Market News
FX crisis slows Nigeria’s data centre investments - PUNCH
Nigeria’s data centre industry is witnessing an investment wave, with operators steadily expanding infrastructure to meet rising digital demand, even as the high foreign exchange rate between the naira and the dollar tests their resilience.
Valued at $648.4m in 2023 and projected to reach $972.53m by 2032, according to Credence Research, the sector has drawn heavy investment as operators expand to meet soaring demand for cloud and colocation services.
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But with the naira’s value crumbling since President Bola Tinubu’s 2023 reforms loosened its peg to the dollar, the industry’s growth is at risk.
Regional Executive for West Africa at Africa Data Centres, Krish Ranganath, said while recovery is possible from the naira woes, it will be a gradual process.
“Let’s first see how the devaluation issues play out and where the naira eventually settles, that was, and still is, one of the major challenges,” Ranganath told The PUNCH.
He also highlighted the importance of addressing human capital deficits and improving the ease of doing business to foster growth in the sector.
The naira’s slide has sent costs for imported equipment such as servers, generators, UPS systems, and cooling units, which account for 90 per cent of data centre investments, soaring.
Nonetheless, there remains optimism about the sector’s potential. Ranganath noted the significant opportunities in the Nigerian market, citing the rapid evolution of the data centre sector and the country’s large market size.
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He believes that over the next five years, there will be a massive increase in data centre capacity, not just in Lagos but also in cities like Port Harcourt and Abuja.
In a bid to boost local resilience as digital adoption accelerates, three major data centre providers, Rack Centre, Open Access Data Centres, and Equinix, have embarked on significant expansion drives.
Equinix, which acquired MainOne, is committing $140m over the next two years to grow its footprint across southern Nigeria. As part of its plans, the company is set to launch Equinix LG3, its third data centre in Lagos, and Equinix PR1, marking its entry into Port Harcourt.
At the Hyperscalers conference last year, the CEO of Digital Realty Nigeria, Ikechukwu Nnamani, highlighted the vulnerability of the sector to exchange rate fluctuations, noting that approximately 90 per cent of the investment required to build a new data centre relies on imported infrastructure.
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“If you benchmark your costs in dollars and convert to naira, a depreciation of the naira can reduce your revenue by up to 40 per cent,” Nnamani explained. He further illustrated the impact of currency fluctuations:
“To break even, you might price a kilowatt of IT load at $500. However, if you charge $500 and the naira depreciates from N1,500 to N2,000/$1, the revenue you receive in dollars effectively drops. This situation can drastically alter the financial model upon which investments were based.”
