Africa is home to 17 percent of the world’s total population, but accounts for less than 1 percent of global data center capacity, according to the research firm Xalam Analytics. The continent has poor telecommunications infrastructure in general, forcing industries reliant on data traffic such as banking, oil, and gas to build and manage their own server rooms and data centers. High data prices and slow connectivity—on top of the high cost of capital in sub-Saharan Africa, which foreign investors often regard as a high-risk investment region—present structural limitations that stifle innovation in the tech sector.
On the other hand, the growth in the number of Africans with smartphones and access to the Internet opens up an alluring market for domestic telecommunications companies and international investors. African governments have been stipulating that local data be hosted domestically, and consumers require local servers for more efficient connection at a lower price.
The London-based private equity firm Actis is one of the international companies getting involved by investing US$250 million in African data centers over three years, starting by taking a controlling stake in the Nigerian data company Rack Centre. Others include the Boston-based private equity firm Berkshire Partners, which recently acquired a stake in Teraco Data Environments, which owns Africa’s biggest data center and powers much of the cloud computing in South Africa. Microsoft opened its first cloud data centers on the continent in South Africa, and Amazon Web Services plans to open several centers in Cape Town over the next few months.
Why It Matters
Both Microsoft and Amazon will rely on local data centers such as Nigeria’s Rack Centre and South Africa’s Africa Data Centers. These developments reflect an acknowledgement by global investors of Africa’s potential as the next major data center hub, with opportunities for locally based companies to take advantage of this growing market as well.