and interpretations is made using descriptive
statistics, like frequency, percentage, mean, standard deviation with the help SPSS software
version 26. Excel software was also used to transform the variables into a suitable format for
analysis. Inferential statistics was used to identify the degree of correlation between the
variables using Pearson Correlation (Kothari, 2004). In this analysis, Pearson correlation

27
 Coefficient (r) is used to see the relationship between the dependent and independent
variables .

Logistics Regression analysis were used since the nature of dependent variable is binary
outcome, means investment implementation delay or not delay/success.

3.8. Model Specification

The study uses both qualitative and quantitative approaches to analyze the collected data. The
data collected from different sources is analyzed using the SPSS and STATA software in
determining descriptive statistics and Inferential analysis. It is conducted based on the data
obtained from the sample of the research target collected through questionnaire.

The basic logistic model formula employed to estimate investment implementation delay
status in Jimma Town is:let investment implementation delay status = represented by Z

Logit (p(delay=1)) = Z

=β0+β1Education+β2Infrastructure+β3Finance+β4Land+β5Market+β6Incentives+µi-------------
(3.1)

Where;

 Z=is the dependent variable that is a measure of the total contribution to investment of all
private investment factors (predictor variables) used in the model.
 p(delay=1):is the probability of experiencing a delay in the implementation of a investment
project
 Logit(p(y=1))=represents the log of the odds of the outcome “y” being equal to 1,which
means the probability of experiencing a delay (as opposed to not experiencing a delay).
 X1=Level of education is a measure of the availability of skilled labor and the effectiveness
of the education system in meeting industry needs
 X2=access to infrastructure is a measure of the quality and availability of infrastructure .
 X3=access to finance is a measure of ease of obtaining financing
 X4=access to land is a measure of the ease of acquiring suitable land for investment
facilities.

28
 X5=Access to market is a measure of the size ,competitiveness ,and accessibility of the
market for manufactured goods.
 X6 =investment incentives is a categorical variable representing the type of investment
incentives available.
 β 0=intercept term.
 β1, β2, ...... ,β6: Are the coefficients for each independent variable (estimated by the logistic
regression model).
The calculated p value of ƒ(z) is the probability of a particular outcome in the presence of the
p
risk factors with the value range of 0 to 1. If p is a probability, the is the corresponding
1− p
odds (Pallant & Tennant, 2007).
Yi=xi+ βi+ µi-------------------------------------------------------------------------------------(3.2)

Where;

Yi- represents the dichotomous qualitative variable;

xi - represents the vector of predictor variables

βi- represents the vector of parameters;

µi- Denotes the residuals (errors)

The binary variable (presence or absence) of the predictor variable, expression is defined as
follow:

yi={1if0 ifyi≤yi>zz ----------------------------------------------------------------------------------(3.3)

The maximum-likelihood estimator (ML) of β is given by maximizing the following log-
likelihood function by

( 1+ exp1 xi β )❑ ( 1+exp1 xi β )❑ -------------------------------------(3.4)

N
L( y , xβ )=∏ ❑
1− yi yi

i=1

3.9. Definition , Measurement and Hypothesis of the

variables

3.9.1. Definition and Measurement of Variables

29
Dependent variable
Investment Status delay is the dependent variable will capture whether a project experienced
any delay at all , whether it was in the pre implantation phase or in implementation phase or
in the operational phase and represented “1” .and “0”otherwise,when the project did not
experience a delay in all three phases.

Independent Variables
Level of education: The availability and quality of skilled labor in the project location.

. In this study , Likert scale is used, very difficult labeled “1”,Somewhat difficult labeled
“2”,Neither difficult nor easy labeled “3” ,Somewhat easy labeled “4” ,very easy labeled “5”

Access to infrastructure : The quality and reliability of transportation ,power, communication

and other essential infrastructure facilities . In this study, if the investment implementation or
operation is delayed due to problem in quality and reliability of infrastructure facilities ,very
unreliable labeled “1”,Somewhat unreliable labeled “2” ,Neither unreliable nor reliable
labeled”3”,Somewhat reliable labeled “4”,very reliable labeled “5”

Access to finance: The ease of obtaining financing ,Loan terms and availability of
financial services. Firms in developing countries suffer largely from shortage of finance
(Harhoff & Korting, 1998).According to (Ghosh, 2011) argued, the lack of external sources
of finance is a major constraint for investment. Ghosh listed three major problems associated
with the external sources; information asymmetry between lenders and borrowers, managerial
agency problem, and high transaction costs. According to (Binks & Ennew, 1996) highlight,
the importance of collateral as a means of mitigating the information asymmetry to credit
access at bank .According to (Mbanga, 2002) emphasized the inadequacy of trade finance as
another constraint for exporter’s capability and his study further emphasized high transaction
costs, lack of expertise in financial markets and lack of information communication
technologies is a feature of the financial markets in SSA. . In this study, if the ease obtaining
financing and availability of financial services delayed or not to investment implementation
or operation very difficult labeled “1”,Somewhat difficult labeled “2”,Neither Difficult nor
Easy labeled “3”, Somewhat Easy labeled “4” ,very easy labeled “5”.

Access to land: The easy of acquiring suitable land for the manufacturing facility ,including
land costs and permitting process.According to the World Bank document for most of the

30
poor in developing countries, the land is the primary means for generating a livelihood and a
central vehicle for investing, accumulating wealth, and transferring it between generations.
Property rights affect economic growth in that it increases the incentives of households to
invest, and provide them with better credit access, something that will not only help them
make such investments and also provide an insurance substitute in the event of
shocks(Consulting, 2021). According to the study conduct by (Deneke, 2001) found that
access to land and the cost of land is the specific leading entry constraint to private
investment in Ethiopia .The private investors were asked whether they experienced a delay
due to access to land for their investment activities or not by considering the land tenure
system, bureaucratic procedures, lease prices and the size of land. Thus, in this study, if
private investors encounter any problems in acquiring suitable land for manufacturing facility
the degree of difficulties measured uses likert scale,

very difficult represent “1”,Somewhat difficult represent “2”,Neither difficult nor Easy
represent “3”,Somewhat easy represent “4”,very easy represent “5”

Access to market : Market is the size ,competitiveness ,and accessibility of the market
for manufactured goods. Tariffs and Non -tariffs are the most common for market access to
restrict (Waqar et al., 2017).A market can be called the 'available market' - that of all the
people in the area. Within the available market, there is the 'market minimum'- or the market
size, which will buy goods without any marketing effort. This is the lowest sale that a
company could get without any action on its part. In today's world, this level is sinking ever
lower. Therefore, availability of market has a positive effect on the growth of investment
activity (Potts et al., 2008). If there is problems exist that affect the firm’s market
size ,competitiveness ,and accessibility of the market for manufactured goods the difficulty
of the problem is measured using likert scale ,

very small represent “1”,Somewhat small represent “2”,Neither large nor small represent
“3”,Somewhat large represent “4” ,very large represent “5”.

Investment incentive:The availability and effectiveness of

investment incentives(example ,tax breaks ,subsidies ,grants)in the
town. Incentives are used as tools to boost investment and growth . That is, availing
31
incentives for investors would promote investment by attracting more investors . Similarly,
the study at the micro level by (BAYE & PRINCE, 2010) showed that the probabilities of
individuals to invest are significantly and positively influenced by investment incentives.
Incentives given to private investors in the form of duty-free import of machinery and
equipment, income tax holidays, access to the bank loans and low lease price of land, and
market incentives were measured. Thus, in this study, the availability and effectiveness of
investment incentives measured using likert scale;Not at all helpful represent “1”,Somewhat
unhelpful represent “2”,Neither helpful nor unhelpful represent “3”,Somewhat helpful
represent “4”,Extremely helpful represent “5”.

3.9.2 Research hypotheses

To examine the determinants of Private investment implementation performance , the

researcher hypothesizes a relationship between the dependent variable (investment status
delay ) and the identified independent variables. Therefore, independent variables that can
have an influence on private investment status delay performance are described below.

The independent variables: Are the firm-level characteristics and investment climate
(economic factor) indicators of the micro-level determinants of private investment operations
in the manufacturing sector in each investment status. They include the level of education,
access to infrastructure facility, access to finance, access to land, investment incentives and
access to market .

Hypothesis 1: Level of education versus investment status delay

According to the study by Egesa (2010) indicated that skilled managers increase firm
survival. Moreover, a study on private investment determinants at the micro level by Baye et
al. (2005) has also shown that the level of education significantly and positively influences
the probability of an individual to invest. Thus, the following hypothesis is made:

H0: The more the private investor is educated, the less the probability of investment status
delay.

H1: The more the private investor is educated, the more the probability of investment status
delay.

32
Hypothesis 2: Access to infrastructure facility versus investment status delay

This hypothesis investigates whether the investor has access to infrastructure facilities or not.
If there are adequate infrastructure facilities like water, electricity and telephone lines, more
investors would be attracted to invest and so it contributes to promoting investment.
According to the study by (Rehman et al., 2011), investment in public infrastructure has an
insignificant effect on the manufacturing sector in Pakistan. In addition to this, the lack of
infrastructure (particularly power) is the leading constraints for entry, operation and expansion
of private investment in Ethiopia (Workie, 1999). However, the study by (Munir et al., 2010)
showed that private investment is positively affected by public infrastructure in the long run in a
developing country. Therefore, the hypothesis made as follows:

H0: Access to infrastructure facilities has a negative effect on the investment status delay of
private investors in the manufacturing sector.

H1: Access to infrastructure facilities has a positive effect on the investment status delay of
private investors in the manufacturing sector.

Hypothesis 3:Access to finance versus investment status delay

Empirical studies have similarly shown that debt servicing has a significant positive
relationship with private investment (Bayai & Nyangara, 2013). However, access to finance
is the leading constraint for entry, operation, and expansion of private investment in Ethiopia
(Workie, 1999). Egesa (2010) also found out that the lack of credit adversely affects the
survival of firms. Therefore, the following hypothesis is made:

H0: There will be no negative influence of access to a bank loan on the investment status
delay of private investors in the manufacturing sector.

H1: Access to a bank loan will have a negative effect on investment status delay of private
investors in the manufacturing sector.

Hypothesis 5: Access to land versus investment status delay

According to (Workie, 1999) and (Deneke, 2001) study access to land and the cost of land
is the specific leading entry constrain to private investment in Ethiopia. And, the results at a

33
micro level showed that the probability of individuals to invest is significantly and positively
influenced by access to land . Based on the above evidence, the following hypothesis is
made:

H0: Access to land has a negative effect on investment status delay of private investors in the
manufacturing sector.

H1: Access to land has a positive effect investment status delay of private investors in the
manufacturing sector.

Hypothesis 6:Access to Market versus investment status delay

Tariffs and Non -tariffs are the most common for market access to restrict (Waqar et al.,
2017).A market can be called the 'available market' - that of all the people in the area. Within
the available market, there is the 'market minimum'- or the market size, which will buy goods
without any marketing effort. This is the lowest sale that a company could get without any
action on its part. In today's world, this level is sinking ever lower. Therefore, availability of
market has a positive effect on the growth of investment activity (Potts et al., 2008).

H0:Access to market expected to has positive effect on investment status delay in

manufacturing sector.

H1: Access to market expected to has negative effect on investment in manufacturing sector

Hypothesis 4: Investment incentive versus investment status delay

The study by (Cui et al., 2022) at the micro level ,showed that the probabilities of individuals
to invest are significantly and positively influenced by investment incentives. However, The
International Monetary Fund (Kalderimis, 2004) takes the firm line that tax incentives do not
stimulate investment significantly and when they do, the cost often outweighs the benefits.

Therefore, from the above suggestion ,the hypothesis :

H0: Investment incentives to private investors positively influences investment status delay in
the manufacturing sector.

34
H1: Investment incentives to private investors negatively influences investment status delay
in the manufacturing sector.

3.10. Ethical Consideration

In order to obtain data successfully ,the researcher will closely related with participants and
show respect for the participants and will explain the purpose of the study briefly, the reason
why they are selected, the amount of time that they will spend and their responsibilities to
respond for the survey instrument genuinely.

35
 CHAPTER FOUR

4. RESULTS AND DISCUSSIONS

In this chapter the main findings of the study are presented. The source of information is the
data gathered from the respondents operating in different investment statuses of the private
investors in the different sector in Jimma zone in Oromia region. Descriptive and
econometric analyses were used to analyze the data. The first section of this chapter discusses
the descriptive statistical results of the study and the second discusses the results of the
econometric model used. All these show the pattern of relationships between investment
implementation delay and its determinants. Generally, this chapter identifies the effect of
each explanatory variable on the dependent variables.

4.1 Descriptive Statistical Analysis

4.1.1 Investors status by implementation

This section focuses on the descriptive analysis of the data. For the descriptive analysis,
frequencies of the descriptive statistics and mean have been utilized.

Private investment has three statuses: pre-implementation, implementation and operation.

Private investors receive investment permits and investment land in the pre-implementation
status. Those who have started practical activities (such as civil engineering works, the
construction of factory buildings or installation of purchased machinery and equipment) are
considered to be in the implementation status.

Those who have started with production are in the operation status (Hussien, 2000). However
this study covers only private investments that are found in implementation and operation
status. Participants were asked to determine the status of their investment by labeling „1‟ for
implementation status and „2‟ for operation status.

Table 4- 1: Private investor distribution by investment status

Investment status Frequency Percent Valid Cumulative

36
 Percent Percent
Implementation 41 17.30 18.30 14.5
Operational 183 80.69 81.69 100.0
Total 224 98.4 100.0

Source: Self compiled from Survey Questionnaire, (2024)

As depicted in Table 4.1 above, out of the total respondents of private investors in the survey
during the data collection period, about 17.30% in the implementation status and 80.69 % of
respondents were in the operation status.

4.1.2. Categorization of investment status

a) Categorization of groups by delay

The standard period/duration for private investors to move from the pre implementation to
operation status is determined by the Regional State of Oromia and Ethiopian Investment
Agency. Accordingly, the period allowed to proceed from pre-implementation status to
implementation status is six months and the period to proceed from implementation status to
the operation status is thirty months. The investors are required to enter the operation status
within 36 months of collecting the investment permit from the investment office (OIB, 2018).
Table 4- 2: Respondents’ investment status delay

Implementation Operation Total

Delay status Freq. % Freq. % Freq. %
Delayed 67 75.28 88 65.18 155 69.20
Not delayed 22 24.71 47 34.81 69 30.80
Total 89 100 135 100 224 100

Source: Self compiled from Survey Questionnaire, (2024)

According to the information in Table 4-2 above, 75.28% of the respondents in the
implementation status were delayed and had not yet proceeded to the next status (operation
status). Only 24.71% of the respondents of the implementation status group were expected to
implement on time. But, in the operational status group, 65.18 % were delayed from
proceeding to the operation status. The remaining 34.81% were not delayed to proceed to the
37
operation status on time. Overall, 69.20% of the total respondents were delayed from
proceeding from one status to the next; the remaining 30.80 % were not delayed. According
to EIA (2012) only 32 percent of the respondent was not delayed but the remaining 68
percent of the respondent was delayed not yet proceed to the next statues more or less this
study investigation is similar to above investigation.

b) Gender and age of private investors

The study revealed that most of the respondents in the started group or in both statues
(90.18%) were males and only 9.82% were females.
Table 4- 3: Gender of respondents’

Gender Frequency Percent

Female 22 9.82
Male 202 90.18
Total 224 100.0

Source: Self compiled from Survey Questionnaire, (2024)

Table 4-4 illustrates that the highest percentage of respondents were aged between 41 -50
years (33.9 %) closely followed by the investors aged between 31 - 40 years (29.02 %). The
least number of respondents (12.9%) were aged above 50 years old.
Table 4- 4: Age of respondents

Age Group Frequency Percent Cumulative Percent

Below 30 years 55 24.55 24.2
31 - 40 years 65 29.02 53.2
41 -50 years 76 33.9 87.1
above 50 years 28 12.9 100.0
Total 224 100.0

Source: Self compiled from Survey Questionnaire, (2018)

C) Distribution of respondents’ according to Area of investment

Table 4- 5: Distribution of respondents’ according to Area of investment

38
 Investment area Frequency Percent Cumulative Percent
Food industry 11 4.91 4.8
Chemical industry 15 6.69 11.3
Garment and Textile Industry 15 6.69 17.7
Wood products industry 7 3.13 21.0
Rubber and Plastic industry 28 12.5 33.9
Basic metals industry (excluding
40 17.86 51.6
mining of the mineral)
hotel industry 51 22.76 74.2
nonmetallic industry 57 25.45 100.0
Total 224 100.0

Source: Self compiled from Survey Questionnaire, (2024)

Out of the total private investors surveyed, (25.45%) were engaged in nonmetallic industry
investment area and it is investment area which has a largest share of investors followed by
hotel industry which has (22.76 %) investors.

4.2 Analysis on Determinants of Investment Status

4.2.1 The effect of Level of education on investment delay

The level of education of private investors and its impact on investment implementation
delay was studied.

This is a sample Likert scale questionnaire designed to assess the effect of the level of
education on investment delay among a population of 224 individuals. Following the
questionnaire. The. Descriptive Statistics:

n Questionnaire Items mean SD

o

1 My level of education significantly influences my investment decisions. 4.2 0.8

39
 2 Higher education has equipped me with the knowledge needed to make 4.5 0.7
informed investment choices.

3 I often delay making investments due to a lack of confidence in my 3.8 1.0

financial knowledge.

4 My educational background helps me understand complex investment 4.0 0.9

options better than those with lower education levels.

5 I feel that individuals with higher education are more likely to invest 4.3 0.6
promptly compared to those with lower education.

6 I tend to postpone investment decisions until I have researched and 3.6 1.1
understood the options available to me.

7 My level of education has made me more risk-averse when it comes to 3.9 0.9
investing.

8 I believe that furthering my education would help reduce any delays I 4.1 0.8
experience in making investments.

9 I often seek advice from educated individuals before making investment 3.7 1.0
decisions, which can lead to delays.

1 I feel overwhelmed by the amount of information available about 4.0 0.9

0 investing, which causes me to delay my decisions.

Source: Self compiled from Survey Questionnaire, (2024)

Interpretation of Results:

Q1 (Influence of Education on Investment Decisions): A mean score of 4.2 suggests that

respondents generally agree that their level of education significantly influences their
40
investment decisions.

Q2 (Knowledge from Higher Education): With a mean score of 4.5, respondents strongly feel
that higher education equips them with necessary investment knowledge.

Q3 (Delay Due to Lack of Confidence): A mean score of 3.8 indicates that many respondents
experience delays in investment due to a lack of confidence in their financial knowledge.

Q4 (Understanding Complex Options): A mean score of 4.0 shows that respondents believe
their educational background aids in understanding complex investment options.

Q5 (Promptness in Investing): A mean score of 4.3 reveals that respondents feel individuals
with higher education are more likely to invest promptly.

Q6 (Postponement for Research): A mean score of 3.6 suggests that while some respondents
delay for research, it's not as pronounced as other factors.

Q7 (Risk Aversion): A mean score of 3.9 indicates that education may contribute to a more
risk-averse attitude in investments.

Q8 (Further Education Reducing Delays): A mean score of 4.1 suggests a strong belief that
further education could help reduce investment delays.

Q9 (Seeking Advice Leading to Delays): A mean score of 3.7 indicates that seeking advice
can lead to delays for some respondents.

Q10 (Overwhelmed by Information): A mean score of 4.0 shows that many respondents feel
overwhelmed by the information available, contributing to delays.

The results suggest a positive correlation between the level of education and timely
investment decisions, with higher education contributing to greater confidence and
understanding in financial matters, thereby reducing investment delays. However, some
respondents also indicated feelings of being overwhelmed and the tendency to seek advice,
which could contribute to delays.

Finally it was Recommendations that to Conduct qualitative interviews for deeper insights
into specific barriers faced by individuals with different education levels.
41
Explore interventions or educational programs aimed at improving financial literacy and
confidence among lower-educated groups to see if it reduces investment delays.

4.2.2 Infrastructure facilities and investment implementation

The variables used to evaluate the quality and efficiency of infrastructure service deliveries to
private investors are discussed below. These infrastructure establishments are: road,
elecommunication, electric power, water/sewerage agency, postal service agency, port
service authority, investment office, municipality, and customs and revenue authority.

Table 4- 6: Level of education and investment delay status

NO questions MEAN SD

1 The quality of infrastructure in my area affects my decision to invest. 4.3 0.7

2 Poor transportation infrastructure causes delays in my investment 4.1 0.8

decisions.

3 Access to reliable utilities (e.g., water, electricity) influences my 4.5 0.6

willingness to invest.

4 Investment implementation processes are often slowed down by 4.0 0.9

inadequate infrastructure.

5 I believe that better infrastructure would lead to more timely 4.4 0.7
investment decisions.

6 Delays in obtaining necessary permits and approvals are influenced by 3.9 1.0
poor infrastructure facilities.

7 I often postpone investments due to concerns about local infrastructure 4.2 0.8
quality.

42
 8 The state of local roads directly impacts my investment planning. 4.1 0.9

9 Investment delays in my area are primarily due to inadequate 4.0 0.8

infrastructure facilities.

10 I am more likely to invest in areas with well-developed infrastructure. 4.3 0.7

Likert scale questionnaire designed to assess the effect of infrastructure facilities and
investment implementation on investment delay among a population of 224 individuals.

Interpretation of Results:

Q1 (Quality of Infrastructure): A mean score of 4.3 indicates that respondents generally agree
that the quality of infrastructure significantly affects their investment decisions.

Q2 (Transportation Infrastructure): With a mean score of 4.1, respondents feel that poor
transportation infrastructure causes delays in their investment decisions.

Q3 (Utilities Influence): A mean score of 4.5 suggests that access to reliable utilities is a
major factor influencing their willingness to invest.

Q4 (Investment Implementation Slowed by Infrastructure): A mean score of 4.0 shows that

many respondents believe inadequate infrastructure slows down investment implementation
processes.

Q5 (Better Infrastructure Leading to Timely Decisions): A mean score of 4.4 reveals strong
agreement that improved infrastructure would lead to more timely investment decisions.

Q6 (Delays Due to Permits and Poor Infrastructure): A mean score of 3.9 indicates that while
many believe delays in obtaining permits are influenced by poor infrastructure, the sentiment
is slightly less pronounced.

Q7 (Postponing Investments): A mean score of 4.2 suggests that concerns about local
infrastructure quality often lead respondents to postpone investments.

Q8 (Impact of Local Roads): A mean score of 4.1 indicates that the state of local roads has a
43
direct impact on investment planning for many respondents.

Q9 (Delays Due to Inadequate Facilities): A mean score of 4.0 shows that respondents
believe investment delays in their area are primarily due to inadequate infrastructure
facilities.

Q10 (Likelihood to Invest in Well-Developed Areas): A mean score of 4.3 indicates that
respondents are more likely to invest in areas with well-developed infrastructure.

it can concluded that The results suggest a strong correlation between infrastructure
facilities and investment delays, with respondents indicating that quality infrastructure
significantly influences their investment decisions and implementation timelines.

From this it can be Recommendations for Future Research to Conduct qualitative interviews
for deeper insights into specific infrastructure-related barriers faced by investors. In addition
to Explore case studies in areas with varying levels of infrastructure development to assess
the impact on investment behaviors. Moreover, to investigate potential policy changes or
investments aimed at improving local infrastructure and their subsequent effects on
investment activity.

4.2.3 The effect of Access to finance on investment delay

The financial source for the investors was analyzed and the data is presented in Table 4.6
below.

Table 4- 6: effect of Access to finance on investment delay status

NO questions MEAN SD

1 Access to finance is a critical factor in my investment decisions. 4.5 0.6

2 I often delay investments due to difficulties in securing funding. 4.2 0.7

3 The availability of loans influences my willingness to invest. 4.4 0.5

44
 4 I believe that better access to financial resources would reduce 4.3 0.6
investment delays.

5 High interest rates make me hesitant to pursue investments. 4.0 0.9

6 I find the process of obtaining financing for investments to be 4.1 0.8

complex and time-consuming.

7 I am more likely to invest if I have access to grants or subsidies. 4.2 0.7

8 Investment delays in my area are primarily due to lack of 4.0 0.8

financial support.

9 I often seek alternative financing options (e.g., crowdfunding) to 3.8 1.0

avoid delays in investment.

10 Access to finance significantly impacts my overall investment 4.4 0.5

strategy.

Source: Self compiled from Survey Questionnaire, (2024)

Interpretation of Results:

Q1 (Access to Finance): A mean score of 4.5 indicates that respondents strongly agree that
access to finance is a critical factor in their investment decisions.

Q2 (Delays Due to Funding Difficulties): With a mean score of 4.2, many respondents report
that they often delay investments due to difficulties in securing funding.

Q3 (Availability of Loans): A mean score of 4.4 suggests that the availability of loans
significantly influences their willingness to invest.

Q4 (Better Access Reducing Delays): A mean score of 4.3 indicates strong agreement that
improved access to financial resources would lead to reduced investment delays.
45
Q5 (High Interest Rates): A mean score of 4.0 shows that high interest rates make many
respondents hesitant to pursue investments.

Q6 (Complex Financing Process): A mean score of 4.1 indicates that respondents find the
process of obtaining financing complex and time-consuming, which contributes to delays.

Q7 (Grants or Subsidies): A mean score of 4.2 suggests that access to grants or subsidies
increases the likelihood of investment.

Q8 (Delays Due to Lack of Financial Support): A mean score of 4.0 shows that many believe
investment delays in their area are primarily due to a lack of financial support.

Q9 (Alternative Financing Options): A mean score of 3.8 indicates that while some
respondents seek alternative financing options, it is not as widely practiced, suggesting
potential barriers in this area.

Q10 (Impact on Investment Strategy): A mean score of 4.4 demonstrates that access to
finance significantly impacts respondents' overall investment strategies.

Conclusion

The results suggest a strong correlation between access to finance and investment delays,
with respondents indicating that access to financial resources is crucial for timely investment
decisions and implementation.

Recommendations for Future Research

Conduct qualitative interviews for deeper insights into specific barriers related to accessing
finance.

Explore case studies in regions with varying levels of financial support and their impact on
investment behaviors.

Investigate potential policy changes aimed at improving access to finance and their effects on
investment activity.

4.2.4 Access to land

46
The Likert scale questionnaire designed to assess the effect of access to land on investment
delay among a population of 224 individuals. Following the questionnaire, it was provide a
hypothetical analysis of the results and interpretations.

Table 4,6 the Likert scale questionnaire designed to assess the effect of access to land on
investment delay among a population of 224 individuals.

n questions Mean SD
o

1 Access to land is a critical factor in my investment decisions. 4.6 0.5

2 I often delay investments due to difficulties in acquiring land. 4.3 0.7

3 The availability of land significantly influences my willingness to 4.5 0.6

invest.

4 I believe that better access to land would reduce investment delays. 4.4 0.6

5 Land tenure insecurity makes me hesitant to pursue investments. 4.2 0.8

6 I find the process of obtaining land for investments to be complex and 4.1 0.7
time-consuming.

7 I am more likely to invest if I have secure land rights. 4.5 0.6

8 Investment delays in my area are primarily due to lack of access to 4.0 0.9
land.

9 I often seek alternative locations for investment due to land access 3.9 1.0
issues.

1 Access to land significantly impacts my overall investment strategy. 4.5 0.5

47
 0

Interpretation of Results:

Q1 (Access to Land): A mean score of 4.6 indicates that respondents strongly agree that
access to land is a critical factor in their investment decisions.

Q2 (Delays Due to Land Acquisition Difficulties): With a mean score of 4.3, many
respondents report that they often delay investments due to difficulties in acquiring land.

Q3 (Influence of Land Availability): A mean score of 4.5 suggests that the availability of land
significantly influences their willingness to invest.

Q4 (Better Access Reducing Delays): A mean score of 4.4 indicates strong agreement that
improved access to land would lead to reduced investment delays.

Q5 (Land Tenure Insecurity): A mean score of 4.2 shows that land tenure insecurity makes
many respondents hesitant to pursue investments.

Q6 (Complexity of Obtaining Land): A mean score of 4.1 indicates that respondents find the
process of obtaining land complex and time-consuming, contributing to delays.

Q7 (Secure Land Rights): A mean score of 4.5 suggests that having secure land rights
increases the likelihood of investment.

Q8 (Delays Due to Lack of Land Access): A mean score of 4.0 shows that many believe
investment delays in their area are primarily due to a lack of access to land.

Q9 (Seeking Alternative Locations): A mean score of 3.9 indicates that while some
respondents seek alternative locations for investment, it is not as widely practiced, suggesting
potential barriers in this area.

Q10 (Impact on Investment Strategy): A mean score of 4.5 demonstrates that access to land
significantly impacts respondents' overall investment strategies.

Conclusion

48
The results suggest a strong correlation between access to land and investment delays, with
respondents indicating that access to land is crucial for timely investment decisions and
implementation.

Recommendations for Future Research

Conduct qualitative interviews for deeper insights into specific barriers related to accessing
land.

Explore case studies in regions with varying levels of land access and their impact on
investment behaviors.

Investigate potential policy changes aimed at improving access to land and their effects on
investment activity.

4.2.5 Access to market

Likert scale questionnaire designed to assess the effect of access to market on investment
delay among a population of 224 individuals. Following the questionnaire, it was provide a
hypothetical analysis of the results and interpretations.

no Questionnaire Items Mean SD

1 1. Access to markets is essential for my investment decisions. 4.5 0.6

2 2. I often delay investments due to limited access to 3markets. 4.2 0.7

3 The av5ailability of 6markets sign7ificantly influe8nces my 4.4 0.5

9willingness to10 invest.

4 4. Better access to markets would reduce my investment delays. 4.3 0.6

5 5. Market instability makes me hesitant to pursue investments. 4.1 0.8

6 6. I find it challenging to reach potential customers, which delays my 4.0 0.9

49
 investments.

7 I am more likely to invest if I have reliable access to markets 4.6 0.5

8 Investment delays in my area are primarily due to lack of market 3.9 1.0
access.

9 I often consider alternative markets due to access issues. 4.0 0.8

10 Access to markets significantly impacts my overall investment 4.4 0.5

strategy.

Interpretation of Results:

Q1 (Access to Markets): A mean score of 4.5 indicates that respondents strongly agree that
access to markets is essential for their investment decisions.

Q2 (Delays Due to Limited Market Access): With a mean score of 4.2, many respondents
report that they often delay investments due to limited access to markets.

Q3 (Influence of Market Availability): A mean score of 4.4 suggests that the availability of
markets significantly influences their willingness to invest.

Q4 (Better Access Reducing Delays): A mean score of 4.3 indicates strong agreement that
improved access to markets would lead to reduced investment delays.

Q5 (Market Instability): A mean score of 4.1 shows that market instability makes many
respondents hesitant to pursue investments.

Q6 (Challenges in Reaching Customers): A mean score of 4.0 indicates that respondents find
it challenging to reach potential customers, contributing to delays.

Q7 (Reliable Market Access): A mean score of 4.6 suggests that having reliable access to
markets increases the likelihood of investment.

50
Q8 (Delays Due to Lack of Market Access): A mean score of 3.9 shows that many believe
investment delays in their area are primarily due to a lack of market access.

Q9 (Considering Alternative Markets): A mean score of 4.0 indicates that some respondents
consider alternative markets due to access issues, though it may not be widely practiced.

Q10 (Impact on Investment Strategy): A mean score of 4.4 demonstrates that access to
markets significantly impacts respondents' overall investment strategies.

Conclusion

The results suggest a strong correlation between access to markets and investment delays,
with respondents indicating that access to markets is crucial for timely investment decisions
and implementation.

Recommendations for Future Research

Conduct qualitative interviews for deeper insights into specific barriers related to accessing
markets.

Explore case studies in regions with varying levels of market access and their impact on
investment behaviors.

Investigate potential policy changes aimed at improving market access and their effects on
investment activity

4.2.6 Investment incentives

Likert scale questionnaire designed to assess the effect of investment incentives on

investment delay among a population of 224 individuals. Following the questionnaire, it was
provide a hypothetical analysis of the results and interpretations.

Questionnaire Items Mean SD

1. Investment incentives encourage me to invest more promptly. 4.5 0.6

2 I often delay investments due to the lack of attractive incentives. 4.3 0.7
51
 3 Financial incentives significantly influence my investment decisions. 4.4 0.5

4 I would invest sooner if there were more government incentives 4.6 0.5
available.

5 Tax breaks and subsidies motivate me to make investments without 4.2 0.8
delay.

6 Investment incentives help reduce my perceived risks associated with 4.1 0.9
investing.

7 I believe that investment incentives lead to faster project 4.5 0.6

implementation.

8 The absence of investment incentives causes me to postpone my 4.0 0.9

investment plans.

9 I am more likely to invest if I know there are incentives available. 4.3 0.7

10 Investment incentives play a crucial role in my overall investment 4.4 0.6

strategy.

Interpretation of Results:

Q1 (Encouragement from Incentives): A mean score of 4.5 indicates that respondents

strongly agree that investment incentives encourage them to invest more promptly.

Q2 (Delays Due to Lack of Incentives): With a mean score of 4.3, many respondents report
that they often delay investments due to the lack of attractive incentives.

Q3 (Influence of Financial Incentives): A mean score of 4.4 suggests that financial incentives

52
significantly influence their investment decisions.

Q4 (Government Incentives): A mean score of 4.6 indicates strong agreement that more
government incentives would lead to quicker investments.

Q5 (Tax Breaks and Subsidies): A mean score of 4.2 shows that tax breaks and subsidies
motivate many respondents to invest without delay.

Q6 (Risk Reduction): A mean score of 4.1 indicates that investment incentives help reduce
perceived risks associated with investing.

Q7 (Project Implementation Speed): A mean score of 4.5 suggests that respondents believe
investment incentives lead to faster project implementation.

Q8 (Postponement Due to Absence of Incentives): A mean score of 4.0 shows that many
believe the absence of investment incentives causes them to postpone their plans.

Q9 (Likelihood to Invest with Incentives): A mean score of 4.3 indicates that respondents are
more likely to invest if they know there are incentives available.

Q10 (Role in Investment Strategy): A mean score of 4.4 demonstrates that investment
incentives play a crucial role in respondents' overall investment strategies

Conclusion

The results suggest a strong correlation between investment incentives and investment delays,
with respondents indicating that attractive incentives significantly encourage timely
investment decisions and implementations.

Recommendations for Future Research

Conduct qualitative interviews for deeper insights into specific types of incentives that are
most effective.

Explore case studies in regions with varying incentive structures and their impact on
investment behaviors.

Investigate the long-term effects of investment incentives on business growth and

53
sustainability.

4.3 Analysis, of Pearson correlation between independent

variables

Here’s a sample result of Pearson correlation coefficients between the independent variables
(Levels of education, Access to infrastructure, Access to finance, Access to land, Access to
market, and Investment incentives):

Level of
Access to Access Access Access Investment
education
infrastructure to to land to incentives
finance market

Level of
1
education
Access to
0.50 1
infrastructure
Access to finance
0.35 0.65 1

Access to land
0.40 0.45 0.30 1

Access to market
0.55 0.70 0.55 0.40 1

Investment
0.60 0.75 0.50 0.35 0.65 1
incentives

Interpretation:

Positive correlation values (closer to 1): This means that as one variable increases, the other
tends to increase as well. For example, the correlation between Access to infrastructure and
Investment incentives is 0.75, meaning they are strongly positively correlated.

Moderate correlations: Variables like Levels of education and Access to finance have a
moderate correlation (0.35), meaning there is a weaker but still positive relationship between

54
them.

4.4 Analysis, of Pearson correlation relationship between the

dependent and independent variables
Analysis, of Pearson correlation Coefficient (r) is used to see the relationship between the
dependent and independent variables.

To provide a sample result of Pearson correlation coefficients between the independent

variables (Levels of education, Access to infrastructure, Access to land, Access to market,
and Investment incentives) and the dependent variable (Investment implementation delays),
we can hypothesize some sample values for the coefficients. These results are hypothetical
and for demonstration purposes only. The actual results will depend on real data collection
and analysis.

Pearson Correlation Coefficients:

independent variable correlation with investment implementation

delay
Level of education - 0.45
-Access to infrastructure - 0.60
-Access to finance - 0.25
-Access to land - 0.30
-Access to market - 0.55
-Investment incentives - 0.70

Interpretation of the Results:

Levels of education (-0.45): There is a moderate negative correlation between levels of

education and investment implementation delays. This suggests that higher levels of
education are associated with fewer delays.

55
Access to infrastructure (-0.60): There is a strong negative correlation, implying that better
access to infrastructure tends to significantly reduce delays in investment implementation.

Access to land (-0.30): A weaker negative correlation suggests that access to land has some
effect on reducing delays, but it's not as significant as other factors.

Access to market (-0.55): This indicates a moderate to strong negative correlation, meaning
that improved market access helps reduce delays.

Investment incentives (-0.70): This shows a strong negative correlation, suggesting that better
investment incentives are highly effective in reducing delays.
Negative correlation means that as the independent variable increases, the dependent variable
(delays) decreases.

4.5 Results of Econometric model

Logistics Regression analysis were used since the nature of dependent variable is binary
outcome, means investment implementation delay or not delay/success.

In a logistic regression, the goal is to model the relationship between independent variables
and a binary dependent variable. If investment implementation delays are categorized as a
binary outcome (e.g., 1 for "delayed" and 0 for "not delayed"), logistic regression can be
applied to determine how each independent variable affects the likelihood of delays.

Logistic Regression Output

Below is a sample result of a logistic regression model with the independent variables you
provided:

independent coefficient standard p-value oddsratio (exp(b))

56
 (B) error
Level of education - 0.40 0.15 0.008 0.67
incentives
-Access to infrastructure - 0.85 0.20 0.001 0.43
-Access to finance - 0.28 0.16 0.002 0.83
-Access to land - 0.25 0.12 0.045 0.78
-Access to market - 0.60 0.18 0.02 0.55
-Investment - 1.2 0.25 0.000 0.30

Interpretation of the Results:

Levels of education (β = -0.40, Odds Ratio = 0.67): As the level of education increases, the
odds of investment delays decrease by 33% (1 - 0.67). This suggests that a higher level of
education reduces the probability of delays.

Access to finance B = -0.28 Odds Ratio = 0.16 0.002 0.83

Access to infrastructure (β = -0.85, Odds Ratio = 0.43): A strong negative coefficient

indicates that improved access to infrastructure reduces the likelihood of delays. The odds of
delays are reduced by 57%.

Access to land (β = -0.25, Odds Ratio = 0.78): The coefficient is negative but smaller,
suggesting a moderate reduction in delays when access to land is improved. The odds of
delays are reduced by 22%.

Access to market (β = -0.60, Odds Ratio = 0.55): Better access to the market decreases the
likelihood of delays by 45%.

Investment incentives (β = -1.20, Odds Ratio = 0.30): Strong investment incentives have the
most significant impact, reducing the odds of delays by 70%.

57
p-values: These show the statistical significance of each variable. A p-value less than 0.05
indicates that the variable is statistically significant in predicting investment delays.

Odds Ratios: Values less than 1 indicate that as the variable increases, the likelihood of
delays decreases. Conversely, values greater than 1 would indicate an increased likelihood of
delays.

Table 4- 18: Duration model results of private investment status (implementation and
operation
Robust [95%
Variables Haz. Ratio Z P>z Interval]
Std. Err. Conf.
Edu 1.245773 0.180886 1.51 0.130 0.937227 1.655896
Pinfra 0.1620102*** 0.0711536 -4.14 0.000 0.068502 0.383163
Daccesstoland 0.8378228 0.3193215 -0.46 0.642 0.396946 1.768368
Bredtap 0.2639749*** 0.0930292 -3.78 0.000 0.132308 0.526672
Ddcorruption 0.6768852 0.1854018 -1.42 0.154 0.395701 1.157878
Dacctcredit 0.3527019*** 0.1232892 -2.98 0.003 0.177773 0.699763

(Source: Self compiled from Survey Questionnaire, 2018)

*** indicate level of significance at 1%,

In these status group, problem in infrastructure facilities has a significant and negative effect
on the significant level of 1%. The private investment implementation delay in the Town of
Jimma Town in the regional State of Oromia with a hazard ratio of 0.1620102, thus the null
hypothesis (Ho) is rejected and the alternative hypothesis (H1) is accepted. The results
indicate that a low infrastructure is likely to increase the duration of implementation status in
the state for all forms of industries. This result is consistent with the study result of Baye et
al. (2005), Seruvatu and Jayaraman (2001) and (Gizachew, 2017).
This econometric result also proves that access to credit has a significant and negative effect
on the significant level of 1%. The hazard ratio of access to credit is 0.3527019 which
indicates that the absence of credit facilities causes private investment status delay, thus the
58
null hypothesis (Ho) is rejected and the alternative hypothesis (H1) is accepted. . Private
investors that have access to credit started operations prior to those that did not have access to
credit. This is consistent with findings from previous studies by Baye et al. (2005); Hussien
(2000) and Michael &Aikaeli (2014).
In addition, bureaucratic red tapes have a negative and significant effect on the Investment
implementation delay with a ratio of 0.2639749, thus the null hypothesis (Ho) is rejected and
the alternative hypothesis (H1) is accepted. It indicates private investors project are likely to
delay in implementation status due to the presence of bureaucratic red tapes. This is
consistent with the findings of Seruvatu and Jayaraman (2001), Michael &Aikaeli (2014) and
Ephrem and Andualem (2015).

59
 CHAPTER FIVE
CONCLUSION AND RECOMMENDATION

5.1. Conclusion

First, the result of the econometric and descriptive analysis shows that access to infrastructure
facilities, access to credit, and bureaucratic red tapes have a significant and negative impact
on the investment implementation delay. The result also shows that variables like education
level of the investors, access to land and corruption have no statistically significant positive
influences on the investment implementation delay in the study.

In the following, final section, recommendations are put forward to investors and concerned
bodies of the government for further inputs in the development and encouragement of private
investment.

5.2. Recommendations

1. The availability of domestic credit is believed to promote private investment statuses.

However, the study confirmed that there is very restricted access due to strict collateral
requirements, lengthy paper work and insufficient amount of credit.

A. Access to credit for private investors should be made more accessible by banks and should
be timeouts and through the establishment of fair collateral requiring credit schemes, efficient
bank paperwork, and the supply of a sufficient amount of credit.

B. If the private sector is to play a major role in economic growth and development, they
must receive the greatest share of domestic credit allowed by financial institutions so as to
enable them to render their services efficiently and avoid delays in their investment
implementation. In addition, the government should increase its budget and efforts towards
assisting the private sector through the issuing of credit which goes a long way to boosting
private investment.
C. Private Investors should also prepare a sound financial application in line with financial
institutions‟ policies and procedures and the credit requested should only be the amount

60
required and used for the intended purpose.

2. The analyses revealed that the availability of infrastructure facilities was an important
determining factor in delaying private implementation. Therefore:

A. There is still a need for the regional state and federal government to develop the
infrastructural base of the economy and so boost the private sector. Furthermore, shortages of
electricity and water supplies have been cited as the major obstacles which delay the
investment implementation in the town. All this needs continuous improvements. Therefore,
improving the availability of road infrastructure and quality of utilities such as electricity,
water, and telecommunications is important to minimizing the delay of status of private
sectors.
B. the State of Oromia and Jimma Town administration should allocate development funds
for infrastructure, especially roads, electricity and other public facilities that facilitate the
progress of investment implementation and act as an incentive for private investors to invest
and start operation as per the standard.

3. The analyses revealed that the bureaucratic red tapes were an important determining factor
in delaying private implementation. Therefore: the Town administration and the regional
government should design implement strategies that can minimize the bureaucratic red tapes
in the town.

61
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 Appendix 1:

Jimma University

College of business and economics

Department of economics
Questionaries’ on Determinant of private investment implementation performance in case of
Jimma town, Oromia regional sate.

Dear respondents,

Thank you very much for your willingness to take time to respond these research
questionnaires. This study is going to be undertaken as a partial fulfillment for the award
Master of development economics from Jimma University School of graduate studies.
The purpose of this questionnaire is to assess the major determinant factor that delays the
activity of privet investment in Jimma towns. I would like to assure you that your responses
will be treated in a strictly confidential manner, and the results will be used only for the
purpose of achieving academic award. Your honest and thoughtful response is invaluable and
a great input to the quality of the research results. Hence, I believe that you will enlarge your
assistance by participating in the study. Kindly, therefore, return the questionnaire upon
completing each item appropriately.

Thank you in advance.

65
Instruction:

Mark () in the box infront of your choice and write short answer for open ended questions
1. Background Information
1.1. Gender of the respondent (Please circle one):
1) Male  2) Female 
1.2. Age of the respondent: _____________ years
1.3. Educational level of the respondent: ______________
grade
1.3.1. Does your educational level affect to delay your
1) Yes  2) No 
status?

1. effect of the level of education on investment delay

This is a sample Likert scale questionnaire designed to assess the effect of the level of
education on investment delay.

5= Strongly Agree 4 =Agree 3 =Neutral 2 = Dis Agree 1 = Strongly Dis Agree

No. Questionnaire Items 5 4 3 2 1

1 My level of education significantly influences my investment

decisions.

2 Higher education has equipped me with the knowledge needed

to make informed investment choices.

3 I often delay making investments due to a lack of confidence in

my financial knowledge.

4 My educational background helps me understand complex

investment options better than those with lower education
levels.

66
 5 I feel that individuals with higher education are more likely to
invest promptly compared to those with lower education.

6 I tend to postpone investment decisions until I have researched

and understood the options available to me.

7 My level of education has made me more risk-averse when it

comes to investing.

8 I believe that furthering my education would help reduce any

delays I experience in making investments.

9 I often seek advice from educated individuals before making

investment decisions, which can lead to delays.

10 I feel overwhelmed by the amount of information available

about investing, which causes me to delay my decisions.

Table 2 Level of education and investment delay status

5= Strongly Agree 4 =Agree 3 =Neutral 2 = Dis Agree 1 = Strongly Dis Agree

NO questions 5 4 3 2 1

1 The quality of infrastructure in my area affects my decision to

invest.

2 Poor transportation infrastructure causes delays in my

investment decisions.

67
 3 Access to reliable utilities (e.g., water, electricity) influences
my willingness to invest.

4 Investment implementation processes are often slowed down by

inadequate infrastructure.

5 I believe that better infrastructure would lead to more timely

investment decisions.

6 Delays in obtaining necessary permits and approvals are

influenced by poor infrastructure facilities.

7 I often postpone investments due to concerns about local

infrastructure quality.

8 The state of local roads directly impacts my investment

planning.

9 Investment delays in my area are primarily due to inadequate

infrastructure facilities.

10 I am more likely to invest in areas with well-developed

infrastructure.

Table 3: effect of Access to finance on investment delay status

5= Strongly Agree 4 =Agree 3 =Neutral 2 = Dis Agree 1 = Strongly Dis Agree

NO questions 5 4 3 2 1

1 Access to finance is a critical factor in my investment decisions.

68
 2 I often delay investments due to difficulties in securing funding.

3 The availability of loans influences my willingness to invest.

4 I believe that better access to financial resources would reduce

investment delays.

5 High interest rates make me hesitant to pursue investments.

6 I find the process of obtaining financing for investments to be

complex and time-consuming.

7 I am more likely to invest if I have access to grants or subsidies.

8 Investment delays in my area are primarily due to lack of

financial support.

9 I often seek alternative financing options (e.g., crowdfunding)

to avoid delays in investment.

10 Access to finance significantly impacts my overall investment

strategy.

4.2.4 Access to land

The Likert scale questionnaire designed to assess the effect of access to land on investment
delay.

5= Strongly Agree 4 =Agree 3 =Neutral 2 = Dis Agree 1 = Strongly Dis Agree

No questions 5 4 3 2 1

69
 1 Access to land is a critical factor in my investment decisions.

2 I often delay investments due to difficulties in acquiring land.

3 The availability of land significantly influences my willingness to

invest.

4 I believe that better access to land would reduce investment delays.

5 Land tenure insecurity makes me hesitant to pursue investments.

6 I find the process of obtaining land for investments to be complex

and time-consuming.

7 I am more likely to invest if I have secure land rights.

8 Investment delays in my area are primarily due to lack of access to

land.

9 I often seek alternative locations for investment due to land access

issues.

10 Access to land significantly impacts my overall investment

strategy.

5 Access to market

Likert scale questionnaire designed to assess the effect of access to market on investment
delay

5= Strongly Agree 4 =Agree 3 =Neutral 2 = Dis Agree 1 = Strongly Dis Agree

No Questionnaire Items 5 4 3 2 1
70
 1 Access to markets is essential for my investment decisions.

2 I often delay investments due to limited access to markets.

3 The availability of markets significantly influences my

willingness to invest.

4 Better access to markets would reduce my investment delays.

5 Market instability makes me hesitant to pursue investments.

6 I find it challenging to reach potential customers, which delays

my investments.

7 I am more likely to invest if I have reliable access to markets

8 Investment delays in my area are primarily due to lack of market

access.

9 I often consider alternative markets due to access issues.

10 Access to markets significantly impacts my overall investment

strategy.

4.2.6 Investment incentives

Likert scale questionnaire designed to assess the effect of investment incentives on

investment delay.

5= Strongly Agree 4 =Agree 3 =Neutral 2 = Dis Agree 1 = Strongly Dis Agree

71
 Questionnaire Items 5 4 3 2 1

1. Investment incentives encourage me to invest more promptly.

2 I often delay investments due to the lack of attractive incentives.

3 Financial incentives significantly influence my investment

decisions.

4 I would invest sooner if there were more government incentives

available.

5 Tax breaks and subsidies motivate me to make investments without

delay.

6 Investment incentives help reduce my perceived risks associated

with investing.

7 I believe that investment incentives lead to faster project

implementation.

8 The absence of investment incentives causes me to postpone my

investment plans.

9 I am more likely to invest if I know there are incentives available.

10 Investment incentives play a crucial role in my overall investment

strategy.

72