Africa’s data centre boom

iColo, a Kenyan-based data centre provider with facilities in Nairobi and Mombasa.

By Boniface Abudho and Stephen Beard

This article was first published in Knight Frank’s Africa Horizons report.

Requirements for data centres have flourished across the continent. Data centres provide a cheaper and more efficient IT capability than inbuilt servers, which is aiding their popularity. They also offer cloud services and allow organisations to focus on their core functions.

Investors have already recognised the growing demand for additional data centres in Africa. Investment into the market is projected to have a compound annual growth rate (CAGR) of approximately 15% from 2020 to 2026. In 2020, the data centre market size in terms of investment was valued at US$2 billion, and it is anticipated to reach $5 billion by 2026.

Earlier in the year, global real estate industrial and logistics developer, Agility Logistics Park (ALP), launched masterplans for four new data centre campuses in Egypt, Ghana, Saudi Arabia, and Kuwait, one of the largest investments to date. The completion of these campuses will contribute a total of approximately 275,000m2 of cutting-edge data centre capacity to ALP’s existing infrastructure in the Middle East and Africa.

In addition, ALP also announced plans to open more data centres in other rapidly growing markets, including Nairobi, Casablanca, and Lagos. Currently, the industrial developer has a presence in the Middle East, South Asia, and Africa, with a total of approximately 140,000 m2 of warehousing facilities and 12 million m2 of industrial land spread across twelve countries.

Across Africa, there is also increasing demand for high-quality data centres that are both ESG-compliant and cost-effective.

Investor interest

Unsurprisingly, Africa’s data centre market is also attracting interest from institutional investors. Over the last twelve months, multiple transactions have been registered across the continent, including the $3.5 billion acquisition of Teraco by Digital Realty.

The acquisition follows Digital Realty’s acquisition of iColo, a leading Kenyan-based platform with facilities in Nairobi and Mombasa (a central subsea cable Africa access point). In addition, Equinix entered the Africa market by acquiring MainOne data centres, which has a presence in Ghana, Côte d’Ivoire, and Nigeria, for $320 million.

In addition, NTT and Vantage Data Centres have together committed in excess of $500 million to new data centres in Johannesburg and its environs.

Africa Data Centres, Raxio, PAIX, and other pan-African players also continue to enter new markets, including the Democratic Republic of Congo (DRC), Congo, Ghana, and Côte d’Ivoire. WINGU also continues to make great strides through the Horn of Africa in countries such as Somaliland. It’s a market that is often regarded as challenging. These operators typically lead with about 25MW developments, allowing them to illustrate proof of concept in anticipation of further foreign investment.

Chinese “cloud players” are also increasingly active in the market, targeting South Africa as a gateway to the continent. China Mobile and Alibaba, for instance, are both already operational here. South Africa, and specifically Johannesburg, has dominated the African data centre landscape for many years due to its geographical location, the abundance of sub-sea cable landing stations (connecting Africa to the rest of the world), political stability, mature enterprise, and corporate markets. However, other hubs are emerging in Nigeria, Egypt, Kenya and Morocco.

Nigeria: Demand from the financial services sector is underpinning and driving expansion of data centre capacity. Several local and pan-Africa data centre operators have and continue to announce new projects, such as the recently unveiled Tier IV data centre, designed and built to support private businesses and public sector organisations. The new digital infrastructure in Kano will serve as a first-level backup to the Tier III data centre in Abuja.

Egypt: In North Africa, a number of mature Middle East-based colocation platforms, such as Khazna and GDH, are gearing up to enter Cairo. The significant undersupply here – just about 20MW serving in excess of 22  million people, is a clear draw. Historically the Egyptian market has been challenging to enter, given the monopoly held by the incumbent telecoms company, Telecom Egypt.

Kenya: Nairobi still attracts significant investor attention, and we anticipate fresh development announcements by new colocation operator entrants to the market. However, the government or other significant public sector bodies are yet to declare any intention to migrate IT infrastructure onto the public cloud (Google, AWS and Microsoft), which is ultimately the catalyst for data centre growth. Separately, Kenya’s access to renewable transmission power, which represents at least 80% of total power production, is another significant pull factor. With ESG at the forefront of stakeholders’ minds, Kenya’s focus on sustainability should safeguard its position as Africa’s next hyperscale market.

Morocco: Our team is working with two international data centre operators on land acquisition projects in Casablanca, where the proximity to continental Europe and the presence of an open terrestrial fibre market offers significant benefits to both the developers and end users. Unlike other parts of Africa, Morocco’s economy and general GDP have performed relatively well in recent years. Furthermore, the underlying power infrastructure is reliable, unlike many other locations in Africa.

The next 12 months look extremely promising for the African data centre landscape as the social, political, and economic landscapes mature. We anticipate that 2023/24 will see more M&A activity, with all stakeholders seeking viable brownfield and greenfield development sites throughout the continent.

In focus: Kenya’s data centre market

Kenya’s data centre capability is expanding at a rapid pace, with projected growth from $190 million in 2021 to $434 million by 2027. Inland connectivity is also improving, and the country has made strides in deploying a 5G network. However, high land prices have been a challenge for some investors.

Nairobi is the primary location for data centres due to its strategic position as the country’s capital city. Mobile banking and electronic financial services have been significant drivers for the country’s data centre market, with Safaricom’s M-Pesa emerging as one of the primary catalysts for the increase in requirements.

Furthermore, the growth of fintech companies and partnerships between banks and mobile network operators has also underpinned demand for data storage facilities.

The Kenyan government is quickly moving to nurture the data centre sector and has plans to increase infrastructure growth and improve nationwide internet connectivity by laying 100,000 km of fibre optic cable by 2027. Additionally, 1,450 digital hubs and 25,000 free hotspots will be established to boost e-commerce. This will undoubtedly create more opportunities for data centre operators and other digital service providers to expand their services.