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Feel like Investing in a State Sponsor of Terrorism?

How about a country whose leaders have stolen $400 billion in the last decade and have seen 300 foreign workers kidnapped? Another country lost four wars in the last 40 years. Still interested? How about a country that suffers one of the world’s highest AIDs rates, endures regular insurrections where all of the Westerners get massacred, and racked up 5 million dead in a continuous civil war?

Then, Africa is the place for you, the world’s largest source of gold, diamonds, chocolate, and cobalt! The countries above are Libya, Nigeria, Egypt, and the Congo. Below the radar of the investment community since the colonial days, the Dark Continent has recently been attracting the attention of large hedge funds and private equity firms.

Goldman Sachs has set up Emerging Capital Partners, which has already invested $2 billion there. China sees the writing on the wall, and has launched a latter day colonization effort, taking a 20% equity stake in South Africa’s Standard Bank, the largest on the continent. There are now thought to be over one million Chinese agricultural workers in Africa.

In fact, foreign direct investment last year jumped from $53 billion to $61 billion, while cross border M & A leapt from $10.2 billion to $26.3 billion. The angle here is that all of the terrible headlines above are in the price, that prices are very low, and the perceived risk is much greater than actual risk.

Price earnings multiples are low single digits, cash flows are huge, and returns of capital within two years are not unheard of. These numbers remind me of those found in Japan during the fifties, right after it lost WWII.

The reality is that Africa’s 900 million have unlimited demand for almost everything, and there is scant supply, with many firms enjoying local monopolies. The big plays are your classic early emerging market targets, like banking, telecommunications, electric power, and other infrastructure.

For example, in the last decade, the number of telephones has soared from 350,000 to 10 million. It’s like the early days of investing in China in the seventies, when the adventurous only played when they could double their money in two years, because the risks were so high.

This is definitely not for day traders. If you are willing to give up a lot of short term liquidity for a high long term return, then look at the Market Vectors Africa Index ETF (NYSEARCA:AFK), which has rocketed by 89% from the March lows to the recent highs, and has 29% of its holdings in South Africa and 20% in Nigeria. There is also the SPDR S&P Emerging Middle East & Africa ETF (NYSEARCA:GAF), which reeled in a blistering 103% gain. For more of a rifle shot, entertain the iShares MSCI South Africa Index Fund (NYSEARCA:EZA).