BARRIERS TO DOMESTIC INVESTMENT IN ADDIS ABABA CITY ADMINISTRATION

Abstract

It is commonly and widely thought that investment is the engine of economic growth. Following this view, a number of empirical studies have been made on domestic investments in Ethiopia. However these entire studies uses macroeconomic variable to identify the determinate of private investment at national level and the determinant of private investment at Addis Ababa city level was not separately identified and also the non-macroeconomic variables that hinder domestic investments were not addressed sufficiently. Furthermore the conversion rate of investment projects into operation in Addis Ababa city is the lower than the national average due to different barriers. Thus the main objective of this study is to examine the barriers to domestic investment and evaluate these barriers by investment sectors in Addis Ababa City Administration. Descriptive type of research design has been employed to address the research objective. Quantitative research analysis is used to provide numerical measurement and analysis of the magnitude. The study used secondary data that was the World Bank’s Enterprise Survey (ES) data on Ethiopia. The data was collected by World Bank from June 2015 to February 2016 from 457 firms operating in Addis Ababa. Descriptive statistics such as frequency, percentage, mean, standard deviation was used to analyze the data. The findings indicated that electricity, access to land, tax rate, business licensing, political instability, corruption and custom and customs clearance and procedures related to export are the moderate barriers for domestic investors. Further, the major components of barriers to doing investment business in Addis Ababa city are access to finance, inadequately educated workforce, access to foreign exchange, customs clearance for imported materials, parts and equipment and Import Licensing and Other Non-Tariff Barriers. Hence, to promote of domestic investment in the city as well as to attract domestic investors, policy implications that give top priority to address the identified barriers specially policy implication that give due consideration to major barriers that hinder domestic investment is required