Home » Riding the Digital Wave: Saudi Arabia Accelerates Investment in Data Centres

Riding the Digital Wave: Saudi Arabia Accelerates Investment in Data Centres

by Mohammad Ghazal

Investment in data centres in Saudi Arabia, both public and private, is on the rise, driven by the increasing use of digital technologies in the Kingdom, such as cloud-based services, social media, e-commerce, video streaming services and the Internet of Things (IoT).

Recent developments in February highlight this ongoing trend. For example, it was announced that Oracle Corp intends to invest US$1.5 billion in Saudi Arabia over the coming years to expand its cloud capacity in the region and establish its third ‘third public cloud region’ in Riyadh. In addition, Dubai-based Damac group also announced it would spend US$600 million on expanding its data centres in Riyadh and Dammam before the end of 2023. Lastly, during the LEAP 2023 conference in Riyadh, Microsoft announced its plan to construct a new data centre and Azure cloud region in Saudi Arabia. Although Microsoft did not disclose information regarding the location, specifications, or timelines, the company stated that the new cloud region would provide high-speed latency standards, data residency, and enterprise-grade reliability and performance in Saudi Arabia.

Furthermore, the Saudi Ministry of Communications and Information Technology (MCIT) launched a US$18 billion plan in July 2021 to build a network of large-scale data centres nationwide. The investment plan of MCIT aims to expedite the progress of data centres in Saudi Arabia, surpassing the 1,300-megawatt target before the end of the decade. According to an Al Rajhi Capital report, industry experts estimate that the total demand for data space in Saudi Arabia will reach 360MW in the next 5-6 years, while the current capacity stands at only 60MW.

Government focus on digitalisation facilitating investment

Alongside increased data demand, the Saudi government’s focus on digital transformation is also a key driving force behind growth in data centre development in the Kingdom. In fact, Saudi Arabia’s Vision 2030 places a strong emphasis on digitalisation as a key component of the country’s economic diversification and development goals. One of the main objectives of the vision is to enhance the country’s digital infrastructure and capabilities.

In 2019, the Saudi Ministry of Communications and Information Technology (MCIT) launched the ‘KSA Cloud-First Policy’, which aims to make the country a global hub for cloud computing. The strategy includes initiatives such as establishing regulatory frameworks for cloud computing, creating a national cloud platform, and developing skills and capabilities in the local workforce.

In addition, the Saudi government has introduced several incentives to encourage investment in the data centre industry. For example, the government offers foreign investors the opportunity to own up to 100% of data centre projects and has streamlined the licensing process for data centre facilities.

Not only will the acceleration of investment into data centres meet rising domestic data demands, but Saudi Arabia is also well-positioned to serve as a regional hub for data centre services. The country’s central location in the Middle East, along with its strong telecommunications infrastructure and favourable business environment, make it an attractive destination for companies looking to establish a regional data centre presence.

‘Green’ data centres in the spotlight

While digitalisation is a key component of Saudi’s long-term economic plan, environmental sustainability also features prominently in the Vision 2030 agenda. As such, it is likely that the development of low-carbon data centres will gain traction in Saudi Arabia, as greater emphasis will be placed on reducing their carbon footprint and aligning with the government’s sustainability drive.

Data centres have heavy energy requirements, needing a significant amount of power to operate and cool the IT equipment they house. In fact, cooling systems consume a significant amount of electricity, sometimes accounting for up to 40% of a data centre’s total power consumption. In addition to cooling systems, data centres require electricity for other critical infrastructure components such as servers, storage, networking equipment, and backup power systems.

Global data centre electricity use in 2021 was 220-320 TWh, or around 0.9-1.3% of global final electricity demand, according to the International Energy Agency (IEA). This energy use has been a growing global concern in recent years, given its contribution to emissions: the IEA states that data centres and data transmission networks are responsible for nearly 1% of energy-related GHG emissions. That said, the industry is taking steps to improve energy efficiency, such as implementing advanced cooling technologies, optimising server utilisation, and using renewable energy sources. In addition, many large data centre operators have set their own sustainability targets. For example, Microsoft has committed to becoming carbon negative by 2030 and to removing all the carbon it has emitted since its founding in 1975 by 2050. Google has also set a target of operating on 100% carbon-free energy by 2030.

In line with this push for low-carbon data centres, the General Authority of Competition in Saudi Arabia approved the development and operation of data centres in the city of Neom by Neom and FAS Energy in October 2021. The Authority announced on Twitter that it had no objections to the proposed joint venture between the two companies to build and manage sustainable, ultra-large-scale data centres in Neom, the ambitious project to build a smart city on the Red Sea coast in the northwest Tabuk province of Saudi Arabia. The city of Neom will be powered with 100% renewable energy and will be home the largest green hydrogen project in the world.

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