Data Centers: Forex instability, Low FDI Threaten $230m Investment

Samuel Mobolaji

The foreign exchange (forex) volatility and declining foreign direct investment (FDI) are threatening over $230 million worth of investments in the data center sector.

According to an Arizton Advisory and Intelligence report, Nigeria’s data centre market was valued at $230 million in 2022 and is expected to reach $415 million by 2028.

Recall that the National Digital Economy Policy and Strategy (NDEPS 2020–2030) advocates for a fully digital economy by 2030. By then, it is anticipated that all government services will be available online, eliminating the need for residents to visit any government office in person to get services.

To achieve this, standard data centres with enormous capacity are needed to support this. Sadly, operators, once optimistic about the booming demand for digital infrastructure, are increasingly wary of unstable economic conditions and uncertain returns on investment.

ccording to them, this issue is compounded by a notable decline in FDI, which had been a key driver in the rapid expansion of data centers in developing economies.

The latest data from the National Bureau of Statistics (NBS) indicates that the sector attracted a total of $134.75 million in FDIs in 2023. This amount marks a significant decline from the $456.83 million recorded in 2022.

For instance, the chief executive officer of Digital Reality Nigeria, Engr. Ikechukwu Nnamani, told LEADERSHIP that, since the majority of the equipment needed is not readily available locally, about 90 percent of the investment required to construct a new data centre is in foreign currency.

In an analysis of how the foreign exchange crisis is deterring foreign investments in the data centre industry, Nnamani stated that, “If you come to Nigeria and use, for example, an exchange rate of N1500/$1 to benchmark what you want to charge, and that amounts to $500 but you are charging in Naira for the use of your service, then by next year, Naira depreciates to N2000, if you convert back what you charge in Naira back to USD, you suddenly find out that you are selling your service at $300 instead of $500.

Nnamani stated that data centre operators who establish their businesses with local investment are now very concerned, in addition to the danger associated with foreign investment. “If they aren’t already in difficulty, I believe that some of the major players in the data centre industry are going to have serious issues.

“Thus, your entire business case—which served as the foundation for your investment—is thrown out the window—not because there are no customers, nor because the metrics you used to launch the company were flawed, but rather because the value of the naira is entirely dependent on it, over which you, as a data centre provider, have no control,” he added.

Although, Nnamani pointed out that the only way for data centre operators in Nigeria to survive is to base their rates on the Naira fluctuation, he added that, international investment is still the only viable option for the company because Nigerian banks demand rapid returns. “Long-term funding is the only type of finance that can keep this going. The only players and fund types that can survive this market are those who can offer you five to ten years before they start trying to recoup your investment,” he averred.