The Challenge of a Digital Future: Africa's Need for Infrastructure
The recent emergence of a digital future has presented a new challenge for the continent. Just as power, water and transportation infrastructure enable us to go about our everyday lives, digital connectivity has become another core aspect of our l[...]
The world is changing rapidly and technology is at the forefront of this change.
The digital future has arrived, and Africa is at risk of being left behind. Closing the infrastructure gap is crucial for the continent's economic growth and development, and the quality of life of its people. The recent emergence of a digital future has presented a new challenge for the continent - just as power, water and transportation infrastructure enable us to go about our everyday lives, digital connectivity has become another core aspect of our society. Yet Africa has the lowest penetration of internet connections globally, at just 22% compared to 80% in Europe. For investors, that paucity of connectivity presents a dramatic risk adjusted opportunity for differentiated absolute return.
Africa is experiencing explosive population growth and a youthful demographic, leading to mass digitalization across the continent. This is driving a mushrooming of digital content creation, sending the cloud sector and hyper-scalers scrambling to meet burgeoning demand. Major global cloud service providers such as AWS, Microsoft MSFT , Google GOOG and Oracle ORCL have had success in deploying data centers across the continent in recent years, adding to an emerging cloud environment. Africa saw 15 data center investments in 2020, but with the colocation market blossoming in connection with increased demand for cloud and internet-based services from enterprises and consumers, investment in this sector is set to significantly increase. Recently, the U.S. International Development Finance Corporation (DFC) made payment of the first tranche ($83m) of its $300m loan to Africa Data Centres (ADC), Africa’s largest network of interconnected data facilities, an investment designed to support expansion under the G7's led Partnership for Global Infrastructure, an initiative intended to counter China’s Belt & Road Initiative. ADC recently outlined aims to invest a further $500m in building 10 data centers across 10 African countries over the next two years. Its current portfolio contains operational data centers and developments in Nairobi, Kenya, Lagos, Nigeria, Lomé and Tog in addition to locations in their home country of South Africa along the Samrand and Midrand areas of Johannesburg as well as the Diep River area of Cape Town.
Google's plans to develop a data center in South Africa and establish its Equiano submarine internet cable landing site in Cape Town are part of its larger vision to digitize Africa. This will provide a much needed boost to the continent's infrastructure and economy, and help close the digital divide between Africa and the rest of the world.
The United States is committed to helping Africa build a digital ecosystem that is open, reliable, interoperable, and secure. American companies and venture capital firms see great opportunity on the continent, including in building undersea cables and expanding the number of data centers. According to ReportLinker, investment in African data centers is expected to reach $5.4 billion over the next five years. This is an important step in helping Africa bridge the digital divide and participate fully in the global economy.
Africa is in a unique position to take advantage of the burgeoning digital economy. With a young population that is increasingly creating content and driving traffic, the demand for storage capacity and quality infrastructure is only going to grow. While this may require some patience from investors, the potential rewards are significant.
As the world's largest players enter Africa's digital infrastructure market, gaps in installed capacity and consumer demand will begin to close. However, data nationalism and data localization trends could create new opportunities for locally based data center assets. Intrepid investors who are willing to take on some risk could see attractive returns from investing in Africa's data center market.