With connectivity on the rise, Africa is a hotspot for datacentre investments
We look at opportunities for datacentre operators in setting up or partnering with local firms in Africa
The global colocation market is booming, fuelled in no small part by increased demand for cloud and internet-based services from enterprises and consumers. The onset of the Covid-19 coronavirus pandemic has only served to fuel demand further, while heaping additional pressure on enterprises to digitally transform their operations and move to the cloud.
The hyperscale cloud and internet giants are increasingly looking to colocation providers in various regions of the world for access to build-to-suit or readily available datacentre capacity that they can acquire to rapidly expand their presence – or even make their debut – in certain geographical regions to meet this demand.
For the colocation community, it is a relationship they also benefit from. Breaking ground and building out the infrastructure needed to support a new-build datacentre in a largely untested market requires a sizeable investment, but that spend is much easier to justify if there are hyperscalers waiting in the wings to move in.
At the same time, while demand for datacentre capacity in many of the major colocation hubs across the US and Europe shows no signs of slowing, operators already have an eye on the emerging markets for potential future growth opportunities. And the hyperscalers do, too.
This is particularly the case in continents such as Africa, where enterprise demand for cloud and colocation services is still in its relative infancy, while parts of its economy are ripe for digitisation and transformation.
The growth opportunity for colocation providers
A map of global colocation opportunities in a recent analysis by Eco-Business Research perhaps unintentionally gives the impression there is not a lot of datacentre development going on in Africa. Apart from South Africa, the continent looks empty of datacentre development.
Yet although Southeast Asia is certainly a datacentre growth market, Africa may grow faster still.
Ibrahima Ba, lead for network investments in emerging markets business at Facebook, says connectivity is being driven by many initiatives. The 2Africa subsea cable, for example, is set to help push mobile internet penetration of 25-30% to 80% or higher, with the help of infrastructure partners including China Mobile, Orange, MTN, Vodafone, TelecomEgypt and Facebook Connectivity.
“It’s a new approach to cables, with 37,000km of up to 180Tbps (terabits per second) fibre to 23 countries, securing capacity for the next billion users and growth in applications and usage,” Ba told delegates at Africa Tech Festival 2020.
Indeed, digital transformation plans are multiplying across the continent and within individual African countries, many of which not only have enormous natural resources but huge populations clamouring for advancements. Substantial investment in datacentre infrastructure will be needed.
“The opportunity is there. And this will go to all the countries in the continent,” says Mustapha Louni, managing director for the Middle East, Africa and Greater India at Uptime Institute.
Nigeria alone is home to 206 million people, with a population projection of 329 million by 2040 and 401 million by 2050, according to the United Nations Department of Economic and Social Affairs.
Louni also points to government initiatives for digitisation, such as Kenya’s which has the largest ICT policy in East Africa, alongside extensive development in the online industry in countries including Ethiopia, Kenya and Egypt, and many new business parks. Egypt, in particular, is seeing colocation and managed services take-up rising, alongside datacentre demand driven by major government projects such as “new capital city” and “smart city” initiatives.
Amazon opened its first African cloud datacentre in South Africa in April 2020. Microsoft, Google, Digital Realty, NTT and a number of other major colocation providers and joint ventures have made investments in the continent, often teaming up with Africa-based firms such as Liquid Telecom, Egypt Telecom or MTN.
Louni notes that although South Africa has been leading the charge, diverse investments and activity have been increasing around both west and east African business parks. Datacentre growth and banking investment are expected for the next five to 10 years.
The explosion in IT demand has even more scope because, across Africa, 60% to 70% of the population is under the age of 35, with connectivity and broadband access still only at around 40% penetration overall. Yet Africa as a whole, so far, boasts less than half the datacentre capacity of, for example, the UK – leaving plenty of room for expansion.
IT skills in short supply
One barrier has been that, with the exception of maybe the top 10 countries by gross domestic product (GDP), there remain big problems around roads, railways and infrastructure, says Louni.
African countries are also still working to redress a shortage of skills. IT skills shortages are an issue globally, but these are “more severe and different” in Africa. This means consultants and engineering firms from places in Europe, the US and elsewhere could still have roles to play.
Building joint ventures with local organisations in the African datacentre space can be attractive if done right. Many investment-seeking organisations across the continent are looking for joint ventures in areas of opportunity. Europe or UK-based firms can be part of this development, especially if they are prepared to take on a certain amount of risk and work with the infrastructure issues, adapting to differences from the markets they have been used to.
Interested parties could start by thinking about exactly where their business model will work, examining special features of individual countries, including the available skills and addressable market, as well as specific barriers such as transport access, power availability and current connectivity.
Sometimes it makes sense to go to South Africa and set up in Cape Town, but equally, it may prove advantageous to set up in Uganda or Ethiopia, depending on individual strategy, says Louni.
“It is very helpful to get a local partner and research all the local regulations including land and licensing. Do your homework – learn the market, do a visibility study, then identify countries that fit your business objectives,” says Louni. “Identify local partners where you can, and also get to know all their processes.”
So what are the catches?
Rules might be tricky, very specific and quite dissimilar to those in countries where a company has worked previously. Usually, having a local partner will help, not least because projects can be complex and the climate volatile. Louni suggests endorsing the local culture and hiring locally where possible.
“There is still a lot of ground to cover, but [many companies] have to be more flexible in dealing with African countries, especially with the risks across the continent,” says Louni, adding that the telecoms industry in Africa now is dominated by Chinese firms such as Huawei or ZTE.
“European companies still have a lot to do to gain market share and attractiveness,” Louni notes. “Chinese companies typically have lower cost structures, very competitive offers and a higher appetite for risk, often because they’re backed by the Chinese government.”
He says European companies have lost ground in Africa over the past 10 years. Also, in a major government-supported Chinese construction, often a Chinese technology company comes along behind, with a Chinese consultant following. These project-leading firms will then engage local companies in Africa to do the grassroots work.
“In addition, there is a diplomatic approach the Chinese have adopted. China is very present in Africa – it develops relationships with the higher people in government, talking to prime ministers and presidents,” says Louni. “That’s the power of the Chinese in Africa.”
Then there’s the less-than-savoury history of colonialism in Africa. However, Louni says western companies are still likely to be treated in light of their actual terms and benefits at a business level, not discriminated against out of hand.
“Yes, there are sensitivities,” he says, “but if a company comes in to spread knowledge, business and investment – creating new opportunities for young people, providing services, helping small to medium-sized businesses, creating wealth – I do not think governments will look at it from that angle.”
Louni believes European and Indian companies still have something to offer in terms of know-how. They can ensure they do not blot their copybooks by researching and becoming involved in the very rich local cultures in Africa, building relationships that take account of diversity and differences from north to south, east to west, with different cultures and languages.
Eye-popping potential for mobile apps and services
With risk comes opportunity. For instance, Sub-Saharan Africa on its own is the world’s fastest-growing mobile market, according to mobile operator analysis from GSMA Intelligence, with half a billion people, or 45% of the population, subscribing to mobile services.
Smartphone penetration is rising rapidly. It hit 50% in 2020, leaving plenty of room for growth, especially with more sub-$100 devices and clever financing models, often mobile pay-as-you-go services, reaching the market.
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Vodacom and MTN launched the first major 5G networks in Sub-Saharan Africa last year, offering 5G mobile and fixed wireless access (FWA) in South Africa when the government assigned spectrum sooner than expected in response to the Covid-19 coronavirus pandemic, with 4G trials also conducted in Gabon, Kenya, Nigeria and Uganda. Some 30 million mobile 5G connections are forecast by 2025.
Mobile technologies and services in Sub-Saharan Africa should surpass $184bn by 2024, up from $155bn in 2019. Operators are expected to invest $52bn in Sub-Saharan network infrastructure between 2019 and 2025, just as smartphone penetration hits 65% with 678 million connections.
South Africa accounts for nearly half of cellular internet of things (IoT) connections in Sub-Saharan Africa so far, but use cases are emerging across the region and could help address regionwide challenges in key sectors, such as energy, water, agriculture, transportation and logistics, manufacturing and healthcare, the GSMA report confirms.
It all means opportunities for more content, applications and services, which must be supported by an expansion in datacentre infrastructure and services.
Unlike south-east Asian markets such as Singapore, Africa can have fewer geographic constraints – as Morocco’s 1,200-hectare 580MW Noor Ouarzazate Solar Complex north of the Sahara implies. And the Ouarzazate plant is only a subset of Moroccan solar – the country is still behind Kenya and South Africa in solar and wind power supply, according to the International Energy Agency (IEA) figures for African countries.
Additionally, interconnect partnerships still represent a big piece of the potential datacentre and cloud action, providing robust digital foundations for enterprises and carriers alike while also addressing connectivity needs, says Silvio Do Carmo, Southern African Development Community (SADC) and East Africa managing director of connectivity provider PCCW Global.
“A major opportunity is automated capacity between datacentres and clouds to overcome major connectivity issues,” says Do Carmo. “A lot of service providers in Africa are looking to buy tier-one IP transit connectivity in Africa directly from the source.”
He warns that it can take four to six weeks to provision services in Africa, particularly last-mile local routes, and it might take three months or a year to incorporate a business. Another opportunity is to move into Africa through acquisition, which is what PCCW Global did in 2012, giving itself almost immediate access to 12 new and growing markets.