A mad dash of M&A activity in recent weeks shows a well-capitalized race is on to grow Latin America’s digital infrastructure at lightning speed.
Last week, Equinix, the world’s largest server colocation provider, announced the acquisition of three data centers in Mexico City and Monterrey from Mexican telecom Axtel S.A.B. de C.V. The all-cash deal was struck at $175 million and will give Equinix an additional 115,000 square feet of colocation space to its portfolio in Mexico, where Equinix is keen to quickly expand its presence, and the government is keen to pursue greater telecom infrastructure privatization.
Upon announcing the transaction, Equinix Americas president Jon Lin called the Mexican hubs an “optimal market entry” for Equinix to “facilitate even greater interconnection within the Americas region and between the Americas, Asia, Australia and Europe.”
The recent, rapid ramp-up in data center facilities throughout Latin America reflects a well-timed confluence of interests between governments, deep-pocketed tech firms, and yield-hungry infrastructure investors. Demand for cloud storage has driven a wave of global deal activity—acquisitions and joint ventures—with more than 300 transactions involving data centers recorded worldwide since 2015, valued at $65 billion.
Now it’s Latin America’s turn. According to figures from consulting firm IDC, cited by BNAmericas, worldwide spending on cloud services and infrastructure is expected to top $210 billion by the end of this year—an increase of 23.8% from last year—with 24.5% growth projected for Latin America alone.
The stakes transcend the merely microeconomic. A November 2018 study from McKinsey estimated that concerted efforts by Mexico to expand its digital economy could boost the country’s GDP by 7-15% ($115 billion-$240 billion) by 2025.
A gap in Brazil’s cloud
This week, Google Cloud’s Brazilian director João Bolonha told reporters at the Google Cloud Summit in São Paulo that the company plans to triple its workforce to support cloud computing services in Latin America by the end of 2020.
Bolonha reportedly said that while customer consumption in Brazil alone rose more than 300% last year, fewer than 20% of Brazilian companies are currently using cloud computing services operationally. This is a yawning gap for a country that boasts the world’s fourth-largest concentration of internet users.
Since Digital Realty, the world’s number-two data center operator, last year acquired its first Latin American assets with the purchase of Ascenty (a $1.8 billion joint venture with Brookfield Infrastructure Partners), the shovels have scarcely been put down.
In June, Ascenty committed $38.6 million to a 7,0000-square meter data center in Paulinia, Brazil, near São Paulo, said to be Latin America’s largest to date. Having opened four facilities just this summer, by year end Ascenty expects to be running 16 data centers in Latin America (16 in Brazil, 1 in Chile), in Phase One of an anticipated $2 billion multi-year push into the region.
Chile, Meet Google. Huawei, Meet Chile.
Meanwhile, Chile has positioned itself as a worthy and willing challenger for new investment. InvestChile, a government agency which promotes foreign direct investment in Chile, has valued the total market for cloud-based services in Latin America at $3.5-5.5 billion and is eager to claim its share of the pie. As of September, there were at least 15 data centers under construction in Chile.
Competition for new development is increasingly internationalized. Earlier this month, China’s Huawei opened its first Chilean data center.
“The Chile region is our first in Latin America and more will be launched this year,” said Edward Deng, president of Huawei Cloud’s Global Market division, speaking at this summer’s Huawei Chile Cloud Summit. “We will empower governments and enterprises across Latin America.”
Huawei’s supposed enthusiasm for the project is not surprising. This past spring, Google completed construction on a 10,000-km undersea cable (the Curie subsea cable system, Google’s first fully-owned international cable) linking the California-based IBX data exchange owned by Equinix to Chile, via the port of Valparaiso.
Upon the completion of the Curie cable, Chile’s Minister of Transport and Telecommunications Gloria Hutt Hesse said the cable would provide “advantages and opportunities for millions of internet users in Chile.”
Government sweeteners are also part of the package. Earlier this month, Amazon Web Services (AWS) confirmed that it would invest $800 million to build a data center in the Argentine free trade zone of Bahia Blanca-Coronel Rosales, where it will be exempt from energy consumption taxes, eligible for lower labor costs and a reduction from 35% to 15% in the income tax it pays to Argentina.
Amazon’s investment is the first major foreign capital commitment to Argentina following the passage this summer of a sweeping new “Knowledge Economy” law designed to attract digital investment.
In an interview this summer with the Buenos Aires Times, former U.S. Ambassador to Argentina Noah Mamet noted that Disney also has a sizable digital content operation in Argentina, from where the majority of its Spanish-language content is broadcast.
“Data center companies look at Argentina as a good place to be. That sector in general is growing, and potentially, it could grow dramatically,” he said.