By Fitch Solutions
- Hyperscale cloud vendor Oracle has opened a data centre in South Africa, its first on the African continent.
- South Africa has seen a growing level of investment from tech-players looking to capitalise on one of the region’s outperforming and most digitally mature markets.
- Access to reliable power sources is a key downside risk to investments made by cloud vendors in South Africa, though Oracle is particularly vulnerable given its heavy debt burden.
Oracle joins other cloud majors Microsoft, Amazon Web Services (AWS) and Huawei who also manage data centres in South Africa, as well as local digital infrastructure provider Africa Data Centres and its parent company Liquid Telecom. More recently, Digital Realty gained a point of presence in South Africa through the acquisition of a majority (55%) stake in Teraco.
Oracle’s decision to establish a presence in SSA through South Africa is a timely one, though it does not come as a surprise. Our proprietary Digital Maturity Index weighs markets in terms of their readiness for Industry 4.0 and we place South Africa at the top of the regional Index. South Africa scores somewhat highly across all four pillars of the Index and we believe there is scope for the country to emerge as a regional cloud computing hub due to the relative strength of its supporting infrastructure: i.e. terrestrial and submarine fibre and mobile networks. South Africa has recently seen several large investments into advancing its connectivity to international bandwidth via subsea cables. Big tech companies Google, Meta (Facebook) and telecoms majors like MTN and Orange have each announced their involvement in several subsea cables with landing stations in South Africa to serve their own needs, taking advantage of the country’s booming level of data consumption.
A key downside risk to Oracle’s investment and to the overall growth of South Africa’s cloud computing industry is the unreliable access to power in the country. Data centre operators in South Africa will be highly exposed to power shortages that plague the country and regular load-shedding remains a pertinent risk for energy intensive sectors like cloud computing, heightening the reliance on expensive diesel or battery-powered solutions.
Some operators have instead shifted towards renewable energy sources like solar and hydro-electric power as a means of keeping their data centres operational at a lower cost. Oracle has outlined that 100% of its cloud operations worldwide will be powered using renewable energy sources by 2025, reducing the company’s exposure to South Africa’s acute power shortages somewhat over the medium-term. Powering digital infrastructure using renewable sources is becoming an increasingly attractive trend, particularly in SSA where reliable access to electricity grids is uncertain and its near-constant sunshine makes it the ideal location to explore solar power.
However, implementing renewable energy across Oracle’s portfolio will be a significantly capital-intensive operation and one which is not supported by the company’s huge debt load: at the end of November 2021, net debt totalled USD50.6bn. Shortly after its latest earnings release, Oracle acquired health technology firm Cerner for USD28.3bn and did not lay out any plans on how it intends to finance the deal, leading to further concerns surrounding its debt burden.
South Africa is Oracle’s 37th cloud region and the vendor aims to launch at least another seven (Spain, France, Israel, Saudi Arabia, Mexico, Chile and Colombia) before the end of 2022, an aggressive strategy that is likely to place even more pressure on the company’s bottom line.
Nevertheless, South Africa’s appetite for cloud computing adds some risk to the upside for Oracle: whilst it will not be the fastest-growing cloud market in SSA over the medium-term (owing to its already established base), South Africa will have the largest cloud market on the continent by 2024 at USD2.42bn.
This article has been sourced from Fitch Solutions and can be accessed here