Assessment on Effective Investment During Inflationary Period in Ethiopia

Biruk Tsegaw Yadete

doi:10.7176/rjfa/12-13-03

Abstract

The purpose of this study is to scope the best possibilities for allocation of investable funds during inflationary periods in Ethiopia. The findings are based on conversations with major stakeholders, by reviewing the literature into options and in consultation with financial scholars in Ethiopia. The study offers a menu of effective cash utilization, assesses their suitability for Ethiopia context and their feasibility in the light of financial sector developments in the country.The basic premise of this study is that ultimately what is of concern to an investor, whether a household or an institutional investor, is the real value of its investments in terms of purchasing power. The issue to be addressed is which investment strategy make sense in an economic environment in which a major factor (although certainly not the only one) to be considered is substantial uncertainty about the future level of the prices of those goods and services. By investment strategy I mean decisions about how to allocate investable funds among two major investment classes: Ownership Investments and Lending Investments. The chapter is organized as follows. I will first discuss why it is real or inflation-adjusted rates of return and their uncertainty which ought to be the main concern of investors. I will then present the factors that affect investment which will state the direct and indirect factors which impact the decision making of the investors, examine the real rates of return on the two investment categories. Finally, I will discuss the implications of my findings for individual and institutional asset allocation policies. Keywords: Inflation, Investment, Bond, Stock and Real Estate DOI: 10.7176/RJFA/12-13-03 Publication date: July 31 st 2021

Highlights

One of the greatest problems facing Ethiopian economy today is inflation which is persistently a complex, economic and social problem of the economy
A situation where the value of money continues to depreciate in terms of value, there is the tendency for rising prices for available goods and services generally and such situation is being referred to as inflation
Inflation in the country has become a threat to the Ethiopian economy to investment and development

Summary

Introduction

One of the greatest problems facing Ethiopian economy today is inflation which is persistently a complex, economic and social problem of the economy. Despite record low-interest rates, firms were unable to borrow for investment – despite firms wishing to do that Another factor that can influence investment in the long-term is the level of savings. For the purpose of this study we will consider the opportunity cost of cash hoarding, which will be calculated by considering the concurrent average inflation rate i.e. 13.83% compared with respective types of investments. Investors purchase them in order to share in the profits, or because they will increase in value, or both Some of these investments, such as stocks, come with the right to a portion of the company's value. #if one purchase shares from Berhan Bank: On 2017/18 budget year the average inflation rate was 13.83%. Year 2017/18 return on holding Berhan Bank share, given Birr 1000 investment

Bank share inflation rate money

Real value of money

Conclusion