Storing Africa’s data

IT industry investors are increasing their investment into data centre facilities in Africa, pinning their prospects on booming demographics and growing digitisation across the continent. 

While digital infrastructure has traditionally been scarce in most African countries, more than 30 major data centres have come online across the continent since 2016, essentially doubling the region’s hosting capacity, according to research by the Africa Data Centre Association (ADCA). However, this capacity is still unevenly distributed, with South African facilities accounting for two-thirds of the total in 2020. 

With Covid-19 drawing attention and resources to the needs of the digital economy, a new wave of foreign investment is mounting in a diverse range of countries, with new facilities being built in Zambia, Namibia, Ghana, Uganda and elsewhere. 

“There is considerable interest in the data centre sector from international investors in Africa,” Guy Zibi, managing director of Xalam Analytics, which closely monitors financial and operational activity in the industry, tells fDi.

Strong fundamentals

The sector is expected to grow by an annual 12% between 2019 and 2025 to reach an overall value of $3bn by 2025 in revenue, according to data analytics firm ReportLinker. 

Demographics and uptake of digital services are vital drivers of this market growth. Africa’s population in important markets, such as Nigeria and the Democratic Republic of the Congo (DRC), is expected to triple by 2100, according to data from a report published in The Lancet

As populations in key African countries boom, so does the need for digital services, such as banking, in addition to rising mobile uptake — crucial sectors for data centres. Sub-Saharan Africa is estimated to have 500 million mobile subscribers, up from 477 million in 2019, according to global mobile phone industry organisation GSMA. And this accounts for just 45% of the region’s population. Moreover, only 272 million of those phone users have access to mobile internet, representing massive upside for mobile phone operators, which ultimately feeds into demand for data centres.

With an eye on these fundamentals, Mr Zibi is bullish that capital expenditure within Africa’s data centre industry will bounce to $600m this year, up from the average $200m–300m in the past few years. In 2022, capital expenditure in the sector will likely grow to $800m as investors increase their exposure to benefit from the wave of digitisation and the rush to invest in online platforms, he adds. 

Foreign investors’ interest

A February 2021 report by the ADCA and Xalam Analytics shows that Africa requires an additional gigawatt and 700 facilities to meet growing demand for data storage. There are currently 139 facilities up and running across the continent, ADCA estimates. 

And partly feeding into this, are at least “four large scale data centres due to be developed in 2021” in South Africa, in addition to “many feasibility studies currently being undertaken” elsewhere in the country, according to data centre market research firm, Turner and Townsend. In Nigeria alone, “there are two large data centres scheduled for completion” in 2021. 

Prime investors include Africa Data Centres (ADC), which canvassed $300m from the US’s Development Finance Corporation (DFC) in 2020, for expansion into new markets such as Ghana and Nigeria, where it is now constructing large facilities, according to Stephane Duproz, chief executive of ADC. 

In 2020, Actis, a London-based private equity company, invested around $250m into the acquisition of a controlling stake in the Nigerian facility Rack Centre, in which the World Bank’s International Finance Corporation (IFC) is also invested through the Convergence Partners Communication Infrastructure Fund.

The IFC is making an investment bet towards data centre facilities in Africa as it seeks to “support the expansion of Africa’s data centre markets through direct investments in data centre opportunities or indirect investments through digital infrastructure” funds, it told fDi. Its Africa director for infrastructure and industry, Linda Munyengeterwa, believes that Africa’s data centre market is “experiencing significant growth” on the back of ongoing digital development. 

“In the past four years, Africa has seen the entry of about 30 new multi-tenant data centre facilities with around 125 megawatts of IT load added during the same period,” Ms Munyengeterwa explains. 

Raxio Group is the latest company to announce further investment into an African data centre facility, after announcing in July that a new storage centre would open in Mozambique’s capital, Maputo, in 2022. 

The ability to store, transfer and process data locally is currently limited by the lack of proper data centre infrastructure, says Robert Mullins, the company’s chief executive.

Africa has “largely lagged investment in connectivity infrastructure which become a limiting factor in [its] continued digital transformation”, he says. 

Raxio currently operates in “high-growth, but underserved” markets such as Uganda, Ethiopia, the DRC and Mozambique, and plans to expand to Côte d’Ivoire and Tanzania over the next 12 months, Mr Mullins says, adding that “to accommodate the ground swell of demand for data centres in Africa, some markets would need more than one facility in the short-to-medium term”.

Challenging environment

Although South Africa, Kenya and Nigeria are emerging as the hotspots for big investment into Africa’s data centres, according to Turner and Townsend, other companies such as Paratus are also “investing around $5.5m in building a new state-of-the-art data centre in Lusaka”, the capital of Zambia, the company told fDi. It is also investing around N$120m ($8.06m) to build a data centre in Namibia.

Paratus’s chief operating officer, Schalk Erasmus, believes that “the acceleration and ever-increasing adoption of cloud services has become evident, and this creates a further need” for data centres. 

“Data centres require uptime of 99.9%” which means that any slight disruption destabilises the entire operation, says a spokesperson for Africa Infrastructure Investment Managers (AIIM). AIIM is a majority shareholder in the Onix Accra 1 Tier IV data centre in Ghana. “Power supply in much of Africa can be sporadic, so off-grid solutions are a necessity,” they add. 

Companies such as ADC, Raxio and AIIM are joining Amazon subsidiary AWS, which is powering its data centre in South Africa via a 10MW solar farm, in roping in alternative energy sources, standby diesel generators and hybrid batteries to cover for electricity outages. Many of the tech investors into Africa’s data centres are hoping that renewable energy, especially solar, will address environmental and sustainability concerns, especially around the industry’s huge electricity consumption. 

And yet another key constraint to data centre investment in Africa is the shortage of critical skills. However, operators such as Paratus are hoping that “more skills will be developed in local markets in Africa as the momentum and investment grow”, while Raxio is training and upskilling the necessary local staff.

This article first appeared in the August/September print edition of fDi Intelligence. Access the article here.