The Appetite for African Data Centers: Can Investment Keep Up?
By Franklin Amoo and Rahul Kumbhani
Inadequate investment in infrastructure has always hampered development in Africa. Most of the continent has historically lagged behind the rest of the world in coverage of major infrastructure classes, including energy, transport, water, healthcare and telecommunications. Closing this gap is crucial for the economic growth and development of the continent and the quality of life of Africans. The recent emergence of a digital future has presented a new challenge for the continent – just as electricity, water and transport infrastructure allow us to go about our daily lives, digital connectivity has become another vital aspect Of our society. Yet Africa has the lowest internet connection penetration in the world, at just 22% compared to 80% in Europe. At the forefront of the ‘digital revolution’, Africa, home to the majority of the ‘last billion’ to be connected, is fighting not to be left behind. For investors, this lack of connectivity presents a dramatic risk-adjusted opportunity for differentiated absolute return.
Explosive population growth and youthful demographics are driving mass digitization, spawning a proliferation of digital content creation across the continent, pushing the cloud industry and hyper-scalers to scramble to meet growing demand. Major global cloud service providers such as AWS, Microsoft
Google is also looking to establish its footprint on the continent – recently announcing plans to develop a data center in South Africa to accompany its recently unveiled Equiano undersea internet cable landing site in Cape Town – as part of a $1 billion investment linking Africa to Europe. In an interview with ITWeb, Dr. Alistair Mokoena, Google’s country director for South Africa, said that opening an infrastructure region in South Africa is part of the giant’s broader vision. technology to digitize Africa.
US Secretary of State Antony Blinken recently returned from a high-level trip to South Africa during which he outlined the US strategy for sub-Saharan Africa: fostering a digital ecosystem based on an internet-based framework and Open, reliable, interoperable and secure ICT across Sub-Saharan Africa. Africa. He said US businesses and venture capitalists are extremely optimistic about opportunities on the continent, including the construction of undersea cables, as well as the increase in the number of data centers – figures from ReportLinker indicate that investment in African data centers will reach $5.4 billion over the next five years. years after the sector absorbed investments worth $2.6 billion in 2021 alone.
A recent report by the African Data Center Association (ADCA) claimed that Africa needs 700 new data centers, and the fiber optic networks to connect them to global communications networks, to provide the 1,000 MW of capacity it needs for its connectivity in the medium term. This estimate is probably an underestimate; most demand expectations focus exclusively on external players such as hyper-scalers building capacity for their applications and content. The biggest opportunity comes from data generated by Africa itself. Today, most government, health, defense and even financial data in Africa is kept analog and manually (think filing cabinets full of paper files containing official documents that fade away). Inevitably, this huge cache of data will end up being digitized and stored in cloud services. Additionally, African content creators have been busy – with large populations of young people creating innovative music, videos and apps that are driving explosive levels of traffic. These emerging trends, while demanding lead times for impatient investors, will drive exponential growth in storage capacity and increasingly put latency and other quality issues at the forefront of infrastructure needs.
Even though the entry of the largest global players will seek to fill these gaps, without continued investments, the installed capacity of Africa’s digital infrastructure will still lag behind global trends and, more importantly, consumer demand. Emerging trends in data nationalism and data localization will only further enhance the value of locally based data center assets. The continent’s data center market currently has huge gaps that can be filled profitably. Importantly, the sheer scale of the need creates an investment need that can incorporate significant amounts of investor capital in a way that delivers on the promise of attractive risk-adjusted returns, creating a wealth of opportunities and potential for intrepid investors.