Determinants of manufacturing project implementation delay financed by development bank of Ethiopia

Abstract

A project is an essential tool to achieve a special strategy that can be designed to bring dramatic changes in an organization, a society or a particular economy. The importance of manufacturing project to economic growth is unquestionable in that it benefits the economy at large in terms of creating employment opportunity, increasing in the gross domestic product of the nation, import substitution and the like. The main aim of this study was to find out the determinants of manufacturing projects implementation delays financed by Development Bank of Ethiopia. To conduct this study, secondary sources of data were used. In identifying the project document from the study population simple random sampling method was adopted. Based on this, 83 sample of manufacturing project document were drawn from total 106 financed manufacturing projects at head office from July 01, 2015- June 30, 2020. Most of manufacturing projects implementation delay financed by Development Bank of Ethiopia was highly faced within this last five years. The collected data were analyzed through descriptive statistics and also determinants of manufacturing project were identified estimated by binary logit model. Determinant of manufacturing projects implementations delay are categorized into three. The first one is promoter/client related factors, such as diversion of the loan other than the intended purpose and poor managerial competency. The second, bank related factors, such as inadequate follow up and supervision and poor due diligence assessment. The third and last one is external factors/macroeconomic factor such as inflation problem and foreign exchange fluctuation. From those six explanatory variables, five of them are statistically significant at different level of confidence interval but the remaining poor managerial competency of promoter is insignificant. Therefore, the bank must follow accordingly the budget utilization of the borrower and train the employees on how to conduct the due diligence and follow-up format of the bank. Moreover ,the bank shall also incorporate contingency budget plan in the project cost determination during appraisal, and should strengthen and support firms involving in export oriented businesses and must ensure that adequate foreign currency are available or adequate arrangements for funds are made before projects are started