South Africa has a goldmine in its tech sector

South Africa is well-positioned to benefit from the ongoing boom in demand for data centres. The country has several advantages over its African peers and developed market counterparts. 

The global data centre industry has emerged as a cornerstone of the digital economy, facilitating the storage, processing, and management of vast amounts of data. 

As businesses and individuals increasingly adopt advanced technologies such as Artificial Intelligence (AI), Machine Learning, the Internet of Things (IoT), and cloud-based solutions, the demand for data centres is growing exponentially.

Over the past decade, the global data centre industry has witnessed unprecedented growth. Valued at $93.7 billion in 2023, the market is projected to maintain a strong growth trajectory, with an annual growth of approximately 22% from 2018 to 2025. 

Standard Bank’s Linda Oniwe said the industry is still in its infancy in Africa, as the increasing use of the Internet and a growing digital economy begin to drive demand for data centres on the continent. 

Oniwe said Standard Bank continues to see strong growth in the demand for financing of data centre projects across the continent, particularly in South Africa. 

Over the last few years, growing interest from major global cloud service providers such as AWS, Google Cloud, and Microsoft, along with content delivery network providers, continues to drive demand. 

Many global data centre operators recognise this potential and are now investing in building data centre ecosystems to meet the growing demand for digital services. 

For example, Equinix has invested $160 million (R2.8 billion) in its first facility in South Africa, which will offer 1,860m² of rack space and 4MW of IT capacity. 

Similarly, it also acquired MainOne, a West African data centre provider. This acquisition allowed Equinix to expand its African presence and leverage MainOne’s established infrastructure.

Africa Data Centres, one of the largest pan-African operators on the continent, has various facilities in Johannesburg, Cape Town, Lagos, and Nairobi and continues to have a strong pipeline of expansion sites. 

Digital Realty, another key player in the global data centre industry, finalised a deal to acquire a majority stake in Teraco, an African data centre provider with multiple facilities across South Africa. 

Private equity firms have likewise actively invested in data centre investments across Africa. Notable names include Actis and Helios Investment Partners, who have invested in several data centre projects across the continent.

The African data centre market remains highly concentrated in a few countries: South Africa, Egypt, Nigeria, and Kenya. 

South Africa is the largest market in Africa, with approximately 300 MW of live supply and accounting for around 70% of the continent’s IT load.

Oniwe said that with its advanced telecommunications infrastructure, strategic geographic location, and robust regulatory environment, South Africa stands as a prime destination for data centre investments in Africa. 

The country has the potential to serve as a hub for the region and capture a large share of the value created from this market. 

South Africa boasts a vibrant digital ecosystem, a growing tech-savvy population, a strong financial sector, and various initiatives promoting the IT industry. 

Favourable land prices, compared to other countries on the continent and in developed markets, connectivity and infrastructure make it an attractive choice for hyperscale tenants expanding their operations across the continent. 

Despite this potential, several country-specific challenges could inhibit growth.

These include energy supply issues and costs, other environmental concerns such as cooling and water consumption, security concerns including crime, the construction mafia and cybersecurity, and a shortage of skilled labour.

International and local data centre operators continue expressing strong interest in investing in Africa, particularly South Africa, with robust demand. 

However, establishing strategic public-private partnerships is crucial for fostering industry growth and addressing current challenges. 

These initiatives may include investments in renewable energy sources, which can support both a reduction in power costs and the environmental impact of these facilities. 

There will also need to be investment in enhanced security measures deployed to building sites and innovation and skills development by educational institutions.

The demand for cloud computing and data centres in Africa could play a crucial role in driving digital transformation. 

Businesses benefit from increased processing speeds, reduced latency, and enhanced reliability, leading to improved operational efficiency.

This article was first published by Daily Investor and is reproduced with permission.