Digital transformation, emerging technologies such as artificial intelligence (AI), and the growing reliance of individuals and corporations on cloud-based services are defining this era of human history. “Gen Z [born from 1995 to 2010] are true digital natives,” McKinsey said in a note. “From earliest youth, they have been exposed to the internet, to social networks, and to mobile systems.”

Coping with this global transformation requires more and increasingly sophisticated physical facilities to store and process data for reuse in other applications. “Data centers are becoming the backbone of the digital economy, supporting everything from AI workloads to real-time analytics and autonomous vehicles,” McKinsey said in August.

Investors see massive long-term potential. “Globally, capital expenditures on data center infrastructure (excluding IT hardware) are expected to exceed $1.7 trillion by 2030 [up from around $600 billion in 2025],” McKinsey noted.

The Egyptian government sees an opportunity, but rapid data center expansion carries risks beyond the heavy use of energy and water for cooling. If mismanaged, these risks could undermine the country’s investment push.

Electricity surge

Measuring global demand for data centers is primarily based on their electricity consumption, not on the actual number of facilities. “Electricity demand from data centers soared by 17% in 2025, and that of AI-focused data centers climbed even faster,” according to an April International Energy Agency (IEA) report. That “well outpaces growth in global electricity demand of 3%.”

These abnormal energy growth rates occur despite “power consumption per AI task … declining rapidly, with efficiency improving at a rate unprecedented in energy history,” the IEA said. The surge is driven by “more people are using AI, and [other] energy-intensive uses.”

The IEA said “electricity consumption from data centers is set to double by 2030, and power use from those focused on AI is poised to triple” compared to 2025 levels. S&P Global Market Intelligence noted that this pace is “the low-end case scenario.”

The biggest risk to achieving rapid growth rates is that data centers are “coming up against a range of physical bottlenecks,” said S&P Global Market Intelligence. These limitations mainly relate to energy supply, slower-than-required digital connection infrastructure, and microchip sophistication and availability.

In the long term, the IEA expects today’s physical boundaries to be replaced by higher thresholds. “Proven applications of AI could help firms in energy-intensive industries reduce their energy costs by 3 to 10 percentage points,” the report said. “The energy sector as a whole is not yet taking full advantage of AI’s potential.”

Another hindrance to AI adoption (and hence data center demand) is the lack of sufficient digital skills and data availability in the short term, the IEA noted. Over time, these issues should recede as young professionals become more AI-savvy than their predecessors, leading to greater dependence on AI and, with it, more training data.

National opportunity?

Egypt’s interest in attracting data center investment emerged in 2021, when then-ICT Minister Amr Talaat announced, “Egypt is in talks with international companies to boost investment in data centers and information technology,” Arab News reported at the time.

These data centers would host corporate and residential information, enabling residents to access government services, Talaat said during the 2021 announcement.

To regulate domestic data center operations, the National Telecom Regulatory Authority (NTRA) issued rules in 2023 for foreign and local data center investors. Foreign investors don’t need to register with the NTRA, whether the data center is privately owned, hosts other service providers, or provides cloud computing services. They need only comply with the 2017 Investment Law.

Local companies “establishing and operating a private data center” don’t need to secure a license or register with NTRA. Those seeking to expand their services to “host other service providers” need a license.

The license would allow local data center owners to provide hosting services, rent sites to customers inside Egypt, and offer cloud computing services for their own use or for others inside Egypt. They can also connect directly to submarine cable systems by contracting with infrastructure service providers to rent cables or capacity without referring to NTRA.

If local data center owners want to become cloud service providers, offering computing services via private or public data centers, they must register with the NTRA.

Registration allows connection to submarine systems without referring back to NTRA. However, they need the regulator’s approval to provide cloud computing services to others within Egypt. The law states this acceptance is “subject to compliance with the conditions for providing cloud computing services and with relevant Egyptian laws and regulations.”

NTRA must evaluate the cybersecurity systems of registered data centers before issuing an accreditation certificate. These certificates have multiple tiers depending on their scores.

Local data center providers must renew both licenses and registrations every 15 years. In both cases, the NTRA grants a nine‑month grace period from the approval date to meet all requirements.

Fast growth

According to data aggregator Statistica, Egypt had 13 data centers owned by seven providers as of April. Research and Markets, a think tank, said, “Nine more [are] under various stages of development.”

Three of these under-construction data centers are government-owned. “These centers will not only host government applications and data, but also serve as a foundation for smart regional hubs that manage and store data for cities and governorates nationwide,” said Talaat, the former ICT minister, in October when the project was announced.

More data center constructions should be announced soon. In March, the government said it’s in talks with Renergy Group to secure $1 billion in investment to build a hyperscale data center powered by environmentally friendly energy in Sinai.

In April, Minister of Industry Khaled Hashem told local media, “U.S. firms have an opportunity to build data centers that use artificial intelligence to serve the industrial sector in both local and neighboring markets.”

Research and Markets, the world’s largest marketplace and online store for commercial market research reports, industry data and business intelligence, predicts Egypt’s average annual growth rate for data center investment between 2025 and 2031 at 19%.

Execution risk

The rapid expansion of data centers, especially those that require high computing power for AI training and computation, carries risks. “Past technological revolutions have tended to produce just a few dominant winners and many losers, and were characterized by episodes of financial dislocation,” S&P Global said in a January note. “This suggests that data center developers will face significant counterparty risk, and that their diversification must weigh more heavily in risk exposure analysis than it typically does in established sectors.”

The first issue relates to the nature of these facilities. “While [data] centers are generally considered relatively easy to build, new projects require infrastructure and construction coordination akin to building entire cities, typically on timetables of just a few years,” noted S&P Global. This “may force many contractors to take on projects that exceed their experience in terms of size and complexity, particularly where centers are designed to accommodate rapidly evolving AI workloads.

“Chronic challenges, [include] securing specialized labor, procuring equipment with long lead times, and coordinating with strained supply chains. Given that context, … 57% of data center projects experienced a delay of three months or more in 2025.”

Thirdly, the growing sophistication and scale of AI data centers, in particular, increase the need for debt to quickly fund such projects. “Many mid-sized contractors operate with tight balance sheets and are becoming more reliant on leverage to fund rapid growth,” S&P Global noted. “Even moderate cost overruns can erode profitability and weaken creditworthiness.”

That “erosion” can have widespread consequences, as “the interconnected nature of supply chains means that financial stress at a single point can cascade into broader project delays, amplifying both execution and financial risks,” S&P Global said.

Another funding-related issue is the lack of sufficient transparency in most data center projects. “Rapid expansion is fueled by significant commitments from private capital, whose [financial and debt] disclosure practices can obscure true leverage levels, risk concentrations and cross-default exposures,” S&P Global said. “Multi-layered arrangements, which may include cascading entities and circular commitments, further complicate visibility into who ultimately bears financial responsibility for project funding.”

Nation-specific risks

Contractual issues among parties involved in approving, building, operating, and using data centers are another pressure point. These risks emerge “particularly where asymmetries in experience and bargaining power exist,” S&P Global said.

That discrepancy is most evident when “strong negotiating leverage of powerful and sophisticated parties, notably the hyperscalers, … results in significant pressure to accept and maintain rapid deployment schedules imposed on counterparties –– especially contractors and local governments eager to secure growth,” S&P Global noted.

The rating agency warned, “This risk will increase with longer and more complex construction periods as supply [and] demand dynamics become more prone to evolution during the work. Furthermore, contractual frameworks are still evolving to reflect the realities of massive construction projects.”

These risks “could lead participants to underestimate risks embedded in contracts such as performance obligations, project interface responsibilities, counterparty credit risk and penalties,” S&P Global noted.

Industry-driver risk

The proverbial “elephant in the room” is whether AI will continue to grow globally at a similar pace to the past few years. S&P Global’s paper noted they “are unsure if the use cases will be sufficient to absorb the capacity being built.”

If use cases can’t cope, “confidence in the sector could weaken abruptly,” S&P Global warned. The result “would affect not only individual contractors and developers, but also credit markets, private-capital valuations and broader economic sentiment, particularly given the sector’s growing role in digital and industrial ecosystems.”

“At this stage, the AI race requires participants to invest in often untested technologies to see if they work,” said S&P Global. That could put those participants at risk of failure if they bet on the wrong AI use case or on one that’s not (or not yet) relevant to users.

For Egypt to avoid such exposures, S&P Global stressed the need to “strengthen transparency, improve risk-sharing mechanisms and reinforce financial resilience across the data center development chain.” Such steps “will be key to mitigating these vulnerabilities as the sector’s growth continues.