Financing Solutions In The Data Centre Landscape In South Africa

Africa stands at a pivotal point in the development of the global digital economy. The continent currently hosts less than 1% of global data centre capacity, yet accounts for nearly 20% of the world’s population. To participate meaningfully in the AI-driven global economy, data centres and the financing arrangements that support them will need to be a key focus area for Africa.

The South African public sector has demonstrated a particular focus on the development of data centres in South Africa recently:

• Finance Minister Enoch Godongwana announced in his 2026 budget speech that “The use of data and artificial intelligence has become critical for the future development of economies worldwide,” adding that “Data infrastructure should be considered as critical as electricity, ports and transport networks.”
• Eskom has announced that it has 6GW of spare capacity and is now actively courting hyperscale operators and anchor customers
• The South African Human Rights Commission has called for public submissions on data centres and human rights in South Africa

For lenders and legal practitioners in the banking and finance space, this surge in activity presents a complex matrix of opportunity and risk. The deals are large, the structures are sophisticated, and the regulatory landscape – particularly in South Africa – is evolving rapidly.

At the outset, in South Africa and elsewhere, data centre financing arrangements were viewed as part of real estate financing, with significant focus on the value of the land and the structures located on that land. This approach is clearly most suitable to the initial phases of development, including land acquisition and early-stage development of the data centres themselves.

Closely linked to this is the project financing aspect, particularly in the South African context where access to power and water are particularly sensitive issues for developers and funders alike. Some of the major players in the South African data centre market, Teraco for example, are building their own power plants whilst simultaneously entering into PPAs for wind and other alternative power options.

Once operational, financing needs shift from the shell (the land, the building and essential infrastructure such as power, water and security), to financing of the core components, such as servers and chips and other AI infrastructure, in other words equipment financing. These elements pose distinct risks to potential funders, including BESS degradation (Battery Energy Storage Systems degrading over time), and cooling concerns (securing access to water and alternative cooling mechanisms). The relevant financing structures need to reflect the necessary adaptations to account for this.

As the funding requirements become more complex, South African Lenders will need to develop their funding structures, accordingly, potentially incorporating hybrid structures that adapt to the relevant phase of development of the data centre. The DevCo/YieldCo structure has emerged as a powerful tool in this context. Once a project reaches commercial operation and secures long-term offtake, it can transfer from the development company to a yield-oriented vehicle, unlocking refinancing at tighter spreads and recycling capital into new developments.

The data centre financing landscape in South Africa and across Africa is maturing rapidly, attracting significant investment, and demanding legal and financial structures in line with the world's most sophisticated markets. For lenders, the opportunities are significant but not without complexity. Those who can offer the most appropriate funding structures will be at the forefront of Africa’s digital transformation.

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