The big three U.S. hyperscalers are all expanding their footprints in the region
Chinese cloud giants are also eyeing the Middle East, with Huawei the latest to open a data center there
AvidThink's Roy Chua said factors driving interest in MENA include equity investment in the region, physical infrastructure expansion and population growth
With the U.S. and Europe thoroughly blanketed by data centers, the big three cloud giants are turning their attention to the Middle East and North Africa (MENA). But they’re not the only ones. Chinese cloud giant Huawei just opened its first data center in the region and Tencent is also eyeing the area.
"For Huawei, MENA is a growing market they are still allowed to play in, so yes, probably one of the markets in the world where we'll see companies from all over the world compete," AvidThink Founder Roy Chua told Silverlinings. That said, "I wouldn't put Huawei in the same category as the big three clouds per se – Baidu, Alibaba and Tencent are probably better comparable."
Data center infrastructure in the Middle East has exploded over the past year or so, as U.S. hyperscalers all built new facilities there. And work remains ongoing.
In February, Microsoft announced plans to open a new data center region in Saudi Arabia, adding to a region it launched in Qatar in 2022 and one in the United Arab Emirates (UAE) that debuted in 2019. It was scheduled to launch a data center in Israel in 2022, but the region is still listed as “coming soon” on its Azure website.
Google Cloud debuted its first Middle East data center in Israel in 2022 and launched a new cloud region in Qatar this March. It is also reportedly plotting new locations in Kuwait and the United Arab Emirates.
But another heavy hitter is joining the fray. China’s Huawei last week debuted a new data center region in Saudi Arabia. The facility is designed to be a foothold for it to serve the Middle East, Central Asia and Africa, the company said in a press release.
Alibaba, another large Chinese player, is also in the mix in the Middle East, with data centers in the UAE and Saudi Arabia. According to Synergy Research Group, Alibaba ranked behind Google and ahead of IBM in terms of global market share at the end of Q3 2023, with around 4% compared to Google Cloud's 11% and IBM's 3%.
Meanwhile, in 2021, Tencent unveiled plans to open a data center in Bahrain, though it doesn’t yet appear to have done so.
Synergy's data pegged Tencent's worldwide market share at 2% and Huawei's at 1%. AWS remained firmly in the lead with 32%, with Microsoft at 22%.
Lay of the land
Huawei currently has 83 availability zones across 29 regions, but the majority are in China and none of are in the U.S. Outside of Asia, it has facilities in France, Ireland, the Netherlands, Argentina, Brazil, Chile, Mexico, Peru, South Africa and Turkey.
While the big three have pretty much cornered the U.S. and European markets – where Huawai has been widely ostracized – AWS, Microsoft and Google Cloud have only had to go head-to-head with the Chinese tech giant on a relatively level playing field in a handful of other markets.
Setting Asia and Europe aside, AWS has limited overlap with Huawei, with one data center region in South America, in Brazil and one in South Africa. Google Cloud has data centers in Chile and Brazil as well as South Africa. Microsoft has data center regions in Brazil and South Africa and is working to build another in Chile.
That means the Middle East could be the stage for an outright brawl between all of the global cloud titans.
Chua said there are a number of factors driving interest in MENA, including investment in the region, physical infrastructure expansion and population growth.
"Data sovereignty is driver too but I'm not sure that's necessarily the major driver," he added.
The Middle East includes the following countries, according to the World Bank: Algeria, Bahrain, Djibouti, Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Libya, Malta, Morocco, Oman, Qatar, Saudi Arabia, Syria, Tunisia, United Arab Emirates and Yemen.
The region is also referred to as the Middle East and North Africa (MENA), or, if you’re the United Nations, Western Asia and Northern Africa (though it also includes Armenia, Azerbaijan, Cyprus, Georgia and Turkey in its tally).
Since 1960, the Middle East’s population has more than quadrupled, jumping from 104.9 million to 493.3 million in 2022, World Bank data showed. Egypt had the largest population at nearly 111 million.
The U.N., with its slightly different regional definition, pegged the population at 549 million in 2022 and predicted that figure will rise to 771 million in 2050, surpassing the population of Latin America and the Caribbean. In contrast, the population of China is expected to begin declining in absolute terms as soon as this year, while the population of Europe and North America is projected to peak and begin declining in the late 2030s.
Given the fact that the Middle East is likely to see higher population growth rates "than the rest of the world or APAC...investment makes sense," Chua said.
But beyond population growth, Chua noted "there's plenty of available capital given recent economic conditions and the energy price surge," though he added "that could change."
Chua continued: "Many investment funds that we're familiar with are fund raising in region for investments in NA and Europe. S&P Global Market Intelligence recently said that GCC sovereign wealth funds’ assets under management (AUM) have grown by 20 per cent on average in the past two years to reach about $4 trillion. That's almost 40% of all assets under management for global sovereign funds."
GCC refers to the Gulf Cooperation Council, which includes the countries of Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain and Oman. Sovereign wealth funds are basically government-backed investment vehicles.
Finally, Chua said the region is being built up with physical infrastructure, making it "ripe for technology investments."
"I'm seeing some entrepreneurs move there to take advantage of in-region growth. Plus, some of the technology infrastructure startups (networking, computing) I've spoken with lately are targeting the Middle East as an early market," he concluded.
Editorial intern Harrison Saunders contributed research for this article.