Mention "Nigeria" and "banking" to Bryan Collings and he loses his train of thought mid-sentence, writes Richard Hemming.
The emerging markets fund manager for Hexam Capital has made some good returns on Nigerian banks such as over 13% on Access Bank.
This is a far cry from the investors that trebled their money in the sector over the past year, but Collings isn't too worried about missing out on some of the massive returns that are possible. He knows that this frontier market has huge risks.
Tom Barry is chief executive and founder of Zephyr Management, a specialist asset manager that makes private equity investments in local companies on behalf of a number of family office clients. Overall, Barry see signs of progress in Africa and believes it is maturing from an investors' perspective.
"Now that more and more second generation African leaders are in charge of their countries, investment opportunities are improving," he says.
In particular, he believes that wealth arising from natural resources is translating into a growing middle class, which is where family offices can find opportunities. Barry's current areas of interest include mobile telecoms, retail and food.
However, he adds a note of caution in relation to contract law: "Contracts don't have the sanctity they do in the west, so you need other agreements, such as holding property, as collateral."
Doug Bates, head of Treasury at UBA Capital, one of Africa's biggest banks, warns that those who wish to invest directly in Africa must do their homework.
"Unless you have a strong research capability there are a number of pitfalls to investing in companies that operate in the region. You really need access to someone on the board of one of these companies if you are going to invest anything in the region of $30-50 million," he says.
If you invest indirectly, the biggest risk in Africa is liquidity; although it is relatively easy to throw your money into African assets, it is very difficult to get your money out. The risks for investors in sub-Sahara Africa are many and varied, but they all relate to liquidity, which is why many restrict their investing to ETFs.
One reason why it is difficult to get your money out is that turnover in companies listed on African exchanges is very low. Daily turnover in Africa's biggest exchange in Nigeria in total is between $20 and $30 million – in Kenya, it is as low as between $3 and $5 million. The average daily turnover in January on the London Stock Exchange was £6.2 billion ($8.9 billion) and this is considerably below its highest levels in January 2008.
All currencies in Africa excepting Zimbabwe's (which is based on the US dollar) are local. These currencies are subject to levels of inflation that typically ranges between 15% and 20%. This means that unless you hedge your investment, the pound sterling, US dollar or Euro value of your original investment will be down by something like 30% when you want to sell your money.
But hedging does not come cheap. You will pay a 15-30% premium over the normal cost of hedging the Dow Jones or Nikkei, says Bates.
Another challenge is foreign exchange controls. When you make an investment your assets sit in custody. Because most African countries have exchange controls, if you want to get your money out, you need to go through that country's central bank.
All these risks must be taken into consideration by potential investors to ensure they do not incur sizable losses from investing in Africa.