Why data centres are needed to support the growing startup community in Africa

From incubators to accelerators, Africa is home to a burgeoning digital ecosystem with over 600 tech hubs, each operating with the aim of helping entrepreneurs launch their own companies and facilitate the growth of local digital services. In 2019, for instance, the top 15 venture capital funding rounds for African start-ups raised almost $300 million, highlighting growth of over 60% compared to the preceding year.

 

Due to large populations, increased and accessible use of mobile internet, and widespread network coverage, markets such as Nairobi and Johannesburg offer environments that are conducive to start-up activity and consequently attract the lion’s share of funding from international tech titans such as Google and Facebook. In other areas of East Africa, such as Ethiopia and Uganda, however, the story is very different.

 

Research from Xalam Analytics has shown that internet user penetration and broadband penetration in Ethiopia’s 115-million strong population lies at just 23% and 6% respectively, highlighting a significantly underserved consumer market. The consequences of this are reflected in the number of tech hubs in the region – Ethiopia has just 6 tech hubs, compared to 50 tech hubs in Kenya.

 

This has led to an uneven pace of digital transformation across the continent. While tech hubs can form alliances to deepen networks and access new markets, many countries in Africa cannot achieve their full potential in terms of digital transformation without solving other key issues, primarily those linked to digital infrastructure. For example, a lack of modern, independent data centre infrastructure means local start-ups cannot offer stable connectivity and uptime, nor meet the rising demand for digital services from a growing population.

 

How data centres drive adoption of local digital services

 

Having the right infrastructure in place is key to allowing the local start-up community to thrive. Markets such as Ethiopia,  the fifth largest economy in Sub-Saharan Africa, present significant demand for data services in both business and consumer use – mobile penetration, for instance, has reached 45%, and a significant proportion of the population is under the age of 20; highlighting a large market of digital natives in need of digital services.

 

Building data centres that can cope with rising connectivity and uptime requirements and keep pace with the region’s population growth is vital to enabling local tech hubs to develop. As emerging technologies, content delivery networks (CDNs) and the cloud drive demand for high-velocity services, the local start-up community will need a modern and localised data infrastructure. While many countries in the region have seen considerable investment in infrastructure over the past decade, broadband growth has continued to lag due to high retail connectivity prices and uneven availability. However, with the development of carrier-neutral data centres, new operators and players entering these markets offer more competitive products that start-ups can integrate into their offerings to improve accessibility to their services.

 

Additionally, a low presence of CDNs is often cited as a key barrier to wider internet use. However, hosting content in local data centres significantly reduces the latency and cost of content delivery, ultimately widening its accessibility for local communities. For the local start-up community, using data centres to capitalise on these opportunities will be vital as the mobile CDN-enabled market is set to become a major driver of data traffic growth in Africa, with CDN traffic predicted to exceed 70% of total online traffic in the next five years. 

 

By offering more stable connectivity in an environment that is redundant and “always-on”, data centres can also help local start-ups improve and accelerate their business operations. Data centres, and, in particular, those meeting Tier III standards, are designed, built and operated to ensure maximum levels of availability and concurrent maintainability, which not only ensures the continuous uptime for digital services, but also enables data centre operators to run any planned maintenance without service disruption. Research from McKinsey has shown that the internet can increase productivity in Africa for a variety of essential sectors, such as education, healthcare, financial services, agriculture, and government. With regional demand for multi-tenant data centres only continuing to grow, job creation and local partnerships can thrive – for instance, cloud services and start-ups can join forces to deliver higher quality, more reliable services from within the data centre itself. The start-up community can also benefit from local specialist expertise – data centre operators will require more highly-skilled workers to meet the growing demand for data centre services, and will inevitably create more IT training programmes to meet this.

 

Despite the promise, the region’s digital ecosystem remains fragile and still requires significant investment and nurturing to help close the gap. Developing modern, local and carrier-neutral data centre infrastructure is one key area to help empower the start-up community in underserved markets in Africa, and will provide the stable operating environment for them to deliver sophisticated digital services and meet growing demand.