Written by Divij Ruparelia, COO at DAI Magister
Africa’s data centre market is growing at an unprecedented rate, driven by increasing internet penetration, rapid adoption of cloud computing, and soaring demand for digital services. As the continent embraces the digital revolution, the data centre market is projected to reach over $7 billion by 2028, an annual growth rate (CAGR 2024-2028) of 7%. This growth is not only transforming Africa’s digital landscape but also presenting significant opportunities for investors, technology companies, and local businesses.
The Rise of Internet Users and Cloud Adoption
There has been a significant surge in internet usage across Africa, with the number of users soaring to approximately 645 million in 2023, representing a remarkable 3.5-fold increase compared to 2014 figures. The upward trend is anticipated to persist, with estimates suggesting that by 2029, the African continent will boast an impressive online population exceeding 1.1 billion connected individuals. This rapid growth, coupled with the COVID-19 pandemic accelerating the shift to cloud computing and remote work, has intensified the need for robust data centre infrastructure. As more businesses and individuals rely on digital services, the demand for data storage, processing, and transmission continues to soar, fuelling the expansion of the African data centre market.
Navigating Challenges and Seizing Opportunities
The growth of data centres in Africa presents immense potential, but it also comes with significant challenges. Many current data centres are concentrated in crowded markets where supply outpaces short-term demand. These facilities, often built to hyperscaler specifications to suit the requirements of tech giants like Meta and Amazon, are prohibitively expensive and over-specced for local enterprises and SMEs. The costs associated with these hyper-scaler data centres are simply too high for the vast majority of African businesses, rendering them inaccessible and impractical. Consequently, the largest data centre providers find themselves competing for a limited number of hyperscalers, leading to revenue traction struggles.
To overcome this challenge, a plethora of local providers offering a true local product-market fit with appropriately sized data centres have emerged and are now uniquely well-positioned for success. These local providers understand the financial constraints and specific needs of African businesses and can offer tailored solutions at more affordable prices. By catering to the budgets and requirements of local enterprises and SMEs, these providers can tap into a much broader customer base and achieve more sustainable growth. Moreover, strategic positioning within core data corridors, connecting landlocked countries to sub-sea fibre cables and housing internet exchanges, presents a lucrative market opportunity for these local providers. This approach not only makes data centre services more accessible to African businesses but also contributes to the overall digital growth and transformation of the continent.
Innovating Amidst Power Instability
One of the most significant challenges facing African data centres is the issue of intermittent power and unreliable electricity supply. Many countries in Africa experience frequent power outages, which can be detrimental to the operation of data centres that rely on a constant and stable power supply.
To mitigate this issue, data centre providers are investing in backup power solutions, such as uninterruptible power supply (UPS) systems and diesel generators. However, these solutions can be expensive to operate and maintain, and they also contribute to carbon emissions. Some data centre providers are exploring alternative power sources, such as solar and wind energy, to reduce their reliance on the grid and improve their sustainability.
Another approach is to locate data centres in areas with more reliable power infrastructure, such as industrial zones or near power generation facilities. This strategy can help to minimise the risk of power outages and ensure a more stable power supply for the data centre.
Data Centres at the Crossroads of Connectivity
The growth of Africa’s data centre market is also contingent upon the availability and accessibility of high-speed internet connectivity. Undersea cables play a crucial role in connecting Africa to the global internet, and data centres that are located near these cables can benefit from faster and more reliable connectivity.
Currently, there are several major undersea cable systems that connect Africa to the rest of the world, including the SEA-ME-WE 5, the Africa Coast to Europe (ACE), and the South Atlantic Cable System (SACS). These cables land at various points along the African coastline, such as Cape Town, Mombasa, and Djibouti, and provide high-capacity connectivity to the continent.
Data centre providers are strategically positioning their facilities near these landing points to take advantage of the available connectivity. For example, Wingu Africa with data centres in Djibouti has connections to SMW-3, EIG, EASSy, AAE-1, SEA-ME-WE-5, and Aden-Djibouti and Liquid Intelligent Technologies has established a data centre in Cape Town, which is in close proximity to several undersea cable landing stations, including the WACS, SAT-3/WASC, and ACE cables.
In addition to undersea cables, the growth of Africa’s data centre market is also dependent on the availability of terrestrial fibre networks. These networks connect data centres to end-users and enable the delivery of high-speed internet and other digital services.
The development of fibre networks in Africa has been uneven, with some countries having more extensive coverage than others. However, there are several initiatives underway to expand fibre coverage across the continent, such as the pan-African fibre network being built by Liquid Intelligent Technologies.
Data centre providers are also investing in their own fibre networks to improve connectivity and reduce their reliance on third-party providers. For example, Raxio’s 500-kilometre fibre network in Uganda which connects its data centres to key locations across the country.
Growth Contingent upon FTTx
The availability of fibre-to-the-x (FTTx) networks is critical for driving the adoption of digital services and applications, such as e-commerce, video streaming, and remote work. As more people and businesses in Africa gain access to high-speed internet through FTTx, the demand for data centre services is expected to increase.
However, the deployment of FTTx networks in Africa has been limited, with only a small percentage of the population currently having access to fibre connectivity. This is due to several factors, including the high cost of infrastructure development, regulatory barriers, and limited investment.
To address this challenge, governments and private sector players are investing in initiatives to expand FTTx coverage across the continent and data centre providers are also partnering with FTTx providers to improve connectivity and reach a wider customer base.
Embracing Sustainability and Green Energy Solutions
The issue of reliable power supply remains a persistent challenge for the African data centre market. Many data centres still grapple with fundamental power issues and remain heavily dependent on diesel generators due to grid unreliability. In response, data centre providers that prioritise renewable and sustainable energy solutions are likely to build company value faster and have ultimately more medium-term appeal for investors and acquirers.
Teraco are making significant investments in green data centres powered by renewable energy and employing advanced cooling technologies to reduce energy consumption. In 2021, Teraco raised $680 million in debt funding to finance what they claim will be some of Africa’s largest and most environmentally friendly data centres, adding 100MW in capacity, including a utility-scale renewable energy site. This move reflects the growing importance of sustainability in the data centre industry and the need for operators to align their practices with global ESG standards, which are increasingly becoming a fundamental requirement for many investors and strategics in the sector.
Other data centre providers in Africa are also exploring innovative solutions to address the power challenge. For example, Africa Data Centres, part of Cassava Technologies has announced plans to power its facilities with renewable energy, with a target of achieving carbon neutrality by 2030.
Key Players and Investment Landscape
The African data centre market is populated by a diverse array of players, from local start-ups to global technology giants. As the market has matured over the past three years, consolidation and international strategic interest have become more prevalent, with global entrants such as Digital Bridge and Equinix making their mark.
Equinix, a global leader in data centre services, has established a strong presence in Africa, while Teraco, majority acquired by Digital Bridge in 2022, continues to expand its footprint. Raxio Data Centre, having raised up to $170 million in debt and $46 million in equity financing in 2023, is another key player driving growth in the region. Wingu Africa, supported byAfrica Capitalworks, with data centres built or under construction in Djibouti, Somaliland, Ethiopia, and Tanzania, and IX Africa, supported by Helios Investment Partners, are also making significant contributions to the market’s development.
The influx of over $2 billion in funding for African data centre operators in 2021 alone underscores the immense growth potential and investor confidence in this sector. This surge in investment is driven by the recognition of the critical role data centres play in enabling digital transformation, supporting economic growth, and fostering innovation across the continent.
Emerging Markets and Future Growth
While Johannesburg, Cape Town, Lagos, and Nairobi currently have the most cumulative MW of leased data centre capacity in Africa, a 451 Research report from June 2023 highlights that the fastest-growing markets are Kinshasa, Luanda, Cairo, and Dar es Salaam, with 2022-25 CAGRs of 233%, 64%, 48%, and 45%, respectively. There is hardly anywhere else where such sustained growth is available in what otherwise is a globally maturing market.
This highlights the broadening of the market across the continent, with significant growth potential in previously underserved regions. These emerging markets present a unique opportunity for data centre operators to establish a presence early and capitalise on the growing demand for digital services in these areas. The rise of edge computing, the adoption of 5G networks, and the growing importance of data sovereignty will further drive the demand for localised data centre infrastructure across Africa.
Unlocking Value in the African Data Centre Market
The African data centre market is in the midst of a remarkable growth phase, presenting a wealth of opportunities for investors, technology companies, and local businesses. As local and international players continue to invest in the development of state-of-the-art data centres across the continent, Africa is poised to become a major player in the global digital economy.
The key to unlocking value in this market lies in addressing the unique challenges and opportunities present in Africa. Providers that offer appropriately sized data centres with a true local product-market fit, prioritise renewable energy solutions, and strategically position themselves within core data corridors will be well-positioned for success. As consolidation continues over the next three years, operators that achieve scale and market relevance will be best equipped to capitalise on the $7 billion+ market potential.
By investing in the right players, partnering with local businesses, and embracing sustainable practices, stakeholders can tap into the immense growth potential of this sector and play a pivotal role in shaping Africa’s digital future. As the continent continues to embrace the digital revolution, the African data centre market is set to become a key driver of economic growth, innovation, and social progress.