Assessment on Effective Investment During Inflationary Period in Ethiopia

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