Virtually all the sectors of the Nigerian economy are feeling the impact of the current crisis rocking the country. The telecoms sector, which has contributed largely to the recent growth of the gross domestic product (GDP), is not exempted. Indeed, a sub-sector of the industry, the data centre segment, is currently threatened by rising energy costs in the country, ADEYEMI ADEPETUN writes.
Energy prices have been increasing globally, with wholesale prices commonly cited as the main driving force compounded by the conflict in Ukraine and other factors.
Nigeria is not an exception, and the rising energy cost has affected every aspect of the economy, making it extremely difficult for both individuals and businesses to breathe.
A major business impact lately is the data centre operation in the country. Indeed, with energy prices hitting an all-time high, affected firms in the sub-sector have already started consultations, ahead of a possible price review.
Data centres, often described as the engine room of the Internet revolution, are facing tough times with the continued increase in the price of diesel that has led to a rise in the cost of energy.
Unlike traditional brick-and-mortar establishments that can ration service hours, networks and data centres must operate around the clock, regardless of whether they serve a handful or millions of customers. The round-the-clock operation appears to have placed immense cost pressures on the companies even as they face slow growth in a high inflationary economy.
Over $230m investments in data centres
Today, there are over 11 data centres in Nigeria, located largely in Lagos, Abuja and Kano, which have thus far seen over $230 million in investments with a market size projected to hit $415 million by 2028 and expected to grow at a compound yearly growth rate (CAGR) of 10.34 per cent. Local capacity is expected to grow by a CAGR of 23.24 per cent of the global projected $517 billion by 2030. As of 2021, Lagos State was said to have attracted $1 billion data centre investment.
Centres operating in Nigeria include the Open Access Data Centre (OADC) by WIOCC Group Company, Rack Centre, MDXi, 21st Century; ADC operated by Cassava Technologies; Galaxy BackBone and 9mobile.
The Guardian checks showed that the players boast of about 55MW computing power, over 30,000 racks capacity combined and are Tiers 3 and 4 data centres.
The challenges facing data centre operations in Nigeria are many, apart from the huge and rising energy cost, there are issues of multiple taxations, preference by some ministries, departments and agencies (MDAs) to shun local hosting, policy issues among others.
The threatening energy crisis
Data centres vary widely in size, ranging from compact 100-square-foot setups to massive hyper-scale 400,000-square-foot facilities housing thousands of cabinets. These facilities house an estimated 18 million servers globally as of 2020, compared to 11 million in 2006 and the figure remains on the rise.
Currently, Nigeria’s grid electricity generation only supplies between 3,000 and 4,000 megawatts to millions of citizens, indicating a significant shortfall in power provision.
Speaking recently, the Chairman of the Association of Licensed Telecommunications Operators of Nigeria (ALTON), Gbenga Adebayo, noted that the cost of doing business in the country has risen sharply in the last few months due to a myriad of factors generally impacting businesses.
He said these factors include macroeconomic headwinds such as rising energy cost; inflation, currency devaluation; sustained difficulty in accessing forex at an affordable rate; and the rising cost of securing telecommunications facilities and field personnel in the face of worsening insecurity, among others.
Indeed, for telecoms operators and data centre companies, adding to the major impact of the foreign exchange is the increase in energy costs including prices of petrol, diesel, and a proposed increase in electricity tariffs. Diesel generators have long been the primary source of backup power for businesses in Nigeria, with the price per liter fluctuating between N855 and N1, 350, depending on the state.
As of January, the National Bureau of Statistics (NBS) puts the inflation rate in Nigeria at 29.9 per cent and, painfully, the naira to dollar stance has hovered between N1600/$ against $1000/$ six months ago.
According to experts, due to the instability in the forex segment, diesel-powered electricity now costs over N500/kWh while the use of petrol will cost about N300/kWh.
Institutional Real Estate noted that the average full-scale data centre is 100,000 square feet in size and runs around 100,000 servers, which are essentially powerful computers. Servers are often stored in racks, which are like cabinets for multiple servers. A rack can hold 21 or 42 servers.
According to eHow.com, one server can use between 500 to 1,200 watts per hour. If the average use is 850 watts per hour, it means 20,400 watts daily or 20.4 kilowatts (kWh). That translates to 7,446 kWh per year.
In an interview, Managing Director of MainOne, an Equinix company, Funke Opeke, said: “The Naira’s fluctuation has led to an increase in our operational expenses due to the higher costs of service contracts with OEMs and third-party vendors, ultimately impacting the data centre’s operational bottom line.”
Local hosting challenge
While cost is threatening, policies around local hosting of data have also not helped matters, especially due to a lack of political will.
The Guardian reported last November that though utilisation of data centres improved in the last 18 months, it was still below 50 per cent in the country.
Despite a NITDA localisation guideline, checks revealed that while some telecoms operators and other ICT firms host their data locally, governments’ MDAs that should lead in local hosting are increasing the sector’s capital flight by hosting their data abroad, thereby spending scarce FX abroad.
It was gathered that some 55 per cent of governments’ MDAs still host data abroad in countries including Israel, Ukraine, U.K., and U.S.
According to the Chief Executive Officer of Medallion Data Centres Limited, Ikechukwu Nnamani, an engineer, the poor implementation of policy on local hosting of data has remained a hindrance as it is presently impacting negatively on data centre operations.
Nnamani, a former President, the Association of Telecoms Companies of Nigeria (ATCON), said the challenges with power supply, forex availability, multiple taxation, and slow and complex permitting processes among others are major hindrances players in that sector currently face.
According to him, if these are not addressed there will be growth in the space but it will be slow and remain below the potential.
Prioritising outsourcing
To Kehinde Aluko, a telecoms expert, the government needs to be firm in the protection of local operators, stressing that businesses should be encouraged to proactively explore data centre outsourcing options. He said players like MDXI, among others, are positioned to deliver, stressing that this can help mitigate the impact of rising costs.
Aluko said outsourcing data center management would be a strategic approach to overcoming operational challenges, cost pressures and the anticipated price increase.
According to him, cutting costs, however, is not the only reason to outsource. He said that choosing a reliable and competent provider will have a significant impact in terms of infrastructure management, technological updates, and information integrity maintenance.
However, he said in addition, the chosen data center must offer specific benefits such as information security certification, carrier neutrality, and redundancy – everything needed to guarantee the highest level of operational continuity.
