IS 2008 the time to invest in Africa? Jon Maguire, founder of Cru Investment Management, believes it is. Cru has pumped £2m of its own cash into Malawi since Maguire decided last year to take on the chronic problems of sub-Saharan Africa with a new approach: investment.

After visiting a subsistence village in Malawi, he set up a charitable feeding programme to save 250 villagers from starvation, but then went back and negotiated with the village chief.

"I realised that Malawi does not actually have an economy," Maguire says. "The private sector was so small as not to be noticed and, without an economy, how could she ever grow to be independent of donor aid?"

The deal with the chief was a 10-year lease for Cru on 120 hectares of land, at a cost of £250 per hectare, to create a farm big enough to justify investment and management.

Africa Invest now has four farms, and is already directly or indirectly supporting 80,000 villagers, with plans to increase employment to 10,000 on three times the country's standard wage.

It wants to acquire 20,000 hectares of land in the first half of 2008, and to build two plants to process 6000 tonnes of paprika from smallholders, who account for 80% of Malawi's agricultural output, in its own "outgrower" schemes.

Africa Invest is cutting out the middlemen, who inflate a factory gate price for herbs in Malawi of £1.62 a kilo into a UK selling price of £162 a kilo - a 10,000% mark up en route. It is investing to position itself as a major exporter of chillies and herbs to the UK, where it hopes to raise shopper awareness about the value chain and to secure 10% of the UK selling price for the farmers, which he says would lead to "an explosion of profits in Malawi".

Maguire says the key to the business model is that returns on capital are forecast to be 35% to 45% next year.

But Cru has a twin objective of helping to alleviate poverty, and Maguire says investment works better than aid.

"When I first went to these rural areas, the people and their villages had no money, some had never even seen money. Now it's different, money empowers them and this has significant knock-on effects on the local wider economy. If it can work in Malawi it can work across sub-Saharan Africa it is the discipline of investment that turns things round, rather than the largesse of donations."

Africa Invest is hoping to raise £30m from investors over the next few months, half of it from a special retail product for small investors with a minimum £3000 investment. Only 30% of the capital will be invested directly in the fund, the remainder used to provide a seven-year capital guarantee. The fund will be open for 100% direct investment by high net worth individuals, charities and institutions.

For those prepared to take on all the risk, there is now New Star's Heart of Africa Fund, launched last month, which aims to raise £100m. However, unlike Africa Invest, which charges small investors no initial charge or annual management charge, the New Star fund has a 1.75% annual fee, other charges on top, and a 20% levy if the fund outperforms its benchmark in any quarter.

Investec, manager of some longer-established Africa funds, says the continent offers "attractive returns at significantly lower risk levels than are commonly perceived".

Fund managers Chris Derksen and Roelof Horne say major advances in sovereign governance are propelling faster economic growth and improving the business environment. The estimated average growth of the African continent (excluding South Africa) reached 5.8% in 2006, up from 4.9% in 2005. Half the countries in Africa grew their GDP per capita by more than 3% per annum (real) in 2006. Established stock markets now exist in more than 21 African countries, including Malawi.

But the managers admit: "Most African capital markets are still in the frontier market stage of development - young, small and illiquid, even by emerging market standards ... The obvious risks are exchange rate volatility, political risk, country-specific risk, cyclicality and tradeability. Given these risks, it is important to realise that one can achieve significant diversification by investing on a pan-African basis.

"The African markets are characterised by a low correlation with each other and to other emerging and developed markets."

Duncan Glassey, founder of financial planner Wealthflow, comments: "The decision to invest at the country level should be based on a thorough evaluation of the local financial and legal structure and evidence of a commitment to freely competitive securities markets, fair treatment of both local and foreign shareholders, trustworthy accounting practices, and modern procedures for processing securities trades.

"Here, African countries have some way to go ... I believe that Africa is some years from attracting mainstream interest from wealth managers."