Nigerian data centres are facing difficult times due to the increased prices of petrol and diesel following the removal of fuel subsidy and the floating of the naira by the current administration.
Data centres consume a huge amount of electricity. Unlike traditional brick-and-mortar establishments, networks and data centers need to operate 24 x 7, around the clock, regardless of whether they serve a handful or millions of customers. This round-the-clock operation places immense cost pressures on these companies even as they face slow growth with a high inflationary economy.
According to the National Bureau of Statistics, the inflation rate stood at 25.8 percent in August 2023, an increase from 24.08 percent recorded in July 2023. The floating of the Naira has also seen the Nigeria Naira get devalued with the exchange rate against the dollar rise officially to N746/$1 and unofficially to N990/$1, up from the prevailing N461/$1 rate a few months ago.
Adding to the major impact of the foreign exchange is the increase in energy costs including prices of petrol, diesel and a proposed increase in electricity tariffs. Diesel generators have long been the primary source of backup power for businesses in Nigeria, with the price per liter fluctuating between N850 and N950.
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Meanwhile, petrol which is primarily used for vehicles and for homes as an alternative source of fuelling generators now hovers between N568 and N650, an increment of over 200 percent when compared to the first quarter of 2023, stemming from the subsidy removal by the new government. Also, efforts are in progress to increase electricity tariffs for households and businesses which will be felt across the formal economy, as businesses grapple with the increased cost of operations.
With energy being a critical part of operations for most companies either in telecommunications, media, banking, manufacturing and tech, the impact on the bottom line is huge when the cost of diesel, petrol and power subscriptions are factored into monthly and annual expenditures. More unsettling is the fact that inflation, as far as Nigeria is concerned, has continued to grow almost monthly.
At a time when digital transformation is hailed as essential for economic productivity and the economy remains plagued with low growth, the ICT sector is being squeezed by the rising costs it is struggling to pass on to both businesses and consumers.
According to experts, as one of Africa’s largest ICT markets with a substantial number of telecom subscribers and internet users, the impact is being keenly felt as telecom operators, data center providers, and companies with their ICT infrastructure grapple with these high costs.
Tough decisions to respond to the current challenges lie ahead for data service providers, manufacturers, FMCGs, and other businesses that increasingly rely on digital infrastructure to operate. In a market already faced with significant skills deficits further eroded by “Japa”, outsourcing of these services is becoming a more attractive alternative to the high overhead of running infrastructure in-house. Despite the fact that prices for service providers are going up just like everything else in the market, these services continue to deliver cost savings to customers due to economies of scale in their operations and efficiency.
“As the year draws to a close and businesses chart their strategies for the coming year, they must make difficult decisions to navigate the turbulent waters that lie ahead. Balancing the need for profitability with the reality of soaring costs will remain a formidable challenge,” said a data centre expert.
