Developing Country Studies www.iiste.org ISSN 2224-607X (Paper) ISSN 2225-0565 (Online) Vol.4, No.19, 2014 126 Investigating Investment Practices in Ethiopia: Success Stories and Challenges Ahead Tsega Adego Abebe Department of Economics, Aksum University, P.O.Box 1010 E-mail tsegagrace2007@gmail.com Abstract Ethiopia has pursued its own investment policies aimed at transforming its economic structure. After the incumbent regime assumed to power, it has tried to boost private investment. The general objective of this study is to investigate the distribution and challenges of investment, and explore practices aligning with in the context of development theories in Ethiopia. To this end, secondary data was collected from government offices, unpublished documents, books and reviewed journals to underpin the theories with the existing investment realities of Ethiopia. The distribution of investment portray that most of the investment is concentrated in Addis Ababa, unfairly making it “Metropolis” and other regional states of Ethiopia as “Satellites” that can be accounted for the existence of large market potential and location advantage. The various incentive packages introduced by government are not effective to attract investment to periphery areas. It is possible to underpin various development theories with the practice of Investment in Ethiopia. The surplus labour theory is partially applicable in the context of Ethiopia where most of the family members are disguisedly unemployed. This is aggravated by the high population density and seasonal nature of agriculture. This paper tried to investigate if there is infant industry argument implementation in Ethiopia and it is difficult to generalize thereof. The policy lacks to specify until when is the support, no measure to know whether they pass that stage for lifting the protection and is difficult to state its presence. The theory of Developmental state, the neoclassical counterrevolution market-friendly approach and Keynesian Growth theory recognizes that there are many imperfections in developing countries and governments do have a key role to play in facilitating the operation of markets. This is very aligned with what the current government is practicing. The development orientation of Ethiopia is Agricultural development will lead to industrialization. This implies that gradually there will be a structural change of the economy from agriculturalist to industrial, very aligned with structuralism development theory. It is found that the basic challenges of investment are presence of nominal investors, bad governance, low saving; investors rush to service sector and corruption. Therefore, it is recommended to boost the private sector by going beyond incentive such as infrastructures, finance, good governance, investigating regional states potential investment specializations and creating interregional trade. Keywords: Investment, Challenges, Ethiopia, Development Theories 1. Introduction 1.1 Background Though Ethiopia is nonoil-producing country, it is an undeniable fact that it has made a considerable progress in social and economic growth. The Rural Development Policy and Strategy underlines that agriculture-led development conveys rapid economic growth and lay solid foundation for industrial development. The Industrial Development Strategy focuses on export manufacturing with prime concern to textile and garments, leather and leather products, agro-processing and small and micro-enterprises Ethiopian investment Agency (2012). Recently the government has formulated the five year Growth and Transformation Plan (GTP) that runs from 2009/10 to 2015. Infrastructural and human resource investments are expanding with the crowding in effect of private investment. Thinking to make attractive, the investment law has been revised three times for the last twenty years. The privatization program has been continued to enhance the role of the private sector in the economy. However, as stated in (MoFED, 2013), still Ethiopia remains an untapped and unexploited market for investors. 1.2 Problem Statement Most of the LDCs trade and investment orientation is correlated with advanced nations. There are various development theories which are debatable to the applicability in the LDCs. Recently these nations are trying to adopt their own contextual policies. Ethiopia after the introduction of the current government, through lifting various restrictions, it tries to give support for the domestic private and FDI. Though growing, as compared to the public infrastructure boosting, the expansion of private investment is still at its infancy. For its sustainability, however, needs to identify the basic hindering factors of the investment. These determinants can be identified as economic or other governance aspect. From the governance perspective, the effectiveness of the designed investment incentives is not analyzed. It also needs to investigate the existing investment governance scale of the country. When attempting to align development theories with investment practices, spatial economics underlines as the resource distribution in a country is not only an economic issue, but also political. Development