Four Trends- Sub-Saharan African Data Centres January 2015

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The Sub-Saharan African Data Centre Landscape In 2013, mature markets generated 60 percent of total global data. By 2020, that figure will be turned on its head and emerging markets will produce 60 percent of global data. 1 We believe Sub-Saharan Africa will be a considerable factor behind this substantial shift. International companies are continually including Africa as a chief theme of strategic discussions due to its favourable growth prospects, its improved governance and the rise of the middle-class African consumer. Highly regarded news publications such as The Economist and the Financial Times continue to promulgate the view of Africa as the Rising Continent. And, global consultancies are increasingly promoting the continent s compelling growth story and profiling Africa as a destination market for foreign investment. Many international companies in Africa are looking for local data centre solutions in order to better serve their in-country customers and to support their regional expansion strategies. However, despite its massive opportunities, economists and business leaders recognise the complexities and challenges of Africa as a destination for foreign investment and other economic activities. The data centre market in Africa is particularly daunting to navigate since key requirements for the successful operation of a data centre such as infrastructure, security, and data privacy laws are weak across the continent. Source8 has conducted research into the data centre markets of 17 Sub-Saharan African countries and explored the local challenges and opportunities of each one. This white paper summarises four principal trends that our research revealed. If these trends continue, Africa will play an increasingly vital role in the global data centre market. The main purpose of our research is to help companies looking for data centre and colocation facilities in Sub-Saharan Africa gain a better understanding of the continent s data centre market. Provided in this paper are key insights into the potential pitfalls and opportunities of these environments, information that could greatly benefit companies in making a more informed, evidence-based investment decision. 3

Market Development in the Sub-Saharan African Context Africa has made massive progress over the past decade. In recent years, there has been a proliferation of exciting news about Africa s booming telecoms, burgeoning apps scene and dynamic entrepreneurs and innovators. These successes are increasingly replacing the stories of war, disease, famine and corruption that for decades shaped the Western narrative of Africa as the Dark Continent. Africa is the world s fastest growing region with a forecasted real GDP annual growth of 5.2 percent this year. The continent hosts seven of the world s fastest-growing economies. 2 It is also one of the youngest and most populated markets in the world, with more than half of its population under the age of 24. By 2050, Africa s population will grow to two billion people, higher than that of both India and China. by 20 times between 2013 and 2019 double the forecasted global expansion. 6 Recent developments also indicate that the data centre market in Africa is poised to take off. In the following pages, we will examine key factors driving the African demand for data services as well as the central trends affecting the growth of data centres across the continent. The rapid urbanisation in Africa (40 percent of the population already lives in cities, a higher ratio than in India) will create demand for quality goods and services as Africans move to cities and have greater disposable income. By 2050, 63 percent of the continent s population will be urban. 3 The number of middle-class households in 11 key Sub-Saharan African countries excluding South Africa is expected to triple to 22 million by 2030. 4 An astounding growth in mobile phone subscription, more than 500 million users according to industry estimates, combined with the arrival of new undersea data cables are reshaping Africa s connectivity. A majority of urban Africans own internet-capable devices and use the internet regularly. 5 Some analysts predict voice call traffic in sub-saharan Africa will double, while mobile data usage will grow Illustration by Hubert Blanz 4

Four Trends Shaping The Future of Data Centres in Africa Sub-Saharan Africa s demand for data centres is largely driven by the surge in: citizens increasing use of data 1 services; businesses looking to host their fast-growing digital information locally; governments moving towards e- governance; and the roll out of fibre infrastructure across Africa. Africans are currently consuming a broader range of data services Fuelled by a host of new mobile phone applications developed by software engineers across the continent, an innovative and IT savvy culture is flourishing across Africa. Kenya led the way with a ground-breaking mobile phone technology that allowed those without a bank account to transfer funds and pay bills via mobile phones as quickly and easily as sending a text message. The system, known as M-Pesa, has since been exported around the world. Jumia, a leading online shopping platform in Africa, is already the fourth most-visited website in Nigeria. It is also the first African company to win the award for Best New Retail at the prestigious World Retail Awards. 7 By 2025, e-commerce will account for 10 percent of retail sales in Africa s largest countries, this represents around $75 billion in annual revenue. 8 Ninety percent of African Internet content is currently hosted outside the continent. 9 However, with the rise in Africans consumption of data services the local content generated will soon need to be hosted in local or regional data centres. Businesses are demanding highspeed, and secure local facilities to store their digital data The mindset of enterprises in Africa is slowly changing and data centres are increasingly viewed as critical in supporting essential business functions and services. Local businesses are shifting from running their enterprise servers in-house towards outsourcing this part of their business to commercial operators. Multinationals, mainly in the financial, oil and gas, and telecommunications sectors, need local presence to better serve their customers incountry and support their regional expansion plans. Since 2011, IBM has signed more than 20 lucrative deals in the financial sectors across Africa in order to provide the necessary infrastructure to support smarter banking solutions. 10 In 2014, IBM announced its 2015 plans to expand in Africa and the Middle East by setting up data centres to assist companies and government with expansion and optimisation of operational costs. 11 IBM is also promoting Cloud Services in Africa with the opening of two new Mainframe Innovation Centres in Nairobi and Johannesburg. The aim 5

of these facilities is to provide clients, business partners and academic institutions with access to extended big data, analytics, mobile and Cloud Computing technologies. 12 At present, demand for Cloud Computing is greatest in South Africa, but there is an increasing appetite in other African countries like Kenya and Nigeria. And, with internet connectivity improving, Cloud Computing will rapidly gain pace in other African countries as well. Cloud adoption in South Africa and Kenya has so far has been dependent on the enterprise size and sector. 13 Small and medium enterprises have been especially keen to adopt Cloud Computing, taking advantage of affordable and convenient public cloud offerings. Some sectors such as the financial services, healthcare, and the government have so far been reluctant to adopt cloud services due to security concerns. Nevertheless, banks and insurance companies are starting to shift some of their non-core applications such as e- mail to the cloud to test the reliability of cloud services. In addition to the simple catch up effect with developed markets, cloud solutions are expected to grow quickly due to the comparative lack of traditional data centre infrastructure and IT skills in Africa, thus making cloud services very appealing for companies in the continent. Governments across Africa have recognised the potential of using communication technology platforms and applications in the public sector to deliver government information and services to their citizens. There are already many examples of successful e-governance projects in countries like Kenya, Senegal and Mozambique among others. Many predict the rest of Africa will also join the global transition towards e-governance. As the online content that African governments produce begins to be updated and changed daily, the demand to store this information in local data centres will increase in order to reduce costs and access times. Africa s total bandwidth usage has grown considerably with the rollout of fibre infrastructure across the continent. An important driver behind the rise in demand for data centre services is the rollout of fibre infrastructure across the continent, which has made local hosting more viable and costcompetitive. This creates a good opportunity for international data centre operators to expand into the Sub-Saharan African markets. IBM unveils new Mainframe Linux Centers in Africa, Source: IBM.com, May 2014. 6

Four Trends- Sub-Saharan African Data Centres January 2015 Figure 1. The Key Drivers of Data Centre Demand in Sub-Saharan Africa Citizens Data Government Data African Data Centre Growth Business Data Fibre Infrastructure Figure 1 explained. The main drivers behind the rising demand for data centre facilities in Africa are: A surge in the consumption of data services by Africans Local businesses capitalising on the advantages of outsourcing as well as international companies wanting to support their expansion plans A rise in e-governance projects Deployment of new national & regional fibre backbones 7

Four Trends- Sub-Saharan African Data Centres January 2015 2 over Although South Africa currently has the highest concentration of data centres in the whole of the continent, we expect Nigeria, Ghana, and Kenya among others to capture more of the Sub-Saharan data centre market share the next decade. The data centre market in Sub-Saharan Africa has expanded in capacity and revenue, but this growth has so far been concentrated in South Africa. South Africa has the most developed and sophisticated data centre market on the continent, with an estimated 100,000 sqm of floor space as of 2014, according to some estimations. 14 After South Africa, the countries hosting the highest number of data centre facilities are Nigeria, Ghana, and Kenya with major ISPs and Telcos dominating the data centre scene. At the other end of the spectrum, there are countries like Mozambique, Niger, and Zambia whose data centre markets are still at a nascent stage. In these markets there exist only a few small local operators, with no global operators currently offering data centre services. The current unequal distribution of data centres between South Africa and the rest of the continent is illustrated in the diagram below. Figure 2. Treemap of Number of Data Centres by Country South Africa Ghana Nigeria Zambia Cote d Ivoire Rwanda Tanzania Botswana Zimbabwe Kenya Ethiopia Angola Uganda Mozambique 8

Nevertheless, the data centre market is expanding outside of South Africa as service providers set up data centre capabilities to meet growing data demand from citizens, businesses and governments. The data centre market is growing particularly fast in countries such as Kenya and Nigeria and thus, we expect these countries to gain a higher share of the African data centre market in the next decade. Service providers in these markets are using different models to capture opportunities in the data centre market. Some Telcos have partnered or acquired ISPs in order to expand. For example, Safaricom, a leading mobile network operator in Kenya, jumped into a series of ISP acquisitions and integrated them to launch Safaricom Business. Another very recent example of the positive developments happening in Africa is the Djibouti Data Centre (DDC). Set up by a group of local and international investors in partnership with Djibouti Telecom, DDC is the first data centre and Internet exchange in East Africa linked to eight fibre optic cables that are part of the main Internet route from Europe to Asia. Its plan is to expand into other East African countries through small data centres, which would allow telecom operators, and others to access these submarine cables via the principal data centre in Djibouti. Figure 3. International Infrastructure Investments Africa Undersea Cables 2015 9

There has been a recent increase in investment focusing on 3 international submarine cables and fibre-optic backbone networks, which will further enhance data centre development. While public sector investment in Africa has increased considerably in the last decade, the private sector remains the principal driver for investment and has invested close to $50 billion in ICT in the last 10 years. 15 While the majority of investments in the ICT sector has been directed towards mobile and related applications, the recent focus has been on international submarine cables and broadband infrastructure across the continent. Figure 4. Estimated Size of The ICT Enterprise Services Market 2013 circa $9 billion in whole of Africa The mobile industry is now very competitive, with most African countries having at least three operators. Growth in the sector is slowing but investment opportunities remain, especially in the field of infrastructure outsourcing. Internet access is considerably underdeveloped compared to the mobile penetration; however, this is changing due to the rollout of submarine cables along Africa s coastline. Angola, Botswana, Ethiopia, Rwanda, Kenya and Tanzania are among the countries that have launched plans for the rollout of their national backbone networks over the last years in order to provide access to rural areas. In terms of fibre backbones, South Africa acts as a connectivity hub for neighbouring southern African countries, while in West Africa, Nigeria, Ghana and Senegal act as hubs for the region. African governments are showing increased interest in Smart City technology and the advantages it can offer citizens. Connectivity and cloud adoption are crucial to Smart City systems, and African countries are making good progress in both areas. Source: The future of Telecoms in Africa, Deloitte, 2014. 10

4 to Sub-Saharan Africa has the opportunity to become a pioneer in green, energy-efficient solutions that it could use power its data centres. According to the International Renewable Energy Agency, Sub-Saharan Africa has immense technical potential for clean energy projects, and if substantial investment flows into Africa, the continent s renewable energy capacity could quadruple to about 120 gigawatts by 2030. 16 With the cost of wind and solar energy dropping significantly in recent years, renewable power is increasingly considered a less expensive alternative to other forms of energy such as coal and gaspowered plants. 17 Many African countries already operate smallscale wind, geothermal and solar facilities that provide energy to cities and rural areas and South Africa is already in the global green energy league. Among the countries we surveyed, Rwanda, Ghana, Kenya, and Ethiopia all have large scale renewable energy (mainly wind and solar) facilities under development. Nigeria s Renewable Energy Master Plan (REMP) is being implemented by the Federal Ministry of Environment with the purpose of increasing renewable energy s contribution to 10 percent of the country s total energy consumption by 2025. In addition, many African countries, including Nigeria, are currently opening the energy sector to independent power suppliers and incentivising the use of renewable energy supply in the generation mix. Several of the African countries surveyed are also using fiscal intervention as a means to induce the supply of renewable energy through subsidies, grants and rebates. Africa has the potential to leapfrog the carbon energy age and enter straight into renewable energy, creating opportunities for large data centre operators to procure clean energy directly or to invest in their own renewable energy facilities. Africa has already demonstrated its remarkable leapfrogging ability in the telecommunications sector by skipping directly to mobile phones. African countries, most of which lack traditional data centre infrastructure, are in a very good position to leapfrog developed economies in data centre solutions and fast track their participation in global markets. 11

Appendix Sub-Saharan Africa Data Centre Index Rating As part of our research into the data centre market in Sub-Saharan Africa Source8 has developed the Sub-Saharan Africa Data Centre Index. The purpose of this index is to help companies looking for data centre and co-location facilities in Africa make an evidence-based and educated investment decision about where to co-locate. The Data Centre Index ranks 17 countries based upon the attractiveness of their data centre market. This is evaluated based on criteria considered most likely to affect a data centre s operations (energy, security, electricity cost, water availability, network readiness, total international bandwidth, number of data centres, number of submarine fibre optic cable systems, political stability, quality of education system, prevalence of natural disasters, ease of doing business, among other factors). The weighting used in our scoring model is flexible and can be adjusted based on the client s priorities, such as the need to establish presence or upgrade operations in a particular country/region, as well as the risk approach. Risks posed by some of the macro indicators analysed are easier to mitigate or manage than others. Source8 would be delighted to discuss the Data Centre Index and provide indepth country analysis upon request. Map on following page 12

Figure 5. Sub-Saharan Africa Data Centre Index Ranking Map 13

Source8 is the world s leading advisor on the implementation of Real Estate, Technology and Risk Management infrastructure and services. Our three core competencies combined with our unique ability to operate securely in both stable and fragile markets enable us to deliver sector specific, fully integrated infrastructure solutions anywhere in the world. Source8 is able to offer a full suite of Consulting & Analysis Services including Market Entry Analysis, Data Centre Location Studies, Portfolio Optimisation, M&A Integration Due Diligence, Workplace Technology Solutions, and Utilisation Studies. Source8 additionally offer Real Estate solutions including Transaction Management, Project Management, Risk Management and Technology and Strategic & Tactical services. Source8 was acquired by Mitie in 2014. Mitie is an FTSE 250 company that provides infrastructure consultancy, facilities management and a range of energy management services. Source8 Head Office: 5 Hobart Place, Belgravia London SW1W 0HU Source8 Offices in Africa: Source8 Ghana 2nd Floor, Opeibea House 37 Liberation Road P. O. Box CT 9347 Cantonments Accra, Ghana Source8 Kenya Deloitte Place Waiyaki Way, Muthangari, P O Box 40092 Nairobi GPO 00100 Source8 Nigeria 235 Ikorodu Rd Ilupeju Lagos, Nigeria 14

For further information please contact: Anser Rizvi E-mail: Anser.Rizvi@Source8.com Tel: +44 (0) 207 752 0700 Mobile: +44 (0) 7974 144164 Armela Kokona E-mail: Armela.Kokona@Source8.com Tel: +44 (0) 20 7752 0706 Mobile: +44 (0) 77 3059 8347 Bibliography 1. Discover the digital universe of opportunities: rich data and the increasing value of the Internet of things, IDC, April 2014. 2. Africa s Top 10 Fastest Growing Economies, KPMG, July 2014. 3. Africa: open for business. The potential challenges and risks, Economist Intelligence Unit, 2012. 4. Rise of the Middle Class in Sub-Saharan Africa, Standard Bank, August 2014. 5. Lions go digital: The internet s transformative potential in Africa, McKinsey Global Institute, McKinsey & Company in Africa, McKinsey High Tech, Media & Telecoms Practice, November 2013. 6. Sub-Saharan Africa Ericsson Mobility Report, June 2014. 7. Hello 2014: 10 tech trends to look out for in 2014, Financial Times, January 2014. 8. Lions go digital: The internet s transformative potential in Africa, McKinsey Global Institute, McKinsey & Company in Africa, McKinsey High Tech, Media & Telecoms Practice, November 2013. 9. The need for speed: Why Africa s Data Centres are still trailing behind, Hilary Heuler for African Enterprise, ZDNet, June 2014. 10. African banks turn to IBM to support new wave of Innovation in banking services, IBM News room, December 2011. 11. IBM Commits $1.2 Billion to Expand Global Cloud Footprint, IBM News room, January 2014. 12. IBM Promotes Cloud Delivery in Africa with New Mainframe Innovation Hubs, News room, May 2014. 13. Cloud Computing Set for Exponential Growth in South Africa and Kenya as Infrastructure Develops, Frost & Sullivan, September, 2014. 14. The future of telecoms in Africa: The blueprint for the brave, Deloitte, 2014. 15. Africa s ICT investment landscape: where to look next?, How We Made it in Africa, March 2013. 16. Africa Energy Outlook: A focus on energy prospects in sub-saharan Africa, World Energy Outlook Special Report, International Energy Agency, 2014. 17. Africa to add more renewables in 2014 than past 14 years, Bloomberg, August 2014. 15