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Data centres meet upbeat growth

21 June 2024

This package also includes: Region plays high-stakes AI game

Artificial intelligence (AI) is turbo-charging data centre demand in the Middle East and North Africa (Mena) region.

This is in addition to the demand for accelerating digital capacity to accommodate Mena states’ energy and economic diversification agendas, not to mention data sovereignty regulations and widespread electronic commerce and social media use among the population.

Khazna Data Centres foresaw this trend. The UAE-headquartered company set in motion an expansion strategy four years ago when it and another data centre provider, Injazat, became part of AI firm G42 after its original owner, Mubadala Investment Company, acquired a minority stake in the AI firm.

In 2021, G42 and UAE telecom group Etisalat agreed to merge their data centres, quadrupling Khazna’s portfolio. The same year, G42 announced a plan to build data centres in Indonesia with an IT load capacity of up to 1,000MW.

In late November last year, Khazna signed a shareholders agreement for its first data centre in Egypt as part of its commitment to invest more than $250m in the North African state. 

The two countries announced a plan to build data centres across Egypt with a potential combined operational capacity of 1,000MW shortly after.

This May, Khazna and the Abu Dhabi Investment Office launched the procurement process for a data centre facility in Mafraq in Abu Dhabi, which will have an initial capacity of 15MW.

Vibrant market

Khazna is not the only company looking to expand its presence in this sector. US-headquartered Amazon Web Services (AWS) plans to invest $5bn in the UAE over 15 years and $3.5bn in Saudi Arabia. This follows its initial foray into the region through a data centre in Bahrain, which was completed in 2019.

For its part, Google began operating its cloud region in Dammam, Saudi Arabia, in November 2023 and plans to build a new cloud infrastructure in Kuwait. Both Microsoft and Oracle have also pledged multibillion-dollar, multi-year investments in Saudi Arabia.

For international players, the need to be physically present in jurisdictions such as Saudi Arabia, due to data sovereignty policies, and the generally low cost of electricity are driving decisions to set up in the region.

According to US-headquartered consultancy Turner & Townsend, Saudi Arabia has 22 active colocation facilities and over 40 data centres under construction as of February 2024.

This comes less than three years after the Saudi government announced a plan to build a network of large-scale data centres that will require investments of up to $18bn by 2030. 

This figure excludes the 300MW capacity that a local firm, DataVolt, aims to develop using a public-private partnership (PPP) model. Announced only this year, DataVolt’s projects are expected to require $5bn of investments.

Another Saudi company, Quantum Switch Tamasuk, plans to design and operate data centre projects with a cumulative total capacity of 300MW for the Saudi Ministry of Communications and Information Technology by 2026.

Building momentum

The focus on AI by the government sector, sovereign wealth funds and the largest state-backed companies, such as Saudi Aramco, in addition to the digital strategies launched by countries including Oman and Egypt, guarantees a growing pipeline of data centre projects.

AI is providing the momentum that previous generations of technologies, such as blockchain, cloud services and the Internet of Things, failed to deliver individually.

The growing number of subsea cable landing sites in the region also puts some GCC states in a strong position to host large-scale data centres. For example, in May last year, the world’s longest submarine communications cable system, 2 Africa, reached its first two landing sites in Jeddah and Yanbu in Saudi Arabia.

US-headquartered Equinix, which has built several data centre facilities in the UAE and Oman, envisages its first facility in Oman as a key interconnectivity point offering “ultra-low latencies” for traffic flows between Asia, Europe and Africa.

These developments present interesting and challenging opportunities for the specialised engineering, procurement and construction (EPC) and mechanical, engineering and plumbing (MEP) contractors that build data centres on behalf of their clients.

This is especially true given that the average cost per megawatt of data centre infrastructure, following a steady decline in the years leading to the Covid-19 pandemic, has taken the opposite course. 

The cost is now rising within the $10m-$12m/MW band for data centres with a typical tier 3 configuration. 

Saudi Arabia, for instance, has entered Turner & Townsend’s 2023 data centre cost index with an average cost of $10 a watt, “attracting investor interest as digital connectivity and investment continue to rise in support of the national building programme and gigaprojects”.

Region plays high-stakes AI game

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Jennifer Aguinaldo

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