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Facts / August 18, 2020

Data centers

Africa’s cloud computing is a goldmine for investors

The demand for data centers in Africa has increased since more people and businesses are using smartphones and business software to connect to the internet daily. Consequently, Africa’s cloud computing market has attracted international investors who want to capitalize on this window of opportunity.

According to Xalam Analytics, Africa only uses 1% of the entire global data center’s capacity, even though 17% of the whole world’s population is based in Africa. Although recent statistics show that in the last three years, Africa’s data center capacity use has doubled.

Global emerging markets investment firm, Actis, has taken over a significant holding in Rack Center and plans to fund more African data centers by investing $250million across three years. As more investors establish a footing in Africa’s cloud market, the impact is already profound with banks and governments using technology to enhance experiences and service.

“If you look at the trends around data, data consumption, cloud migration globally — those trends have played out in many markets and have led to significant growth of the data center sector,” said Kabir Chal, director at Actis. “Africa is no different: you see digitization, the inexorable migration to cloud, and really the advent of big data, but, as a consequence, the supply of data hasn’t kept up.”

Localization of data centers to increase supply

With the growth of cloud computing in business and the online populace numbers, the demand is rising for external data centers and away from traditional onsite data servers for storage and computing.

More businesses are using cloud-based software, and the number of people online is rising, which has the demand for moving towards external data centers for storage and computing. Data centers are often maintained by independent organizations as opposed to traditional communication companies. Demand for improved connection speeds has motivated the need to localize data storage, as opposed to retrieving the data from across the world, while governments specify that local data must be hosted internally.

For many African companies in the banking, oil, and gas sectors, it is costly to implement their own data management because of expensive server rooms, data centers, and constant changes in the technological requirements. “Cybersecurity is not an expert capability of banks, and continuous upgrading and development [of data centers] is expensive,” said Mr. Uzoma Dozie, the former chief executive of Nigeria’s Diamond Bank. “So there’s a big opportunity there, as more people begin to use cloud services instead of having their own data servers. . .  These are going to become more valuable.”

Businesses advance to cloud-based software

More African businesses are adopting cloud-based software and services due to an increase in fiber networks and easier access to high-speed internet. However, only recently have various cloud services that have data servers in Africa. Cloud servers’ location has an impact on the latency (the time it takes before data begins to transfer) and is a concern for businesses. The closer the data center, the lower the latency, which results in better service quality. Therefore, leading cloud-based companies such as Amazon and Microsoft to have numerous data centers globally and have recently made their marks in South Africa.

Opportunities through infrastructure challenges

There are numerous infrastructure challenges for data-storage companies in Africa, for example, relying on expensive fuel-powered generators to provide electricity and slow connectivity. However, these challenges may pose an opportunity for investors interested in the cloud in Africa. Investors wouldn’t put their money down for expensive technology and equipment that they may not need or become obsolete. It makes sense to invest in modern technology such as wireless or fiber networks instead of fixed-line networks. It’s no wonder Berkshire Partners became a majority shareholder in Teraco Data Environments, Africa’s primary data center, and plan to double their data storage capacity.

Benefits of connection varieties

Consumers will benefit from additional data centers in Africa, as connection speeds will increase and hopefully reduce data costs. Netflix and other streaming sites shall have uninterrupted streaming while the gamers can be relieved for reduced lagging with the way forward for Africa’s connectivity.

Independent companies will also add to these consumer benefits as the diversity in connection options will allow them to choose what suits them best.

“The big success everywhere in the world is where you have a neutral data center where there are a lot of various providers of connectivity,” said Stephane Duproz, chief executive of Africa Data Centers. “Those cloud providers need a diversity of connectivity where they establish themselves.”

As more people rely on technology for business and social components, the demand for more African data centers will increase. The economic & educational benefits of cloud-based systems will become more noticeable as more data centers are produced. Africa’s cloud computing has skyrocketed, and it is only the beginning of an exhilarating road!

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