Oracle’s decision to establish a presence in sub-Saharan Africa with its first data centre in South Africa is a timely one, however, the key downside risk to this investment and to the overall growth of South Africa’s cloud computing is the unreliable access to power, according to Fitch Solutions.

Prior to this development, South Africa has within the last couple of years seen massive investments towards advancing its connectivity to international bandwith via subsea cables. Big tech companies like Google, Meta (Facebook) and telecom majors like MTN and Orange have also announced their involvement in several subsea cables with landing stations in South Africa.

By this move, 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.

“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”.
Fitch Solutions

According to Fitch Solutions, data centre operators in South Africa will be highly exposed to power shortages that plague the country. Thus, regular load-shedding remains a pertinent risk for energy intensive sectors like cloud computing, heightening the reliance on expensive diesel or battery-powered solutions.

Operators Shift to Renewables

Meanwhile, 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.

This notwithstanding, implementing renewable energy across Oracle’s portfolio is expected to 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 US$50.6 billion, Fitch said.

Shortly after its latest earnings release, Oracle acquired health technology firm Cerner for US$ 28.3 billion 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 will now become 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 US$ 2.42 billion, Fitch said.