UNCTAD Digital Economy Report 2024 sees strong potential for data centre development in Africa... but at some conditions

The 2024 edition of the UNCTAD Digital Economy Report (Shaping an environmentally sustainable and inclusive digital future), notes that developing countries that are investing in digitalization are reaping relatively few benefits, as the costs in which they incur for deploying digital technologies are still higher than the benefits they receive from their utilization. In fact, the report notes, if on one hand these countries are becoming avid importers of technology, on the other hand the digital services they export are still limited. Moreover, exports of electronic waste still are mainly directed to these countries, which obviously has an environmental impact. Digital technologies, notes the report, are also energy and water intensive, whose costs are generally high in developing countries. Energy is needed for running them, while water is used for cooling purposes. Data centers, for instance, particularly hyperscale ones, generate a substantial amount of heat, and effective cooling is needed to ensure uninterrupted operation. Electronic waste (e-waste) instead, refers to all types of electrical and electronic equipment and its parts that have been discarded by the owner as waste without the intention of reuse. Africa is a main destination of such type of waste, as shown in the map below, while Western and Southern Africa are the only African regions that export e-waste outside the continent.

Concerning digital services, these ones range from web browsing, email and instant messaging, to social media, content-sharing platforms and video conferencing as well as services that rely on advanced technologies, for example, AI-powered large language models.

Now, despite their use in Africa is growing to a fast rate, the problem is that all these digital services need data centers for being used. And these data centers still continue to be concentrated in developing countries, which means that Africa bears a cost for using them that is paid abroad.

In this regard, the UNCTAD report gives some interesting information. Africa currently accounts for less than 1 per cent of available data centre capacity in the world. When it comes to Sub-Saharan Africa, this region has only 0.1 data centre per 1 million people, one fifth compared with the average of 0.5 per million in the world. in North America such figure reaches 3.1 data centre per million people. Among the African countries that have more data centers, South Africa is at the top, accounting for more than two‐thirds of data centre capacity in all the continent, followed by Ghana, Kenya and Nigeria.

However, the report notes that given the growing number of Internet users, and in view of concerns related to data governance and data sovereignty, Africa is expected to see a quick rise in data centre development in the next years. This demand will be also driven by an increasing demand for cloud-based services and modular data centre solutions from enterprises, particularly micro-, small- and medium-sized enterprises (MSMEs) and from government agencies. It is estimated that the African data centre market will reach a value of $3 billion by next year, in 2025. On condition, obviously, that African countries will create the conditions for this potential to be harnessed.

In this regard, some important challenges exist. First, data centers are electricity intensive facilities. And in most African countries, the cost of electricity is generally high and subject to strong fluctuations. These factors act as a barrier to the development of the digital economy. For instance, a few months ago, some newspapers in Nigeria published the news that hikes in the cost of electricity in the country pushed the national data centers to increase the price of services offered. Secondly, most sub-Saharan African countries - also the developed ones - do not provide a reliabile and continue electricity supply, as power outages are frequent. For example, the report mentions the case of South Africa, where Eskom, the State-owned grid operator, recorded at least 3,212 hours of load-shedding across the country’s grid in 2022. The unreliability of energy supply increases the need to use electricity generators, which have operating costs that can be high. In fact, such generators have running costs which vary by the type of technology they use for their functioning (e.g., diesel, gas, solar energy, etc.). Those that have the lowest running costs are the solar-powered ones, which however have higher purchase and maintenance cost than the other types. Maintenance costs include battery and other components replacement, checking and replacing wires, and cleaning solar panels.

This raises the importance for African States and companies to invest in electrification technologies as a condition not only for data centers development, but also for the development of the digital economy in general. Moreover, it should not be forgotten that electrification is also a prerequisite for industrialization, since no country can develop an industrial sector without ensuring an adequate power supply and distribution of energy. Despite everybody is aware of this, and the many voices that have been raised to highlight the need for African governments to massively invest in a mix of hydro, solar and other energy sources to drive Industrialization, what has been achieved so far is still too little.

But the electrification of the continent is not only a responsibility of governments, the report notes, since also companies must consider to invest in electrification technologies by increasing the share of renewable energy in the electricity supply. The case of Distributed Power Africa is mentioned. A unit of the Zimbabwe telecommunications firm Econet, this company is integrating alternative energy solutions into its data centres in Burundi, Kenya and South Africa.