Follow Us on Google Discover
Nigeria’s data centre market has in recent times attracted more than $1 billion in announced investments as global technology companies and infrastructure investors position themselves to tap into the country’s growing demand for cloud computing, artificial intelligence, digital services and data storage.
The Central Bank of Nigeria’s directive requiring banks, fintechs and other regulated financial institutions to store and manage critical payment transaction data within the country, effective January 2027, is also expected to create additional demand for local data centre capacity.
In this interview with Nairametrics, Lars Johannisson, CEO of Rack Centre, one of the leading data centre operators in Nigeria, discusses the factors driving investor interest in Nigeria’s data centre market, the extent to which announced investments are likely to materialise, and the industry’s readiness for the CBN’s data localisation deadline.
He also speaks on the risk of excess capacity and price competition, Rack Centre’s expansion plans, the growing demand for AI-ready infrastructure, energy costs and the industry’s efforts to address its shortage of skilled technical talent.
Also Read
Nairametrics: Nigeria has attracted announcements of more than $1 billion in data centre investments. From your position as an operator who has been in the market for over a decade, how much of this investment is translating into actual operational capacity, and how much remains at the announcement stage?
Lars Johannisson: Well, I think a good market attracts a lot of interest always and drives a lot of good ideas to invest, and I’m happy to see that on one side.
So, when it comes to the number of announcements and what percentage of them becomes something, it’s just a reflection of the interest in the market. I would say, roughly speaking, maybe 70% of what is announced actually will be materialized. Now the second emphasis is: when will it be materialized?
I’ve been exposed to announcements for many years, and they have a tendency to be deferred in time for a couple of reasons. So, the fact that there’s a lot of discussion, a lot of announcements, is not entirely a bad thing. That means there’s interest from different players.
Nairametrics: Talking about investor interest in the Nigerian market, what do you think is driving that interest?
Lars Johannisson: Well, the investment appetite is driven by a couple of things. I think Nigeria, as a country, comes from a position of a lot of volatility and insecurity, and that always drives a little of a risk premium in our investment portfolio.
I think over the last few years, we’ve seen a very solid performance by the nation in terms of policymaking, in terms of inflation going down and also in terms of FX stability. Combined with the factors of growth, the engine of West Africa and all of sub-Saharan Africa, I think it sets up Nigeria for a good path.
But we have managed, as a country, let me say, as an industry, to provide a bit of tranquillity and predictability in the market, and that drives appetite to invest, particularly when the growth opportunity is good.
Nairametrics: As a major player in the market, with more companies and more operators coming into the market, are you concerned about the possibility of excess capacity or price war, particularly if the anticipated demand does not materialize as quickly as expected?
Lars Johannisson: Well, you know, I don’t talk that much about my competitors; I let them talk about us, but overall, let me rephrase the same thing. The fact that there’s a lot of extra supply coming in is not entirely bad. Now, I think there are going to be two schools here.
I’m part of RackCenter’s leading provider, and we have an existing ecosystem. We sit on existing hyperscalers, so we build with our customers organically.
Now, if there were a massive influx of supply and there were other contenders that don’t have that ecosystem and that organic growth, I would assume there could be a price erosion in the mid-to-long term around that one.
But I also think we are the winners in the same situation. The winners in all supply situations are always the data centres such as RackCenter, that sit on an existing install base, existing client relationships, the price and the delivery performance above the rest.
So, I feel that we would, in the eventuality of a price erosion, stand very firm on our existing performance of business.
Nairametrics: RackCenter currently has about 13 megawatts of live IT capacity. What are your expansion plans and how much additional capacity do you expect to bring on stream over the next three to five years?
Lars Johannisson: If I take a market perspective, there are different kinds of estimations here. But right now, some people assume that we have about 60 megawatts of IT capacity in Nigeria.
And maybe the real IT load is half of that. And that will grow over time until 2032. I think we have a CAGR of about 24.25%.
And that will bring another capacity of about 220 megawatts by 2032. Now, what are the plans of RackCenter? We have always been a single-asset company, the prime data centre in Nigeria. And we have deployed just 12 megawatts, and we’re growing above market rate.
So, my initial and short-term plan is just to execute an existing facility installed base and this AI hyperscale-ready facility we have. I will build out each and every batch as I have clients coming in.
Now, the second thing I’m thinking of is that by 2029, I’ll probably make a decision about where I would place Lagos 3? Because the market and opportunity for RackCenter is bigger than our existing facility.
So even though I stand very firm on Lagos 1 with the first data centre, which is full, I have a Lagos 2, which is tracking well to deploy it and fully utilise the 12 megawatts. In two years’ time, I’ll make a new decision to build Lagos 3. We will leverage on that 13.5 megawatts of then-filled IT capacity to build on to the next wave, which is way bigger.
Nairametrics: You know there is the CBN data localization deadline of January 2027. When the policy was first announced, the one key thing that came up at that time was that a lot of banks and fintechs were complaining about capacity in Nigeria. So, I would like to ask: how prepared are Nigerian data centres to accommodate the additional demand that will be coming from these banks and fintechs as they comply with this new CBN rule from January 2027?
Lars Johannisson: I’ll take a step back because two things have happened. RackCenter and other data centres have worked over a prolonged period with NITDA to develop the Cloud First, Nigeria First policy, which has now been announced. And as an extension of that, you now have the CBN policy to talk about sovereignty and, you know, making sure that payment transaction data is stored in Nigeria.
So, the industry has been part of the conversation, and that has prepared us, and I’m speaking not only on behalf of Rack Centre, but also the rest of the industry.
We are very much prepared.
There could be valid questions for the fintech companies or the banks that have not really taken a decision on how to migrate, and that’s more of a project planning. But on the receiving end, I would dare to say that we are ready to take it on.
Nairametrics: From your experience at Reck Centre, since the policy was announced, what are you seeing in terms of response from banks, fintechs, and other financial services companies?
Lars Johannisson: Yes, there have been responses from many of them. But many times they are more accurate, to the point of: how can you do this? How can you help us? Do you have the capacity? And I’ve seen a lot of those come in the last months, which is actually a good sign, but very pragmatic conversations about how to do it rather than statements of how much the market is going to grow.
I think we are sitting on a very good plan. I think the financial institutions, together with NITDA and the data centre industry are taking the right steps to migrate. So, this will end up in a good way.
But I think we’re taking it prudently, step by step.
Nairametrics: Now, do you envisage any form of challenges in migration?
Lars Johannisson: I will not speak on behalf of the clients and the fintechs. I mean, all of them have different architectures, different problems and different maturities. So, I think the range is from planning, capabilities, and funding; it could be many different ones, because this is at the end of the architecture level from their end. It is a bit of a complex; for the receiver co-location centres, data centres are more straightforward, so to say.
I think all companies have their challenges, but overall readiness that I saw from the last NITDA data is that the majority of the fintech companies that have been exposed to it are ready or planning to be ready. And only a minority, small minority, still have doubts about how to do that and whether they will be able to hit the timeline.
And I do believe that we will be able to push them into the timeline for January or we make sure that they come on board as soon as possible.
Nairametrics: A recent industry survey indicates that more than 67% of Nigerian data centre operators have difficulty retaining skilled technical staff. What is Rack Centre doing to develop local talent?
Lars Johannisson: We are probably the most skilled data centre operators in the whole market. But we also believe that we continue to grow, and we’re going to see the whole market grow. There’s a need of more competence for not only myself, but the rest of the market.
We took a very proactive stance, together with Schneider and other industry partners, to create this year what we call the Rack Centre Academy, which is a very focused approach to address two things: bring in more people, young graduates and give them a solid training certification and make sure that they learn the trade, not only theoretically, but also come and work with us.
We are also making sure that gender balance is also fixed because operations is still very much a male-dominated engineering environment.
What we do with Rack Centre Academy is also add a female participation test sector, which is so important. And the outcome of this is two-fold. There will be people who cannot be hired immediately by Rack Centre here, but I will offer them to my competitors because, at the end of the day, this is a strategic advantage for the sector to be able to get access to these trained people.
We work with our competitors side-by-side, because that prevents us, further down the line, from having any kind of poaching and war of talent, which is detrimental to our clients and data centers.
And there’s no real winner around that one. So I think we’ve done the right thing, and I’m very optimistic about it because I think there are about 180 universities in this country, and they produce a huge amount of talent in the sector.
What we can do better, and we need to do better, is make sure we give these guys the opportunity to train, to get certified, to get exposed to reality. So, we bet on it. We will continue doing Rack Centre Academy for the rest of the years to come.
Nairametrics: Back to your operations, data centres are energy-intensive businesses, and Nigeria continues to face significant power supply challenges. How much does energy cost affect the economics of operating a data centre in Nigeria, and what strategies are you adopting to manage this?
Lars Johannisson: Data center clients and data centres are all about energy and space. So, the big elephant in the room here is energy. Now, the industry has historically been very, very good at making sure that they use their own sourced power through diesel engines and other solutions all the time.
And Rack Center probably is the best example of the same thing. We, as everyone else, started diesel engines and then we had, you know, a decision to whether we’re going to go on utility, whether we’re going to use something else.
Back in 2022, we selected gas. Gas is naturally produced in the country. It has a better carbon footprint, which makes us more sustainable than the other alternatives. And then we can run it way better than we could do before with diesel engines.
So, sustainability and using the right mix of energy is essential for the data centre industry. It is essential for Rack Centre.
And now we take the next step. The next step is to ensure that between 20 to 45 per cent of my energy is produced by renewable energy.
And that is a very good footprint. Now, power is also a larger debate in Nigeria than just the data center business, because this is a national interest. Remember, as a percentage, I believe that this country generates, per day, 10 per cent of the energy that South Africa produces every day.
A country, a nation of 36 states, 220 million-plus people, generating 10 per cent, what 60 million requires. That means the data centre business has tried to fix the problem from their own side. But the nation, as such, needs to continue to work for the next 10, 15, 20 years to build energy, because that is a critical asset for everyone.
Nairametrics: One of the concerns stakeholders have raised about the industry in recent times is that Nigeria, despite all the announced investments, lacks AI-ready data centres. What is the status of your facility in this regard?
Lars Johannisson: Rack Centre was designed for AI, for hyperscalers. It’s not just one of those marketing messages.
So, when you design for AI, that means that you have the capability to add in any known liquid cooling solution as of today within the limits of the data centre. So right now, I have no issue at all taking care of the current workload per rack that we have in Nigeria, and I have no problem taking on the AI workload with whatever GPU, with a plus 100 kW per rack; I can do that as well. It’s just a supply matter and a planning matter.
So, we have that capability. And that’s why we say that we are AI and hyperscale- ready.
Nairametrics: What is your projection for the data centre industry in Nigeria in the next five years? Where do you see the industry based on the current policies?
Lars Johannisson: There’s going to be growth. I foresee a CAGR of maybe 24 to 25 per cent in the market.
So, I believe we’re going to go from 60 to maybe 224 megawatts by 2032. I believe the cloud and co-location business will probably grow between 30 and 35 per cent per year. It depends on who you talk to.
And I think the skill set we have is managed by one initiative in terms of Rack Centre Academy and others coming up. So I’m very optimistic.
When I see the subsea cables, they’re all now operational. The last one, 2Africa, is up and running. And if you can add the energy transition plan into the mix, I’m very optimistic.
I’m very optimistic about the sector, about the country, about the opportunities. Now, there are always issues, some minefields here and there. But I don’t lose focus on the bigger picture.
