The foundations of the "Africa rising" narrative may have increasingly been tested in recent months. Security concerns, the Ebola crisis in West Africa and conflict in Libya have been some of the stumbling blocks the continent has had to face. These have continuously challenged its ability to respond to events that could derail the past years' economic growth. The impact of lower oil prices particularly could be a major shock to the region, especially for oil-exporting countries. Frontier Advisory's Director Hannah Edinger and analyst Kira McDonald look at what the drop in oil prices means to Africa.

SINCE June, the price of Brent crude decreased by 40 percent to $65 by December 9 on account of an oil glut due to an oversupply (an estimated 700,000 barrels per day) in the market. The bad news for current and prospective African oil producers is that this is driven by, inter alia, slower consumption of the hydrocarbon fuel, partly due to investments in energy efficiency, diversification of energy sources by major energy consumers, and slower global growth and laggard demand. For example, the European Union has been pursuing strict energy efficiency targets and has incorporated greater renewables into its energy mix. The United States - the largest oil and energy consuming market - has started to diversify its sources of energy and with its shale gas developments is fast moving to become a net energy exporter. And with slower global demand, China's demand for resource commodities has also been flatter.

The resultant downward slump in prices is not expected to "normalize" in the near term. It is speculated that oil could trend around $55 to $60 per barrel in the short to medium term, although Bloomberg forecasts expect oil to see some recovery (to $85 to $90) early this year.

While the impact of this price deterioration - from an all-time high of $147 in 2008 and trending above the $100 mark since 2011 - has positive knock-on effects for oil-importing countries in terms of slower inflation, lower transport and other input costs, it has detrimental implications for countries that have premised their fiscus, growth-supporting investments and economic diversification strategies on oil rents.

At least 12 African oil-producing countries are immediately implicated through exports and forex earnings, and a further 30 or so that are in various stages of oil and gas exploration projects and investments. In fact, a recent Reuters report suggests that the economic setback to countries' exploration and investment plans due to lower oil prices has already far exceeded the economic costs of Ebola. Others have estimated that 50 percent of projects planned in the oil and gas sector will either not go ahead or will be delayed should the oil price dip below $70.

Lower oil prices substantially influence finances, public-spending plans and ultimately, financial stability of oil producers. In nine of Africa's 12 net oil-exporting economies, oil makes up over 90 percent of export earnings. Countries such as Algeria, Angola, Chad, Equatorial Guinea, Gabon, Libya, Nigeria and the Republic of the Congo earn over half of their total fiscal revenue from the production and export of oil, and are heavily reliant on oil to bankroll the fiscus and increase foreign currency earnings. The impact of lower oil prices is to date already hard felt in these economies. Fiscal break-even oil prices in key producing countries are currently 30 to 50 percent higher than that of market oil at $65 per barrel - for example, $124 per barrel in Nigeria, $94 in Angola, $107 in Algeria, and $106 in Libya, according to data published by Business Monitor International (BMI).

This has already resulted in dire implications for Africa's largest and second-largest crude producers.

Faced with dwindling forex reserves to defend its currency, Nigeria recently saw $40 billion shaved off its economic output in dollar terms as the naira (the Nigerian currency pegged at $0.006) lost 8 percent of its value. Oil-based products make up 91 percent of Nigeria's exports. And while the country's 2014 budget was based on the assumption of an average oil price of $77.5 realistic revisions will be required for the 2015 budget, given lower trending oil prices. Yet, with general elections due in February, government spending is unlikely to be reined in, resulting in fiscal accounts remaining under pressure.

Angola, where oil and oil-based products account for 99 percent of exports, has faced similar struggles with the kwanza (1 kwanza is equivalent to $0.0099) depreciating 4 percent between September and early December. With budgets premised on the assumption of just under $100 for a barrel of the black gold, Luanda embarked on large infrastructure projects which are now in limbo.

As both Nigeria and Angola import the vast majority of their consumer goods and food, and also rely on fuel to generate often off-grid and private electricity, currency depreciation will only add further insult to injury, making imports more expensive and resulting in possible spillovers of social and political unrest. The latter is compounded given the threat of downscaling social spending. Countries such as Sudan, Gabon and Nigeria are at high risk should the price decrease to $60, while Angola, Chad and Equatorial Guinea face severe risks, according to BMI forecasts.

A lower oil price will also mean fewer available funds for planned large-scale infrastructure projects, resulting in countries needing to pursue alternate funding sources and possibly greater indebtedness through international borrowing, and even, as some speculate, financial bailouts, depending on how long lower oil prices persist.

Lower oil prices are likely to lead to a decreasing rate of production in almost all of Africa's oil-exporting countries. In Equatorial Guinea, this is particularly dangerous as the economy is yet to diversify away from oil and gas. This could thus have adverse implications for countries (and at times their regional neighbors) that have banked on future oil revenues to diversify their economic structures.

Should lower oil prices persist, falling profit margins and lower foreign direct investment inflows to Africa's oil sector, given that investors often face difficult operating environments and policy uncertainty, could result in reluctance for future investment in the industry. And as liquefied natural gas (LNG) prices are quoted in terms of oil prices, east coast LNG producers such as Mozambique and Tanzania may also face difficulties.

Oil-importing countries will certainly welcome the increased breathing space, given that lower oil prices will see improvements in their terms of trade and lower operating costs. Senegal, Tanzania, Zimbabwe and Kenya all run large trade account deficits due to their bulky oil import bill and are therefore the most likely to benefit from the declining oil price. South Africa also stands to gain from a lower oil import bill and slower inflation and lower transport costs, resulting in less pressure on the central bank to hike interest rates in an already lethargic growth environment. While in theory this could stimulate growth, the net impact will be limited in some countries given a number of factors. These include how fast these prices are passed on to consumers and also the impact of the currently lower global prices of other commodity exports that are key forex earners for some of these countries.