Africa’s cloud computing boom creates data centre gold rush

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International investors are rushing to fund a boom in the African cloud computing market, as the proliferation of smartphones and mass adoption of business software on the continent leads to soaring demand for data centres to power the technology.

Africa currently accounts for less than 1 per cent of total available global data centre capacity, according to data from Xalam Analytics, despite being home to about 17 per cent of the world’s population. However, its capacity has doubled in the past three years.

Among those to invest is London-based private equity firm Actis, which is injecting $250m into African data centres over the next three years — beginning with taking a controlling stake in Rack Centre, a leading Nigerian company that serves the west African market.

The investment will fund a doubling of Rack Centre’s 750kW capacity and its expansion across west Africa, creating one of the largest data centres on the continent.

“If you look at the trends around data, data consumption, cloud migration globally — those trends have played out in many markets and have led to significant growth of the data centre sector,” said Kabir Chal, director at Actis. “Africa is no different: you see digitisation, the inexorable migration to cloud, and really the advent of big data but, as a consequence, the supply of data hasn’t kept up.”

The supply of data

Where governments and companies have historically used their own in-house data servers for storage and computing, rising demand — driven by an increasingly online population and cloud-based business world — is leading them to outsource these capabilities to external data centres. These large facilities, which were once the province of telecoms operators, are now more frequently run by independent companies.

A driver for the localisation of data storage is that it improves connection speeds, since users no longer have to fetch data from the other side of the world, while it is also being mandated by governments that stipulate that local data must be hosted domestically.

Bar chart of Share (%) showing Africa share of world market

Meanwhile for companies operating in Africa — particularly those in banking and oil and gas — the high cost of managing their own data via expensive internal server rooms and data centres, while keeping up with the growing technical demands of the field, can be prohibitive, said Uzoma Dozie, former chief executive of Nigeria’s Diamond Bank.

“Cyber security is not an expert capability of banks, and continuous upgrading and development [of data centres] is expensive,” said Mr Dozie. “So there’s a big opportunity there, as more people begin to use cloud services instead of having their own data servers . . . These are going to become more valuable.”

Powering the cloud

For data-storage companies operating in Africa, a big hurdle is the continent’s lack of infrastructure, which complicates an already capital-intensive, power-hungry business.

Companies must often rely on large-scale generators running on costly diesel and petrol to provide electricity, while slow internet speeds, high data costs and a lack of fibre networks — plus the increased cost of capital in countries perceived as risky by investors — all further constrain their operations.

“We have to fundamentally build our own power-generating capability to get a level of reliability and consistency, so that is a capital cost in itself,” said Tunde Coker, managing director of Rack Centre, which connects to over three dozen telecoms operators across west Africa, including Orange, MTN and Airtel.

Nevertheless, the Actis investment is part of a broader trend of international players looking to become involved in the data centre sector in sub-Saharan Africa — where the total data centre capacity equals about a quarter of London’s or half of Frankfurt’s, according to Xalam Analytics.

Last year, Boston-based private equity firm Berkshire Partners acquired a stake in Teraco Data Environments, which owns Africa’s largest data centre and powers much of the cloud computing in South Africa, saying it would use it to double capacity from 30MW to 60MW in the next few years.

Microsoft also launched its first African cloud data centres last year in the country, which is a key growth market alongside Nigeria, Kenya and Ghana and already accounts for roughly half of Africa’s data centre capacity. Meanwhile Amazon Web Services plans to open a cluster of centres in Cape Town in the coming months — the company’s first foray on the continent.

Both will rely on independent companies such as Rack Centre and Africa Data Centers, the South Africa-based subsidiary of Liquid Telecom that plans to double its 25MW capacity in the coming year.

‘A diversity of connectivity’

For consumers, the proliferation of African data centres will help to ramp up internet speeds that are currently among the lowest and costliest on earth — allowing users of streaming services such as Netflix, for instance, to access their favourite shows faster, and online gamers to play unhindered by connection lags.

One chief benefit is that independent companies, as opposed to centres owned by telecoms companies such as Orange or MTN, are able to provide clients with dozens of connectivity options.

“The big success everywhere in the world is where you have a neutral data centre where there are a lot of various providers of connectivity,” said Stephane Duproz, chief executive of Africa Data Centers. “Those cloud providers need a diversity of connectivity where they establish themselves. You will never see a big deployment of cloud in a telco data centre.”

There have been concerns in many parts of the world over Chinese ownership of data. But Mr Duproz, whose company has China Telecom is one of dozens of connectivity providers at its sites, said the Chinese had not yet made big investments in data centres in Africa. However, he added that “it’s definitely a conversation they are having”.



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