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If Canadian resource companies (and their investors) had become complacent about the pitfalls of doing business in Africa, they have been getting a rude awakening lately.

Griffiths Energy International Inc.'s bribery scandal in Chad is just the latest seamy Canadian corporate misstep in the dark continent, coming on the heels of SNC-Lavalin Group Inc.'s problems in Libya.

As the cases of Griffiths, SNC-Lavalin and Niko Resources (fined millions for bribing an official in Bangladesh) illustrate, Canadian legal authorities are taking a dimmer view of Canadian businesses that break or are allleged to have broken Canadian anti-corruption laws overseas.

Yet that is mere child's play when compared with the raging conflict in Mali, or the horrors wreaked by Islamist terrorists at a gas plant in Algeria this month that left 48 dead – stark reminders of the political, social, ethnic and religious instability that courses through some parts of the continent.

As energy and mining reserves have become increasingly expensive to find in other, more stable parts of the world, Africa's dangers have been glossed over in the quest to cash in on the continent's still relatively undeveloped resources.

Companies have been ignoring the risky reality, and investors have been underpricing it, argue researchers at National Bank Financial.

"In recent years, there has been an intensifying perception among investors that Africa represents an untapped frontier with significant growth potential. In many respects, this optimism is warranted," NBF geopolitical analyst Pierre Fournier wrote in a report Thursday, citing the continent's annualized economic growth pace of 5.3 per cent over the past decade, and its export growth of nearly 8 per cent a year – mostly in the resource sectors – from 2006 to 2010. However, he warned, "we believe the geopolitical risks facing investors in Africa remain, for the most part, underestimated."

The biggest threat to business in Africa, he argues, is "religious/ideological militancy" – especially from Islamist/jihadist groups – which he says "has been vastly underestimated, and will pose significant risks to foreign investors in much of Africa."

He believes companies and their investors are underpricing the risks of doing business in Africa, including rising security and insurance costs and significant project delays that could come from security threats, military conflicts or regime changes.

Canadian miner Iamgold Corp. just last week suspended its exploration activities near its two mines in Mali, after having pulled out of Ghana in 2011.

Investors wiped out almost 15 per cent of Iamgold's market value in the wake of the Mali news – a recognition that the company, which gets half its production from its Mali mines, is exposed to a massive geopolitical risk. Yet it took the eruption of a major armed conflict for that fact to sink in.

Until the market starts pricing risk into African resource investments before a crisis forces the realization upon it, there will be little incentive for companies to seek less risky and less corrupt places to put their money.

And there will be more harsh and costly awakenings for investors who are themselves willfully blind to the risks.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 4:00pm EDT.

SymbolName% changeLast
IAG-N
Iamgold Corp
+4.39%3.33
IAG-T
IA Financial Corp Inc
-0.58%84.15
IMG-T
Iamgold Corp
+4.39%4.52

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