Necessity Of Digital Transformation: Organizations Race To Keep Up

December 18, 2023


Increasing the digitization of government and company operations continues to be of unparalleled importance. A June report from IDC InfoBrief, a technology consultancy, found 82% of those surveyed said they “must invest in digital transformation or be left behind.” Meanwhile, “49% say the ability to keep up with technological innovation compared to competitors will be one of the greatest threats to their organizations over the next 12 months.”

Fearing a technological lag far outweighs rising inflation and recession risks, as only 20% of respondents said their biggest fear was rising prices.

The key to digital transformation is having “data centers” that can store massive amounts of information, as much as 1 million gigabytes, according to U.S. cloud server provider Raksmart.

Such data predominantly comes from “emerging technologies such as autonomous vehicles, augmented reality, virtual reality, and the internet of things,” noted a 2023 report from JLL, a real estate think tank. “These technologies … drive the need for specialized facilities tailored to their unique requirements. The real estate sector plays a pivotal role in enabling the expansion and optimization of data centers.”

Egypt is one of the top destinations in the Middle East and Africa for building data centers. However, it faces stiff competition from GCC nations and several African countries courting some of the largest investors, including Microsoft, Oracle, and Google.

Ideal location?

Egypt’s proximity to Africa, Asia, and Europe means the country is a standout destination for data center developers. “Egypt is one of the prime locations in Africa in terms of technology adoption, such as Big Data and IoT,” said a report by Arizton, a business adviser, in July. “The market is aided by increased submarine cable connectivity … strong digitization growth, adoption of advanced technologies, establishment of industrial parks and other factors.”

ICT Minister Yehia El-Qadi told the media in 2018 that the government wants to turn Egypt into a “global data center hub.” That aligns, he said, with the country’s strategy to “lure more investments [by] attracting global data centers.” According to Data Center Map, Egypt has 15 data centers owned by Telecom Egypt, GPX Global Systems, ECC Solutions, Raya Data Center, and Etisalat, among others.

More are under contract or construction. In June 2022, Raya Holding signed a deal with Huawei Egypt to develop “sustainable data centers in the country,” said a press release in December. President Abdel Fattah El-Sisi announced the construction of a data center to serve New Mansoura smart city exclusively.

In February, the U.A.E.’s Gulf Data Hub agreed with Elsewedy Data Centers to “develop Africa’s largest data center complex,” the press release said. The complex will be able to accommodate three data centers, attracting $2.1 billion in investments.

The following month, Nokia, the Administrative Capital for Urban Development and Orange Egypt signed a deal to build a data center for the New Administrative Capital, also a smart city.

In May, the UAE’s Khazana announced plans to build the first data center in Egypt to offer cloud storage solutions (hyperscale data center), costing $250 million in Maadi Technology Park. Meanwhile, Africa Data Centers, which operates in Nigeria and Ghana, said on its website in September 2020 that it planned to build data centers in Egypt and Morocco. At press time, there had been no additional details.

Competition: Africa

Egypt faces stiff competition from other African countries to attract data center developers, be it “enterprise data centers” that companies build for themselves, “managed services” centers that lease storage services to a few client companies, or “hyperscale” data centers offering cloud services operated by the likes of IBM, Microsoft, Apple, and Amazon Web Services (AWS).

Data Center Map said Africa has 69 third-party data centers in 13 countries. JLL said South Africa has the continent’s only operational hyperscale data center, delivering AWS’s cloud services. The Data Center Market in Africa report published by ReportLinker in August 2020 said Egypt, South Africa, Kenya, Morocco, and Nigeria were “driving this growth.”

The JLL report forecasts data center investments in Africa should grow from $2.74 billion in 2022 to $4.92 billion by 2028. “South Africa is anticipated to dominate the market with the highest number of investments, followed by Nigeria and Kenya,” noted JLL.

African real estate companies see data center construction as a lucrative opportunity. Real Estate Investment Trust bought three third-party data center companies in 2022. The latest was “Africa’s largest vendor-neutral data center and interconnection platform providers … Teraco Data Environment [announced in January] for $3.5 billion.” The other two data centers are in Nigeria.

According to JLL, the “existing data center market [in Africa] is largely dominated by telecoms … and governments.” Meanwhile, specialized data center providers on the continent are cooperating to create bigger entities. In August, African Infrastructure Investment Managers and N+ONE Datacenters announced they would co-develop pan-African data centers and cloud service platforms in West Africa, starting with Morroco and later Senegal.

Foreign investors also see an opportunity in Africa. One of the top deals was ACTIS, a private equity firm, buying Rack Centre, a data center provider in Nigeria, in March 2020 for $250 million.

In April 2022, U.S.-based Equinix, a developer of data centers, acquired MainOne, a data center developer in West Africa, for $320 million. In November 2022, U.K. private equity firm Helios agreed to build cloud-service data centers in two undisclosed African locations.

Competition: Middle East

GCC nations are even more attractive for data center developers than African countries. They have more data centers (135 versus 69) in more nations (16 versus 13).

The JLL report noted investments in data centers in the Middle East in 2022 reached $4.86 billion, with forecasts it would reach $7.94 billion by 2028. “The U.A.E. and Saudi Arabia are expected to be the leading contributors to the growth of data centers,” noted the report. “[It is] followed by [the rest of GCC nations], owing to the rapid deployment of 5G networks.”

JLL said GCC countries rely on “collaborative partnerships between developers and sovereign wealth funds” to establish data centers. The latest was in May when DigitalBridge signed an agreement with Saudi Arabia’s sovereign wealth fund to build an undisclosed number of data centers.

In July, Qatar’s IT service provider, MEEZA, said it would add a fifth data center after successfully listing on Qatar’s stock exchange. Also this year, Etisalat Group and Group 42 merged their UAE operations, creating Khazana Data Centers, “the largest data center provider” in the country.

GCC countries are better prepared than Egypt to host data centers offering cloud services. JLL says the “UAE stands out as the country with the largest presence of hyperscalers.” Meanwhile, Saudi Arabia is a “promising market” endorsed by Oracle Cloud, Google Cloud and Microsoft.

Becoming a prime location for data centers opens the door for real estate developments catering to other cutting-edge technologies. That includes decentralized computing architecture (edge computing) and artificial intelligence and machine learning processing centers. The JLL report stressed such technologies, in turn, “play a vital role in supporting innovation,” which has been a priority for Egypt and the region for the past decade.