A CLEAR signal of the change taking place in Africa is the appeal by ailing Portugal to its former colony, Angola, for investment. While Portugal’s economy is con tracting, Angola is looking at growth rates of double digits next year on a booming oil economy. According to news articles, Angolan President Eduardo dos Santos has graciously said the country is ready to assist its former ruler.Angola is not the only African country looking forward to high growth rates next year. Others include Ghana, Mozambique, Uganda, Nigeria, Ethiopia and Zambia. South Sudan, which did a pitch to US oil investors last week after the US Treasury partially lifted sanctions to allow foreign investment, will join them if it can contain tensions with Sudan and localised fighting in the country.

Everywhere you turn these days, an economist, analyst or journalist is punting Africa as the next big investment destination. In fact, investment has been growing rapidly for a decade and the continent has shown a steady growth rate, averaging about 5%. This is predicted to rise to 6% next year.

It could have been an even rosier picture if the continent had not been plagued by the perception of being a high-risk investment destination. But the scale of resources investment, particularly in mining and in new oil and gas finds around the continent, is now persuading investors sitting on the fence to take another look.

The interest by China and India, in particular, has focused attention on African markets. Standard Bank predict s that Chinese investment could rise 70% to $50bn by 2015, with bilateral trade between the two regions reaching $300bn by 2015 — double last year’s figure. Brazilian investment is mounting and starting to diversify out of resources, while nontraditional investors in regions such as the Middle East have also had their interest piqued.

The US and UK are looking for new ways to stay relevant in Africa even as they grapple with problems at home. British multinationals are investing in new capacity in longstanding commercial enterprises in countries such as Nigeria, while US firms remain engaged with the oil industry.

Private equity looks set to grow next year as new Africa-focused funds emerge both on the continent and internationally and join the hunt for acquisitions. Last year, the value of mergers and acquisitions reached a record $44bn, double the value of 2009, and is set to rise again next year. This boost to the African private sector is being complemented by the return of professionals wanting to make a difference.

There are any number of positive indicators and trade and investment figures one can draw on to support the new growth story. With all the hype, it is easy to be seduced into thinking that all is well in Africa. But there are still many harsh realities that may yet make a dent in ambitious growth assumptions. One of these is the fact that sovereign political risk is still high — as the recent election in the Democratic Republic of Congo showed.

Kenya goes to the polls next year and although it is putting in place measures to prevent the violence that followed the 2007 poll, another bout of instability in one of Africa’s biggest economies could again undermine the growth trajectory of the region.

Elections in Angola set down for next year include the long-awaited presidential election, which will be contested by long-time ruler Dos Santos, quashing recent speculation he would nominate a successor to take over from him after 23 years in power. This is another potential flashpoint.

Zimbabwe is still a wild card. Tension is rising as Zanu (PF)’s cries for an election next year become more shrill with the decline of President Robert Mugabe’s health while its partner in the unity government, the Movement for Democratic Change, insists on keeping to the negotiated road map, which appears to have drifted off course.

A key factor in Africa’s performance next year will be the effect of events in developed economies, particularly the euro zone. Although trade with nontraditional partners now accounts for about 50% of sub-Saharan Africa’s exports, 37% of nonoil exports still go to European markets and the US is still a major recipient of African oil.

Significantly lower demand for goods and services from developed countries may have a negative effect on growth projections, particularly on SA, given its much wider exposure to globalisation than other African countries.

North African states, most of them either in the midst of political upheaval or recovering from it, face political uncertainty as they grapple with new realities. Their situation is not helped by the fact that 60% of North Africa’s export revenues come from the troubled euro zone. Francophone countries also have considerable exposure to Europe, with 37% of exports going to the region, according to the African Development Bank. While there may be advantages in that the common currency for the region, the CFA franc, is linked to the euro, this is likely to be undermined by falling demand.

There is another consideration for countries that are generally ill-prepared to deal with exogenous shocks, and that is the performance of China, which, too, may be affected by a significant slump in demand from developed countries and a possible credit crunch at home.

The euro-zone crisis also has sector- specific implications, for example for tourism demand in eastern and southern Africa, horticulture in Kenya, and wine and car exports from S A .

A big challenge for next year is rising inflation, driven partly by rising food prices. Drought has pushed up the price of staples in many countries, with maize in eastern and central Africa rising by more than 30%, even as producers in SA experienced low prices as a result of good harvests.

Rising food prices present a clear opportunity for Africa but the constraints hampering the development of agriculture are as much about government policy as they are about climate.

This underlines another issue that needs to be tackled — trade in agricultural commodities across the continent to prevent food deficits , part of the broader problem of low levels of intra-African trade in general. The slow moves towards regional integration are a concern for many investors looking at pan-African strategies rather than localised investments.

The pressure to develop green economies is another looming challenge for countries that have not yet found a way out of persistent energy crises. In coming years, African governments will have to deal with a growing global network of international bureaucrats, consultants, nongovernmental organisations and other stakeholders all giving advice on how to refocus their economies in the quest to address climate change.

This may have the unintended consequence of diverting policy makers from reforming the costly and dysfunctional operating environments that exist in many states and add considerably to the costs and difficulties of doing business. At present, there are not many countries that have adequate capacity to absorb the type of investments being earmarked for Africa, nor to leverage them for broad-based growth and economic diversification.

A recent issue of African Business magazine highlighted the continent’s malaise with two simple statistics: “Man-made products as a percentage of China’s exports to Africa — 90%; raw materials as a percentage of Africa’s exports to China — 87%.”

That will remain the African story if African countries do not move quickly to exploit this tide of investor interest by embarking on strategic and long-term policy reform, not only to ensure quality growth but also to build the future.