(FORTUNE Magazine) – "Only one digs the well, but many will come drink out of it," says an African proverb. New Africa Advisers, an investment firm in Durham, North Carolina, is breaking new ground with its Calvert New Africa open-end mutual fund and looking for value-thirsty investors. With $35 million under management, the outfit has been investing in Africa for over two years, returning an average 26.7% a year. The Morgan Stanley South Africa index returned an average 25.5% a year over the same period. Focusing on consumerism and infrastructure rebuilding plays, Clifford Mpare, chief investment officer, and co-manager Justin Beckett, president and CEO, are digging for undervalued companies with strong upside potential. The pair recently discussed Africa's promise with FORTUNE's Kimberly Seals McDonald.

Africa seems so troubled. What's really there for investors?

We look at Africa as the last emerging market--and one with a strong value play, given the fact that the average emerging-market P/E is about 21 times earnings, vs. an average multiple of 13 for most African stocks. Even South Africa, the tenth-largest stock market in the world, with a market cap of about $250 billion, has a P/E of only 16. People who invested in Japan after World War II when it was in ruins were viewed as quite radical, but they made a lot of money. That's the same argument we're making with Africa today.

Don't the political risks outweigh the gains, particularly in dictatorships like Nigeria?

We don't invest in Nigeria for that very reason. But all emerging-market investments carry risks, and the key to minimizing them is to find a political environment that is stable. Remember, nobody wants to be backwards forever. South Africa leads the way with political and economic change and represents 35% of the economic might of the continent. But with prodding from the World Bank, many African countries--Botswana and Ghana, for example--are structurally adjusting their economies. This is getting them the foreign investment they know they need to achieve the standard of living enjoyed by other places. Since the World Bank is now the only game in town, they are forced to get their economic house in order.

What sectors look particularly promising?

One of them is banking, which looks great. We've invested in merchant, wholesale, and retail banking stocks across the continent. Morocco's BMC, its second-largest bank, is one that we like. It was recently privatized with a new management structure that has increased efficiency and boosted profitability. In South Africa we're looking at industrial companies that will benefit from Nelson Mandela's reconstruction and development program, which will build millions of houses and electrify them. Foreign governments and private investors are already contributing to this project. Tourism is also growing fast, especially in South Africa, where it was up 60% last year.

What trends look good? We like consumer-oriented businesses that will benefit from the growth of the middle class in Africa and do not require a lot of capital. Go back in American history and the greatest fortunes were made right after World War II, when the middle class exploded and the companies that serviced them prospered. South Africa is at a similar juncture.

We're very big on retail chains with strong growth. One is Kenya's Uchumi Supermarkets. Also we like conglomerates and companies with monopolistic positions in their industry. Delta Corp., in Zimbabwe, sells beer and soft drinks and has a retail division and exposure in the hotel business. In Morocco there's ONA, a conglomerate with interests in agriculture, banking, insurance, and mining. Mining, especially of platinum, is very attractive to us. In South Africa we own Impala Platinum and Rustenburg Platinum, which sell the mineral to General Motors and Ford to make catalytic converters.

How do you spread your money among the different countries?

We're invested in ten, with an overweighting in South Africa at 75%. We have 2% to 4% in the others, which include Egypt, Ghana, Botswana, and Cote D'Ivoire.

Tell us some of your other stock picks.

Teljoy, a South African cellular provider, is growing revenues at 90%. Many countries do not have the infrastructure for telephones, so cellular phones are very popular. Also in South Africa, there's Dimension Data, a computer company that carved a niche for itself when foreign outfits like IBM divested. It has had a 56% price increase since we bought it last May. None of the companies we've talked about are available as ADRs, by the way.

Your fund allocates 15% to direct investments. What businesses do you especially like?

Again, we're looking to tap the middle-class market, which means health care, light manufacturing, telecommunications, tourism, and basic-service businesses. On occasion our direct investments have yielded more than our stocks when you consider that some managers are offering us 50% more than we paid to buy us out of their companies.