NIGERIA’s president, who has spent the year so far fighting fires, must have been relieved to see the country top the list of investment destinations unveiled in a survey of investment institutions and fund managers last week. The Economist Intelligence Unit’s survey of 158 international institutions, including pension funds, hedge funds and private banks, showed fund managers rating Nigeria (51% of respondents) along with Kenya (48%) as being the countries most likely to yield the best investment returns over the next three years.

 Zimbabwe, still a risky destination for investment while Robert Mugabe is in charge, is placed third on the list, with 35% of investors voting for its future growth potential, followed closely by Egypt and even Libya, both yet to emerge from a period of political destabilisation and radical change.

 States with much lower risk ratings are further down the list of selected countries. They include Ghana (25%), set to experience the highest growth rate in sub-Saharan Africa this year; Zambia (18%), Botswana (13%), Tanzania (12%), Uganda (11%), Mozambique (7%) and Rwanda (6%).

 The rankings suggest that those interviewed have a large appetite for risk, although, curiously, most appear to have avoided African markets to date, with one in five of investors that were interviewed having no exposure to this region.

 High growth rates and growing consumer markets seem to be the main attractions to these frontier markets in Africa.

 Size seems to matter. Respondents in the survey said they found growing consumerism and a growing middle class to be the most attractive reasons to invest in Africa. An example was given of Unilever, which has seen 10% revenue growth in the region in the past year, compared with 4% across the group as a whole.

 Nigeria, Africa’s biggest market by far, certainly ticks that box, as does Kenya. Although it has a considerably smaller population, it is the dominant player in the East African Community trade bloc, which expands its immediate reach to four other countries as well as another chunk of the continent through its membership of the Common Market for Eastern and Southern Africa .

 Curiously, Ethiopia, with a population of 80-million and 8% growth predicted over the next few years, does not feature on the list.

 SA, despite its large consumer market and considerable mineral resources, also does not feature. It does not offer the high returns of most other African markets that are developing rapidly off a low base, and even its own companies are looking for high growth opportunities in many of the same markets to the north.

 Resources, once the main reason for investors to come to Africa, are still a drawcard but are expected to diminish in importance for this category of investors over the three- year period, making way for private equity as the dominant asset class.

 Nigeria’s position as one of the top 10 global producers should place it well but its poor handling of legislation designed to reform this vital sector has damp ed investor appetite over the past four years. However, many other oil and gas markets are set to come on stream over the next few years across east and west Africa and mining investment continues apace, despite rising tax and royalty rates as governments seek increasing benefits from high commodity prices. The global financial crisis has not only got investors looking at Africa differently, it has also encouraged them to look at long- term investment strategies in frontier markets rather than the short-term speculative strategies that have caused volatility in Africa’s small and illiquid markets in the past.

 The challenges of investing in Africa were not ignored in the Economist Intelligence Unit report. Respondents cited corruption as a major concern but illiquid markets and weak legal and government institutions seemed to be a bigger worry, particularly for long-term investments.

There is no doubt investors are bullish about Africa as their options for high growth narrow, but they are advised to have strong nerves when approaching some of the markets they are interested in, such as Nigeria, which, though reforming, is still a difficult and volatile place in which to do business.

All the indicators on Africa are positive but they fail to mention myriad problems and challenges that await unwary investors once they are there and up to their necks in crocodiles.