Sustainable infrastructure investor Actis has been eyeing the region’s data center infrastructure for a while now, but other supportive subsectors are equally as important and require additional investments, Head of the Middle East and Africa Sherif Elkholy tells us. This includes district cooling — in which the firm has already invested via its stake in Emicool — and power infrastructure, such as grids and battery energy storage systems.

We sat down with Elkholy to gauge his outlook on the data center sector in the region, where he sees pockets of potential, and what supportive infrastructure and energy will be needed to support the massive buildout currently taking place in the region, particularly in the UAE and Saudi Arabia.

EnterpriseAM: What specific sectors are you currently eyeing?

Sherif El Kholy: We’re looking at power generation, distribution, and transmission, alongside district cooling and digital infrastructure, particularly data centers. We’re also very interested in and looking at investment prospects in battery energy storage system projects, because demand for baseload energy will be key moving forward, as renewable energy is intermittent and cannot alone keep up with soaring demand for power.

E: Which markets are you eyeing?

SK: Saudi Arabia and the UAE both have a very promising road ahead of them in data centers and digital infrastructure. Both are pursuing development at very high speeds, and they are saying and doing all the right things to attract international capital. Demand for cloud and AI capacity in both countries also continues to be very robust.

There’s a very healthy competition that is happening between the two markets. The good news is that the organic window for demand is big enough to accommodate the ambitions of both markets. If you look at the projections of what’s going to happen over the coming five years, that supply-demand imbalance is expected to stay in the medium term.

E: What do you think makes the UAE and Saudi Arabia frontrunners in terms of attracting capital for data center infrastructure in the region?

SK: There are three key patterns or secular drivers underpinning that infrastructure investment window that we see in the UAE and across the whole region. The first one is migration patterns — rural-to-urban migration more broadly, but in the UAE context, this translates primarily to more international migration into the country.

The second is what I would describe as the democratization of infrastructure access, which is the propagation of infrastructure and quality infrastructure services from capital cities to tier-two and tier-three cities that have smaller catchment areas.

The third is purely the focus on digital, which has been made more important since the pandemic exposed gaps in digital infrastructure and in access to stable, high-quality fiber-based internet.

Qatar is also saying all the right things and has just made a big pledge toward data centers, so that’s another market that I think is going to try to get a fair share of the activity. Egypt also has a lot of very interesting plans on that front.

E: Do you see grid infrastructure becoming a challenge as data center infrastructure scales and power demand increases?

SK: As the saying goes, there’s no transition without transmission. Making sure that transmission and grids keep pace with expanding capacity — particularly from renewables — is a global challenge, especially since renewable energy sources inherently put some pressure on grids due to their intermittency.

The health of the grids in the Gulf, particularly in the UAE and Saudi Arabia, is quite strong. However, there will need to be continuous upkeep and reinvestment to make sure they are able to cope with the increased load. Saudi Arabia, for example, today has around 9 GW of renewables that are online and plans to scale that to 100 GW by 2030 — less than four years away. That will require a huge amount of development and investment into the grid.

I would very much like to see some of these transmission and grid investments opened to the private sector in the next phase via an availability-based concession model. So far, most of this capital — if not all — has been coming from public-sector funds. And I think there’s a great potential there to unlock a lot of private capital for this space.

E: Are there any other sectors that you think offer significant upside in the region, provided they are opened to private capital?

SK: Roads are an equally important component of the physical infrastructure landscape in the region that I would like to see opened to private capital, as they could be quite attractive. Toll roads are a major investment prospect across many global growth markets. For Actis in India, they have been such an interesting investment, and we see similar prospects in Latin America and Africa. But so far, I think this is a window that has not yet opened up sufficiently in the Middle East.

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