By Ezekiel David
Data centre operators in Nigeria are facing significant challenges due to the ongoing foreign exchange (forex) crisis, which is jeopardising millions of dollars in investments already made in the sector.
Industry stakeholders have voiced concerns about the growing difficulty in obtaining new capital as operators struggle to earn a profit in the face of escalating exchange rate volatility.
Maintaining profitability has become especially difficult for data centre operators due to the forex crisis. The CEO of Digital Reality Nigeria, Engr. Ikechukwu Nnamani, estimates that about 90% of the capital needed to construct a data centre is invested in foreign currency because the majority of the equipment needed is not readily available locally.
Nnamani explained that the volatility of the naira against the U.S. dollar is a major issue. For instance, if a data centre operator benchmarks their pricing at an exchange rate of N1500/$1, but the Naira later depreciates to N2000/$1, the operator would effectively be earning less in dollar terms, despite charging the same amount in Naira. This fluctuation can severely disrupt business models and investment plans.
Nnamani further indicated that because of the long-term nature of the returns, Nigerian institutions are typically hesitant to invest in data centres. Nigerian banks are less suited as partners for data centre projects since they usually expect quicker paybacks, in contrast to foreign investors who would be willing to wait five to ten years to see profits.
Nigerian data centre operators have additional challenges in addition to the forex crisis. Moreover, the price of necessities like electricity has skyrocketed. The volatility of the naira has resulted in higher operating expenses, according to MDXi, Equinix’s data centre subsidiary in Nigeria.
These include higher costs for diesel, equipment maintenance, and service contracts with original equipment manufacturers (OEMs) and third-party vendors. According to the Managing Director of MainOne, the parent company of MDXi, these rising costs are putting additional pressure on the operational bottom line of data centres.
Nigeria still lacks a sizable amount of data centre capacity in spite of these challenges. In terms of total data centre capacity, Nigeria comes in second place in Africa behind South Africa (408 MW) with 145 MW, according to DC Byte. In order to meet Nigeria’s increasing demand for data services, this gap emphasises the need for further investment in digital infrastructure.
Several new data centre projects have been announced recently, which could help bridge this gap. Open Access Data Centre (OADC) is building an additional 24 MW in two stages, while Digital Realty has announced plans for a 10 MW facility. Airtel and MTN Nigeria are also expanding their data centre capacities, with Airtel breaking ground on a 34 MW Nxtra data centre in Lagos and MTN constructing a 1,500-rack Tier 4 data centre.
The National Digital Economy Policy and Strategy (NDEPS 2020–2030) of Nigeria, which seeks to fully digitise the economy by 2030, depends on these programmes. Making all government services available online is part of this, and doing so will call for a strong data centre infrastructure. Furthermore, because many companies now house their data outside of Nigeria due to worries about local infrastructure, the expanding fintech and startup environments in that country now relies on dependable and scalable data centres.
However, the ongoing forex instability remains a significant threat to the completion and success of these projects.
(Source: Nairametrics)