Engineer Ikechukwu Nnamani, the CEO of Digital Realty Nigeria, warned that data centres will run into huge problems if their funding sources are not long-term, cost-effective, and capable of withstanding exchange rate fluctuations.
“If not, a lot of companies will run into trouble very soon,” Nnamani stated at the Hyperscalers Convergence Africa held Thursday at the Federal Palace Hotel, Lagos – Nigeria.
The event, themed “The Premier Platform for Driving Africa’s Digital Revolution,” addressed the pressing issues facing the data centre industry in Africa.
Nnamani explained that investments by global data centre players over the past three to four years have introduced funding sources that are not typically available locally. “For them, they are looking at their investment in Africa as part of a global investment,” he stated.
Digital Realty has committed around $2 billion to the African market in recent years, a sum not usually accessible through local banks or equity investments.
“They can do that because they’ve got access to what we call cheaper funds as part of the group; right equity system and some other global entities who have access to be able to get funding, very low, single digit interest rate,” Nnamani explained.
However, he said currency instability is a huge challenge. “You have to import all equipment; a very tiny part of it is in the local currency,” he noted.
This issue is worsened when financial models are based on stable exchange rates. Nnamani provided an example: if a data centre’s pricing is set in US dollars and the naira depreciates, the value of their services in USD can fall sharply.
“If by next year, naira depreciates to 2000 and if you convert back what you charge in Naira back to USD you suddenly find out that you no longer sell your service at $500 but you are now selling it at $300 equivalent,” he warned.
The fluctuation undermines the initial investment assumptions. “The basis where you got investment 100% gets thrown out of the window, not because the customers are not there, not because the metrics under which you went into the business were wrong, but 100% based on the devaluation of the naira,” Nnamani said.
To mitigate this issue, Nnamani suggested that data centres might need to adjust their pricing in local currency in response to currency depreciation. “You are dealing with customers who tell you we can’t afford it. Things are hard right now. So it becomes a chicken and egg situation,” he added.
He stressed that only long-term funding could offer a sustainable solution. “The only way around it is you benchmark your price where, literally, as the naira depreciates, you have to increase your price in the local currency,” he advised.
Nnamani pointed to the urgent need for strategic financial planning and diversified revenue sources in the data centre sector. “My concern is, this is a big concern. I think some of the data centre players are going to run into big problems if they are not already in trouble,” he warned.
He called for long-term, stable funding solutions capable of withstanding exchange rate fluctuations to ensure the sector’s viability and growth.
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