Data centres eye growth despite rising costs – Open Access CEO

The Chief Executive Officer of Open Access Data Centres, Ayotunde Coker, shares his thoughts on the current state of the data centre ecosystem in Nigeria and what the future holds with JUSTICE OKAMGBA

 What do you think the future holds for the overall data centre ecosystem in Nigeria?

To look at the future, let’s briefly consider the past. I’ve previously commented that within the next four years, Lagos is set for significant growth, comparable to Johannesburg. For context, South Africa currently has over 50 per cent of all installed data centre capacity in Africa, with most of it concentrated in Johannesburg. My assertion is that Lagos’ trajectory will approach Johannesburg’s level within the next four years.

Ten years ago, key data centres in Lagos were Rack Centre on the mainland, which I ran and expanded for eight years; MainOne in Lekki; and the MDXI data centre. These facilities drove industry awareness, helping enterprises realise they no longer needed to build their own data centre but could simply collocate.

Over time, more players entered the market—Africa Data Centres in Apapa, 21st Century Technologies, and Medallion Communications, which established a major interconnect ecosystem before being acquired by Digital Realty.

Today, there’s around 70 to 80 megawatts of additional data centre capacity being built in Lagos. For example, we are building an expandable facility in Lekki, starting with 12 megawatts, with plans for 24 megawatts.

Kasi Cloud is developing 5 megawatts in Lekki, expandable to 15 megawatts. Airtel is constructing a 20-megawatt facility in Eko Atlantic. MTN is building a 5-megawatt data centre on the mainland for its own use.

Typically, each megawatt of capacity costs between $9m and $14m, depending on construction efficiency. Assuming an average cost of $10m per megawatt, 70 megawatts of additional capacity represent an investment of about $700m.

Studies suggest a 10- to 50-fold induced or direct economic impact from data centre investments. Even at a conservative 10-fold estimate, this translates to a potential $7bn impact on Lagos’s economy.

At Open Access Data Centres, we’ve changed the game. As part of the WIOCC Group, we are developing a national long-distance network with open access capabilities and a fibre-to-the-home proposition. This infrastructure allows other service providers to utilise our network, fostering competition and improving customer service.

Our approach enables content delivery across Nigeria and supports a comprehensive, vibrant data centre ecosystem, particularly in Lekki. We are also expanding into Abuja and other regions, positioning Nigeria’s data centre industry for substantial growth.

Briefly shed more light on the microeconomic environment and how it affects data centre operators

The macroeconomic environment has been challenging for everybody. The level of inflation we are experiencing is very high and unsustainable. We need to take action to address these issues. Fixing the economy requires us to make some tough decisions.

The current situation is the result of years of buildup. It’s like needing a hip replacement—your mobility is deteriorating, and you face two choices: endure painful surgery and follow post-operative care or continue suffering. We are now in the post-operative phase, and we’re beginning to see some progress, such as increased currency stability. No country has zero currency movement unless it pegs its currency, which invites market exploitation.

I’m pleased that the government and the Central Bank are focusing on the fundamentals: improving exports, easing business processes, and stabilising the currency. We need to remain committed to this recovery process.

The challenges are substantial. For instance, corporate accounting has been impacted by exchange rate adjustments, sometimes tripling costs when converted to dollars. This significantly affects dollar-based financial reporting. However, companies need to focus on restructuring and making the right investments to achieve positive returns.

Inflation is another major issue. Removing the fuel subsidy, while necessary, caused immediate inflationary pressure. However, it has led to increased fuel availability. In comparison to countries like Ghana and Kenya, our fuel prices remain competitive.

I often use the analogy of weight loss for inflation. If you’ve gained too much weight, a doctor might tell you to change your diet and exercise. Similarly, to reduce inflation, we need to take tough decisions and adopt a long-term approach. If we don’t bring inflation down to single digits, we won’t achieve sustainable economic growth.

We can no longer indulge in excessive spending—it’s time for fiscal discipline. Structurally, despite appearances, the naira is appreciating relative to the fundamentals. This movement reflects necessary adjustments.

Power is another critical challenge. The cost of power in Nigeria is significant, particularly for industries and data centres. Reliable and competitively priced power is essential for growth. Self-generating power, such as using diesel, increases operational costs by up to threefold, which is unsustainable. We need to invest in power infrastructure, favouring cleaner energy sources like hydro and gas, while avoiding high-polluting options like coal.

We’ve had to optimise operations and collaborate closely with clients to navigate inflation and currency devaluation. Input costs have risen, and output prices need to be renegotiated. New deals reflect these adjustments. Despite these challenges, working together with clients helps us manage these transitions.

The restructuring of exchange rates has streamlined the process. There used to be a wide disparity between official and market rates, making international trade difficult. Now, a realistic and unified exchange rate framework makes trading more efficient and transparent.

We need to stay committed to this post-operative recovery plan. Though it’s been tough, the structural changes will lead to long-term benefits and a more balanced economy. Let’s remain focused on the path ahead.

What are consequences of these for the operators?

At this stage of our lifecycle, in terms of the development of the industry, it’s challenging for digital operators. I’ve mentioned before that we are investing significantly in infrastructure.

However, when you have existing deals and suddenly your input costs don’t align, you’re hit with a huge loss in profitability. Some have even said that data centres might go out of business, but the reality is that we must face these challenges, restructure, and reprice within the limits of what the market will allow us to do.

Data centres are no longer making huge profits; they are critical national infrastructure now. There’s a lot of ongoing investment, and while it’s been tough, the medium-term outlook remains strong.

We’ve taken a hit on input costs, and it’s not easy to immediately pass these onto existing clients. We’re working hard to manage the situation, but we’re still investing in the future, ensuring that we get returns on our investments in the cycle.

For those who don’t manage these challenges, the consequences are significant. We’ve put in a lot of effort into how we tackle this. We’ve restructured, signed new deals, and ensured that we get the right returns for our input costs. We are committed to building out the scale because we believe the industry is fundamentally strong, with a promising future as part of the digital ecosystem.

That’s why I speak not just about data centres but about digital infrastructure. There are three key components: data centres, connectivity (which is essential for a robust ecosystem), and energy.

They are interrelated, and to provide a comprehensive digital infrastructure, the energy aspect must be secure and reliable, with the right input costs. Whether we source it from utilities or manage our own energy mix with an independent power provider, this is crucial for our operations.

For every megawatt of critical infrastructure, you need about two megawatts of power to run it. So, when we’re building a data centre, it’s important to account for the full power requirements. Currently, we’re planning for up to 150 megawatts of power for upcoming projects. Lagos State is also working on its own power development, which is a positive sign for us.

Would you say it is advisable for data centres to adopt other energy sources like solar and wind?

Absolutely, sustainability is top of mind for us. It’s not just about the energy source but a whole range of factors. For instance, we’ve recently announced that we’ve integrated 330 kilowatts of solar energy into our Durban Data Centre.

This is a pilot project, and we’re looking to expand this initiative. Solar power is great for power substitution, but it’s important to understand that data centres are so power-intensive that you need a large amount of land to generate the necessary power for their operation.

For example, if we generate half a megawatt from solar, we still need another half to reach our target of one megawatt. For Lagos, we have adjacent land, and we’re looking at optimising power usage, using solar where possible, and ensuring that the rest of the power comes from clean gas.

Energy efficiency is another part of sustainability. We are focused on improving the efficiency of our data centres to reduce the amount of power we need to meet demand. Our engineering teams are always working on optimising power utilisation effectiveness to minimise consumption while still meeting the critical load requirements.

We are also looking at other green energy options, such as hydro and wave energy, depending on the locations. Some innovations are emerging in this area, and we are actively exploring possibilities, even from Europe. If any of these solutions prove feasible, it could be a breakthrough for us.

However, there are many considerations, including permitting and the complexity of using the sea for energy generation. In short, we are committed to reducing our environmental impact while ensuring that we meet the power demands of our operations.

What is the impact of Artificial Intelligence on the operations of data centres?

In technical terms, what used to be 10 kilowatts per rack has now increased to 40 or 50 kilowatts. You don’t even have to wait six or twelve months to see this shift—the density requirement per square metre continues to rise. We’re now reaching 60 or even 70 kilowatts.

For example, we were developing a solution for a client, and by the time we completed it, their power density needs had already increased due to the growing demand for both AI-specific and non-AI workloads. This increase means we need to deliver much more power within the same footprint. What used to be a 12-megawatt building could now easily become a 30-megawatt facility due to higher power densities.

We anticipated this trend about 18 months ago. As part of our strategic planning, we ensured our facilities are AI-ready and capable of optimising data halls for AI workloads.

Another key factor is capacity substitution. Europe is running out of power and data centre space, although efforts are being made to turn this around. Issues like disruptions in gas supplies due to the Ukraine versus Russia conflict have added to these challenges.

When Europe struggles with power and space constraints, the solution is to shift capacity to Africa—but only if Africa has the right kind of data centers. Therefore, we need to build these facilities quickly, and we’re starting to see progress. This is a significant impact of AI on the market, which I refer to as capacity substitution.

AI also influences how we balance core compute and edge computation. Core compute, which isn’t latency-sensitive, can be deployed where power is cheapest. Edge compute, however, is latency-sensitive and needs to be closer to users.

In Africa, with increasing broadband penetration and adoption, AI is becoming embedded in everyday tools like WhatsApp and Facebook. These applications require edge computing, which generates additional capacity demand.

To meet this, we need the right infrastructure—reliable power and data centres capable of handling capacity substitution and edge AI workloads. This will significantly boost the demand for data centres and connectivity in Africa.

For example, the minister recently announced a 90,000-kilometre broadband expansion. But broadband penetration alone isn’t enough—what matters is meaningful broadband adoption at the point of consumption. Without this, we risk missing out on the AI ecosystem.

Lagos will play a central role in this growth. In my view, demand in Lagos will increase significantly, requiring more edge data centres. We are also looking at other locations like Abuja and Kano, where Galaxy Backbone already operates a Tier 4 data centre. This supports our port-edge strategy and converged open digital infrastructure strategy.

Finally, in hyperscale data centres, we must accommodate three types of demand: enterprise demand, which has lighter requirements; cloud demand, which is heavier; and AI demand, which requires dense and intense capacity. Our goal is to ensure our data halls are flexible enough to meet these diverse needs. That’s why we confidently say our facilities are AI-ready.