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Data centre activity soars in Saudi Arabia

23 February 2024

Saudi Arabia is experiencing a major uptick in the construction of data centre assets across the country.

Despite the preference for data centres to be inconspicuous due to security concerns, it is not uncommon to see certain construction sites or completed facilities marked clearly as such when one navigates the capital city, Riyadh.

Data sovereignty regulations as well as the widespread use of electronic commerce and social media particularly by young Saudis are driving the data centre construction boom, notes a Riyadh-based expert.

Government agencies, banks, and family-owned conglomerates, in addition to local and international data centre developers and operators, have either started constructing or are planning to start the construction of data centre facilities across Saudi Arabia. 

The value of known data centre projects pipeline in the kingdom falls under $1bn, according to regional projects tracking service MEED Projects. While this value corresponds to just one utility-scale renewable energy plant or a minor upgrade of an oil production facility in Saudi Arabia, future plans point to a major expansion of such facilities, which underpin the kingdom's digital hub and artificial intelligence (AI) strategies.

For instance, the government announced in 2021 a plan to build a network of large-scale data centres that will require investments of up to $18bn by 2030.  At the time, the kingdom's Communications & Information Technology Ministry (MCIT) tapped local firms Gulf Data Hub, Al-Moammar Information Systems and Saudi FAS Holding as its initial partners for the scheme. 

The following year, Saudi-headquartered Quantum Switch Tamasuk (QST)  unveiled plans to design and operate data centre projects with a cumulative total capacity of 300MW for the MCIT  by 2026. The project will comprise six locations across Riyadh, Dammam, Jeddah and Neom, with a reported budget of at least $2bn.

Foreign investments have started pouring in to accommodate the rising capacity demand as well as the kingdom's ambition to become a digital hub.

Dubai developer Damac Properties-owned Edgnex is constructing a data centre, which will have a minimum capacity of 20MW, at Industrial City 2. 

In October last year, South Korea’s second-largest telecoms company, KT, in collaboration with Hyundai Engineering & Construction (Hyundai E&C) and the local telecoms group STC, signed a memorandum of understanding (MoU) to construct internet data centres (IDC) and smart cities in the kingdom. 

Similarly, the UAE-based cloud and data service provider Khazna Data Centres also plans to build data centres in Saudi Arabia as it executes its overseas expansion plans. 

In May last year, sovereign vehicle, the Public Investment Fund (PIF), teamed up with US-based infrastructure investor and asset manager DigitalBridge to develop data centres and related digital infrastructure in Saudi Arabia and across the GCC states.

Telecoms service provider Zain is also expected to build a new data centre with some support from the kingdom's SR5tn ($1.35tn) Shareek private sector investment programme.

Crucially, US-headquartered IT and cloud services giants Microsoft and Oracle pledged at the annual Riyadh tech conference, Leap, last year, to invest a total of $9bn in the kingdom. This will go into the construction of multiple data centres to form a so-called cloud region catering to Saudi Arabia and the wider Middle East region.

Similarly, Chinese tech firm Huawei has pledged to invest $400m to build cloud services in the kingdom.

"The demand is there that's why we are focusing on these projects," said the Riyadh-based construction expert, who also acknowledges that the depreciation rate for data centres is higher compared to real estate assets due to the high obsolescence of technology and the need to replace data centre components frequently.

Digital hub

A growth in the number of subsea cable landing sites in the kingdom is occurring in parallel with the substantial growth in data centre facilities and capacity.

A 45,000-kilometre subsea cable network connecting Africa, Asia and Europe, 2Africa, reached two of its four landing sites in Saudi Arabia in May 2023. The landing sites are in Jeddah and Yanbu.  The cable is expected to reach the third landing site in Duba late last year and the fourth site in Al-Khobar in 2024.

Once completed, 2Africa will connect Saudi Arabia to 33 countries, bringing the kingdom closer to its goal of becoming a digital hub.

The stakes are high for the kingdom, which has simultaneously launched plans to industrialise its economy, decarbonise its industries, increase localisation and reach net-zero carbon emissions by 2060.

While constructing energy-intensive data centres – which globally account for 1% of energy-related greenhouse gas emissions –  may seem counter-intuitive to these objectives, the rapid advancements in cooling and other data centre components, as well as the potential deployment of clean energy to power them, are expected to ease these assets' environmental impact.

 

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Jennifer Aguinaldo

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