Africa’s data centre market is a lion cub

Africa’s data centre market is a lion cub:

6 ways to leverage the opportunities.

The African Data Centre market is in its infancy, primed to grow at a CAGR ~21% over the next 5 years 2022-2026

Opportunities exist in all segments of the market.

Where is the African data centre (DC) market at?

The African DC market is at its early stages of development and requires massive investment to reach its current demand and future potential.  Various metrics demonstrate this:

• Internet penetration – The European average is >90%. In Africa we have highs of 84% in Morocco & 68% in SA with lows of 7% in the Central African Republic.
• Colocation DC penetration  – To reach the same data centre density level as South Africa, the rest of Africa needs 700 more data centres!
• Submarine cables – The massive growth and development of the submarine cable system to and around Africa and its effect on lowering network costs, which in turn increases data usage.

All of this suggests that the African data centre market has only just started on its journey and there’s a long way to go before it becomes a fully grown lion.  As we’ll see, there is nuance to this conversation as each country navigates its journey. 

Where is the African DC market going?

The data centre market is a global game driven by dynamics that affect everyone – whether you’re in Paris, Perth or Port Harcourt.  A data centre is one cog in the wheel of the global IT industry that is driven by data consumption.  The more data we use, the more connected we are, and the bigger the industry gets.  Data consumption goes up as:

• People’s disposable income increases – their living standards improve
• The cost of data goes down – the market opens, competition enters, price discovery drives the price down.

Data centres grow and develop on the back of three main metrics:

1. An open or carrier-neutral telecom market – This promotes competition, which drives network costs down.
2. Network latency – As data travels over the network, there is a delay between the request and the action of the application, i.e. think of the red spinning circle when you open Netflix.  The lower the latency, the quicker an application opens.
3. Data sovereignty – This is driven by government requirements to store sensitive information such as security, financial and telecom data in-country.

Open or carrier-neutral networks and the internet

An open or ‘carrier neutral’ market is essential for a data centre industry to thrive. It promotes competition in the telecom network space, grows the network and drives down the cost of access. 

A carrier-neutral network in a data centre makes it easier for more clients to use the facility. Having multiple network carriers in a facility draws customers.  Data centres maximise this opportunity by having a Meet Me Room (MMR) in their facility where the network carriers all enter the data centre and are connected to the relevant customers. 

Data centres can also be connected to a local IXP – the point where internet traffic in a city, region or country is aggregated and then directed to the desired location.  (Ideally, a data centre would have an IXP in the actual building to facilitate quick and easy connection to the internet; alternatively, they can have a high-speed link to the nearest IXP).  

Latency

Latency is the speed at which data travels from where it is stored (the data centre), to where it is needed – your PC, phone, etc.  When the time it takes to send and receive this data becomes too long, the customer experience will be affected, and the supplier will look to get the data closer to the user. 

An example is, as Netflix grows in your area, it monitors how long it takes shows to load on your TV tablet and phone. 

As more and more people sign up to Netflix in your area, shows and movies take longer to open because the bandwidth of the connection between the data centre and the location is taken up.  Bandwidth is limited, so once there is more demand than can be pushed down the network at a certain speed, your show loads more slowly – and the risk of your tuning into something else gets higher!  

Once it reaches a certain level, Netflix will decide there is a big enough audience in your location and locate the data closer to you, i.e. it will locate servers and storage in a DC closer to you, so that everyone’s shows load faster – and we all watch even more Netflix!

Data sovereignty

Data sovereignty is a term used to describe how a government, firm or individual controls their data and where it is processed, sent or stored.  Typically, governments will want key data sources held in-country to ensure they have ‘sovereignty’ over them if required.  Examples of sensitive data that governments generally like to keep in-country are:

• State, defence and any other data used in the operation of the country.
• Banking information on the flow of funds in and out of the country.
• Telecommunications information flow in and out of the country.

An example from a few years ago was when the Blackberry sprung to prominence and was the tool de jour of the working professional.  Many governments had issues with it in the early days because all data was routed through Blackberry’s data centre in Canada.  So if the local police in say, Dubai, wanted to investigate a suspected criminal’s phone records, they would have to get a warrant in Canada, a location they do not have control over.  And so governments insisted this data be handled through a local data centre, then sent on to Canada.  If the authorities needed cell phone records, banking transactions data, etc., they could obtain this from their local data centre.

Latency and data sovereignty are monitored closely by internet companies like Microsoft, Google, Amazon, Netflix, etc. They’re always trying to be ahead of demand to maintain the user experience at a level that keeps and attracts more customers.  They do this by locating their services closer to the customer, in local data centres, as we’ve seen AWS and Oracle do recently.

What does this mean for African DC space?

The short answer is growth, and lots of it.  Combined with a shortage of talent in most, if not all sectors, this points to opportunities in all segments of the market, like:

• Investment by private equity, banks and governments
• Building and construction by engineers, contractors and suppliers
• Data centre operators, technicians and suppliers.

If you’re looking to invest in this space, especially if you are doing this from abroad or haven’t worked in Africa before, my advice is that you:

1. Get to know the space. Who is there? What drives the markets? What are the opportunities?
2. Partner with a local as they will have the contacts and will know how to get things done.  Be prepared for some skills development, as this space might be new to them.
3. Don’t spread yourself too thin. Focus on one country or region, master this, then expand.
4. Be patient. Working in Africa takes a long time – things don’t always move as quickly as you want them to!
5. Be flexible. Things work differently in Africa, and you will need to work through the unexpected.
6. Above all, build relationships, not transactions.  People work with people. Focus on building long-term relationships, which always reap the best dividends. 

If you would like more detail on Africa’s data centre markets, or how you could leverage this opportunity, get in touch with me…