Digital Realty plans more African data centre investment after Teraco purchase

By David Whitehouse
Posted on Friday, 14 January 2022 12:21

Digital Realty CFO Andy Power. Photo supplied.

Global data centre provider Digital Realty Trust plans further investments in Africa after agreeing to buy South Africa’s Teraco, Digital Realty CFO Andy Power tells The Africa Report.

The company this month agreed to buy a majority stake in Teraco, Africa’s largest data centre platform, from investors including Berkshire Partners and Permira in a deal that values Teraco at about $3.5b. The company’s management, led by CEO Jan Hnizdo, will remain in place.

Africa has about 140,000 square metres of data centre space, the same as Switzerland. According to global real-estate consultancy Knight Frank, that will climb by 50% over the next five years, driven by digitisation and the roll-out of 4G and 5G infrastructure. Demand for African data centres will continue to expand in the 2030s as the population grows and Internet access widens, Knight Frank says.

Digital Realty, which trades on the US Nasdaq, has more than 280 data centres globally. Its African strategy is to combine Teraco’s leading data-centre position in South Africa with the existing hubs it has established in Nigeria and Kenya. The US company, Power says, may invest $500m in Nigeria and Kenya over coming years.

  • The land has the longest lead time in data centre construction, and the company has assembled land banks in the two countries. The $500m may be spent developing that land, in addition to future land purchases.
  • There may also be additional capital over the medium term to build out Teraco’s land bank, Power says. “
  • Our customers take the view that Africa, and South Africa in particular, are an important part of their growth plans,” and they want to know how Digital Realty can better support them on the continent, he adds.
  • Digital Realty’s clients favour southern Africa as a place to land their undersea cables, due to its grid network, fibre connectivity and established rule of law, Power says.

Runway for Growth

Teraco’s existing facilities have a total capacity of 75 megawatts, and a project under construction will add 19 megawatts. The South African company owns the freehold to six of its seven data centres. It also owns land adjacent to its Johannesburg and Cape Town sites which will allow the development of up to 93 megawatts of additional capacity.

  • Digital Realty’s strategy is to rely on local management expertise.
  • In October, the company bought Medallion Data Centres in Nigeria, again with CEO and co-founder Ike Nnamani remaining in place.

There are single data centre buildings in the US that have the same megawatt capacity as the whole of Teraco, Power says. That, he argues, suggests the scale of the “runway for growth” that exists in Africa. Teraco’s land will allow its megawatt capacity to be more than doubled, he adds. “We will invest to build out the land bank.”

Data centres need relatively few people to run, which reduces the risks of corruption in the industry, Power says.  It also means that the benefits in terms of African employment will be limited.

  • Digital Realty has an enterprise value of about $65b but only about 3,000 employees.

Bottom line

Digital Realty sees African data centres as an industry of the future.

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