The good investment climate in Africa presents huge opportunities for Chinese companies but investors should consider the challenges, experts said at a forum here yesterday.

"The improved economic infrastructure and favorable external environment have spurred domestic demand and economic growth in Africa in recent years," said Zhou Ji'an, vice-president of China Export & Credit Insurance Corporation (Sinosure).

In addition, "stable and peaceful development is taking root in the continent," Zhou said yesterday at a forum entitled Financing Chinese Exports and Investments in Africa.

"Such positive changes have created huge investment opportunities in Africa, a trend that is unseen since the 1970s," Zhou said.

An increasing number of Chinese companies are turning their sights to Africa because of strong political ties and booming trade between China and Africa.

At least 800 Chinese companies were doing business in the continent at the end of 2006. That's doubled from 1999, according to Lu Bo, a research fellow with the Chinese Academy of International Trade and Economic Cooperation.

"The figure is probably much higher as many small private Chinese companies there are not counted," Lu explained.

Contracted work, power, petrochemical, construction and water sectors are some of the top fields in which Chinese companies are represented, Lu said.

However, as more and more companies look toward Africa, they should be aware of potential risks there and conduct thorough research before making a move.

"The investment climate in Africa is improving but it's still challenging," said Timothy Turner, director of the Private Sector & Microfinance Department, African Development Bank.

"Generally, companies face two types of risks: commercial risks such as price fluctuations and non-commercial or political risks such as uncertainty, breach of contract or transfer risks," Turner said. "Potential investors should craft their suitable strategy before making decisions".

Choosing the right places for investment and the right business that is least affected by local factors, Turner said, are two key factors investors should consider when planning investment in Africa.

"Picking up a partner with strong local knowledge who is able to mitigate the political risks are also of great importance for companies mulling over investment plan in Africa," Turner said.

Chinese companies, in particular, should make meticulous preparations before venturing into African countries, Lu said. Many Chinese companies often do not do the necessary homework before jumping into foreign markets, including Africa, he said.

"There are more than 50 countries in Africa so there is huge disparity among them," the expert said.

Investors also need to investigate labor and legal issues where they plan to operate, Lu advised. Some entrepreneurs agreed with his views.

"Our experiences show that it is important to pay adequate attention to local legal and cultural differences," said Ni Shaobing, president of Jiangsu Jialong Project Construction Co, which forayed into Nigeria in 2003 and recently obtained a $210 million construction contract there.

Chinese companies planning to do business in Africa also need to take payment and foreign exchange rate risks into consideration, said Guido Hallar, an expert with South Africa's Standard Bank, the continent's largest bank.