This thesis analyzes the different types of investments and diversification
strategies pursued by some of the wealthy pastoralists in the Borana Plateau of
southern Ethiopia. Field surveys with 12 influential pastoralists in the region were
conducted to obtain data about the different investments they have. The data also
identified their risk perception about different potential investments. Returns on the
potential investments considered in the study were calculated using a return on assets
approach (ROA).
A nonlinear quadratic program was used to estimate five optimal portfolios
using a mean-variance (E-V) formulation for minimizing variance. These optimal
portfolios were analyzed together with the portfolios actually held by the 12iii
participants using risk analysis. This included using portfolio analysis, stochastic
dominance, and stochastic efficiency, and estimating risk premiums for different
investment alternatives. It was found that large investments in camels, savings
accounts, and real estate are preferred by very risk-averse producers. A combination
of cattle, camels, and savings tended to make up the portfolios of more risk-seeking
participants. Sheep and goats, while arguably beneficial during droughts, are high
risk, low reward types of assets.
The results from this study closely match the current perception of the 12
panel participants. They ranked the risk associated with cattle as the highest of the
investment options considered and for camels as the lowest risk alternative. They
also ranked livestock investment with regard to the perceived risk of investments as
high compared to savings accounts and real estate. This also supports the movement
toward less investment in cattle and more investment in other alternatives such as
camels