The hidden secrets of Egypt. Beyond the pyramids lies a multi-billion Dollar data centre oasis
18 October 2019
The current Egyptian Prime Minister Mostafa Madbouly expects its economy to grow by an annual rate of 8% by 2022 directly linked to the government’s “continued efforts to improve the business climate, especially by simplifying and lowering the cost of forming companies and expanding new investment zones”.
One of the best examples of such plans already in motion is Egypt’s New Administrative Capital – as it is known so far –announced by Madbouly when he served as Egyptian housing minister at the Egypt Economic Development Conference in March 2015.
Located 45km east of Cairo, the city is already under construction in what was largely an undeveloped area halfway to the seaport city of Suez.
The masterplan covers 700 square Km with a projected population of 6.5 to 7 million, a value that could help ease overcrowding in metro Cairo with its current 21 million people.
With the population growth and incremental investment in urban development reaching the dozens of billions of Dollars, connecting the Egyptian economy has become a paramount priority for the nation’s government.
A good example of such market movements is the announced $2.44bn telecommunications investment in the first phase of the New Administrative Capital by the government in partnership with companies of the likes of Microsoft, Liquid Telecom and Telecom Egypt.
“The Ministry of Communication and IT (MCIT) aims at positioning Egypt as the region’s data centre hub,” explains Hala El-Gohary, Deputy Minister for Human, Capacity and Institutional Development and CEO at ITIDA, part of Egypt’s Ministry of Communications and Information Technology (MCIT).
“MCIT and ITIDA, through their private company Silicon Waha, are establishing tech parks across second tier cities in Egypt, which offer special duties exemption [current corporate tax is 22.5%] as per the new investment law.”
However, it is worth noticing that Egypt is still a fairly disconnected nation with an internet penetration of just about 50%. This is below the global average of 57% but still higher than Africa’s rate of 39.8%, according to Internet World Stats.
Work is being done both by the government and some of the country’s largest telecoms and ICT companies to speed up penetration rates and Egypt has in the past few years become an important “connectivity port” into other markets.
The country provides connectivity to a wide range of cables connecting North Africa, the Mediterranean and Europe, with countries in the Middle East, East Africa and Asia, as reported by BroadGroup Consulting in its Africa Data Centres III report.
According to the African IXP Association Egypt has a single Internet Exchange Point, the Cairo IX (CAIX) located in Cairo with up to 2 Gbps of daily traffic. Analyst and research firm TowerXchange estimates the current tower count in Egypt to be over 22,704.
Around a third of Egypt’s towers are shared, which according to TowerXchange’s CEO Kieron Osmotherly “is a decent ratio for a country with very little tower activity”.
The entrance of Telecom Egypt into the mobile market means new tower build volumes are relatively high in Egypt: collectively, Orange, Vodafone and Etisalat are understood to be adding 300-500 new towers per year, whilst Telecom Egypt has initiated the next phase of their network rollout, requiring the addition of 1,000 new sites (ground-based towers, rooftops and IBS).
Osmotherly says that all four MNOs have had 4G licenses in Egypt since 2016. While 4G coverage is relatively extensive in Cairo, a substantial rollout is required elsewhere.
Furthermore, with over 103 million subscribers and just over 22,000 towers, Egypt has over 4,500 subscribers per tower, the highest in the MENA region.
“This would typically indicate an overcrowded network,” the executive says. The think tank also reports that there have been no tower transactions of scale in the market. MobiNil (now Orange) reached a deal back in 2016 to sell 2,000 of their sites to Eaton Towers for $131m although the deal was cancelled and does not look like it will return to the table any time soon.
Rumours suggest Eaton (soon to be acquired by American Tower) would still like to enter the Egyptian market Nevertheless, history tells us that such movements and investments in the national and wider regional connectivity monopoly are the first major step towards the large-scale construction of data centres.
As a result, MCIT’s El-Gohary adds to that Deloitte has identified Egypt as a “golden opportunity” for data centres, due to its “unique geographical” location overlooking the Red Sea and the Mediterranean, which enables the country to become a regional digital hub, in addition to its strong network of submarine cables, and the high quality infrastructure in tech parks.
Deloitte estimates that due to the white spot of data centres in the region, establishing data centres in Egypt would save at least 250ms of latency from the US to APAC. Global management consulting firm TKearney has also identified Egypt as #14 on the list of Top global services location in June 2019.
She continues: “MCIT is continuously scaling up/upgrading the physical infrastructure through the national telecom provider, Telecom Egypt.”
ITIDA spearheads the development of the industry through various programs, including talent development and investors support, which includes market data, arranging due diligence visits, and financial support towards skill development of new hires, among others.
“In the next months, the Egyptian parliament is expected to issue a new data protection law. The law is compliant with GDPR of the EU in a move to protect and encourage businesses especially data centres and ensure the privacy of personal data due to the increasing digital transactions.”
According to Boston-based Xalam Analytics, there is a relatively diverse supply of data centre space, primarily managed by telcos and IT services providers. Guy Zibi, principal at Xalam Analytics, says: “A relatively large number of facilities (~20+), but only around ten are true dedicated multi-tenant data centre facilities. Most of the space is multi-purpose, and only around a third of available capacity can be described as carrier neutral. In many respects, Egypt is a developing, telco-dominated data centre colocation market.”
BroadGroup in its turn reports that there are 12 third party facilities in Egypt provided by ten providers. The majority of data centres are located around the Cairo area.
The largest individual facilities are provided by TE Data (the enterprise and wholesale subsidiary of Telecom Egypt) and by GPX (CAI-2).
The London-based analyst firm forecasts that third party raised floor space reached 155,000 sqft with power of 23.1 MW as of the end of 2018. These figures are forecast to increase respectively by nearly 18,000 sqft and 2.5 MW respectively for the year to the end of 2019.
Xalam Analytics’ Zibi adds that projections for the Egyptian data centre market “are fairly strong”, mostly driven by Telecom Egypt’s data centre deployments.
“We estimate current white space at around 161,000 sqf; the new deployments should bring that capacity closer to the 270,000 sqf mark, depending on how some of the projects ultimately materialise,” he says. Read more here.