Report – Strong potential for data center development in Africa, with certain conditions

The 2024 edition of the UNCTAD Digital Economy Report, titled “Shaping an Environmentally Sustainable and Inclusive Digital Future,” highlights that developing countries investing in digitalization are reaping limited benefits. The costs incurred for deploying digital technologies in these countries still outweigh the benefits they receive.

The report points out that while these countries are importing technology, their digital service exports remain limited. Additionally, these countries are primary destinations for electronic waste, which has significant environmental impacts.

Digital technologies, as noted in the report, are both energy and water-intensive, with costs typically high in developing countries. Energy is required to run these technologies, and water is used for cooling. Data centers, especially hyperscale ones, generate substantial heat and require effective cooling for uninterrupted operation.

Electronic waste (e-waste) encompasses all discarded electrical and electronic equipment and its parts. Africa is a major destination for such waste, particularly Western and Southern Africa, which are the only regions on the continent exporting e-waste outside Africa.

Digital services range from web browsing, email, and instant messaging to social media, content-sharing platforms, video conferencing, and advanced technologies like AI-powered large language models. Although the use of digital services in Africa is growing rapidly, these services rely on data centers, which are still concentrated in developed countries. This concentration means Africa bears the cost of using these services, which are often paid for abroad.

The UNCTAD report provides insightful data on this issue. Africa currently accounts for less than 1 percent of global data center capacity. Sub-Saharan Africa has only 0.1 data centers per million people, compared to the global average of 0.5 per million and 3.1 per million in North America. Among African countries, South Africa leads with over two-thirds of the continent’s data center capacity, followed by Ghana, Kenya, and Nigeria.

However, with the increasing number of internet users and concerns about data governance and sovereignty, Africa is expected to see rapid growth in data center development. This growth will be driven by the rising demand for cloud-based services and modular data center solutions, particularly from micro, small, and medium-sized enterprises (MSMEs) and government agencies. The African data center market is projected to reach US$3 billion by 2025, provided African countries create the necessary conditions to harness this potential.

Several challenges need to be addressed. First, data centers are electricity-intensive, and electricity costs in many African countries are high and volatile. This acts as a barrier to the development of the digital economy. For example, recent hikes in electricity costs in Nigeria have led national data centers to increase their service prices.

Secondly, many sub-Saharan African countries, even the more developed ones, do not provide reliable electricity, with frequent power outages. South Africa, for instance, recorded at least 3,212 hours of load-shedding in 2022. The unreliability of energy supply necessitates the use of electricity generators, which have high operating costs depending on the technology used (e.g., diesel, gas, solar). Solar-powered generators, while having lower running costs, are more expensive to purchase and maintain.

The report underscores the importance of investing in electrification technologies for data center development and the broader digital economy. Electrification is also crucial for industrialization, as no country can develop its industrial sector without adequate power supply and energy distribution.

Despite widespread awareness and calls for massive investment in a mix of hydro, solar, and other energy sources to drive industrialization in Africa, progress remains limited.

The report also emphasizes that electrification is not solely the responsibility of governments. Companies must also invest in electrification technologies and increase the share of renewable energy in their electricity supply. An example is Distributed Power Africa, a unit of the Zimbabwe telecommunications firm Econet, which is integrating alternative energy solutions into its data centers in Burundi, Kenya, and South Africa.