Nigeria and Ethiopia topped a new index of African potential investor destinations on Wednesday, with the survey organisers saying the continent offers good potential growth even against the global economic crisis.
The world's poorest continent had seen an investment boom in recent years but flows into the region are seen drying up as the global financial crisis and falling commodity prices take the shine off what were seen as promising frontier markets.
Business consultancy African Rainbow's Star of Africa index ranks 53 African countries in terms of their investment potential in various fields, with its creators arguing that potential growth in energy, water and communications consumption could amply reward investors taking the risk.
"It is for investors to make sure they don't miss a trick by overlooking a country they would otherwise have missed," said Katharine Pulvermacher, chief executive of African Rainbow.
"Africa is going to overtake the Middle East to become the second fastest growing region in the world after emerging Asia. It will be affected by the global financial crisis but it is much less exposed than many places."
South Africa, Mauritius and Tanzania took third, fourth and fifth place respectively, she said.
But it said some countries still have a long way to go, with Somalia, Chad and Eritrea named the least appealing markets on the continent, particularly due to low ratings for corporate governance and social capital.
Nigeria also scored poorly for corporate governance but its potential for infrastructure expansion in electricity, water, information technology and communications as well as its status as Africa's most populous country were enough to propel it to the top of the list.
CORPORATE GOVERNANCE RISKS
Rising oil prices had made Nigeria a favoured investment destination but as the oil price slumped in recent months, the government has imposed capital controls as the currency fell leaving investors concerned that they might not get their money out.
Pulvermacher said such events were covered under "corporate governance" and that different investors would have different tolerances for risk and reward.
"Some investors would view corporate governance as more important than others," she said. "They might be more drawn to somewhere like Tanzania which performs much better against those measures -- which they might not have realised."
She said the index was mainly intended for medium scale investors such as private equity houses making investments larger than those which would be covered by the microcredit sector.
Private equity in Africa has soared in recent years but its growth is seen faltering sharply as banks call in loans across the world and investor risk appetite slumps.
Nevertheless, African Rainbow says it believes the need is there. Some 497 million Africans have yet to connect to electricity grid, and only 6 percent of Africans used the Internet, it said.
Ethiopia, perhaps a surprise second place given the chronic poverty and hunger within the country and sometimes volatile relations with neighbours, owed its position in the table to its potential for water and electricity service expansion.
It had been cited as an increasingly appealing private equity destination before the global economic crash.