Emerging markets such as South Africa could be the next major driver of growth for the data-centre industry, with a development pipeline almost twice the size of current global operating capacity. However, energy and water constraints are key risks to that growth, according to S&P Global.The ratings agency’s report comes as South African civil rights groups are calling for a halt to the construction of additional data centres, physical hubs for digital computing and storage, until the use of scarce water, land and electricity resources has been investigated.Africa has high growth potential and much untapped renewable energy, but even in areas with plenty of green energy, infrastructure readiness remains a key challenge, S&P Global says. Regional data centre hubs may have sufficient resources, but unstable power grids may hinder companies’ ability to deliver reliable power without reducing supply to local communities.“South Africa is a clear example, with growth limited by power availability despite high demand and investment. Data centre operators may need to deploy decentralised, modular energy solutions that can bypass the main grid while also managing local water use,” the report says.The assessment takes into account that South Africa’s electricity generation has improved in the last few years, ending years of rolling blackouts that were aimed at avoiding a collapse of the grid but were a big economic constraint, S&P Global head of emerging markets credit research Zahabia Gupta told Business Day in an interview.“Currently, South Africa is the biggest hub for data centres in Africa, but there are a lot of planned increases and expansions, and this is across a lot of emerging markets. So what we’re highlighting is that energy needs will continue to grow, and that’s where it might become a constraint for some of the plans they have,” Gupta said.The S&P report says developed markets have historically been the engine of data centre expansion due to their regulatory stability and reliable power grids, but developers in parts of the US and Europe are increasingly facing pushback from local communities and governments as the AI boom, rising energy prices and resource scarcity turn data centres into political flashpoints.“It’s therefore no surprise that the data centre industry is eyeing emerging markets for further expansion,” it says.Emerging markets already account for 35% of global data centre capacity, with China accounting for more than 60% of that share, and could be the next major driver of growth, with a development pipeline that is almost two times larger than current operating capacity.But the conversion of planned projects into operating assets will be uneven, favouring markets with reliable grids, clear permitting processes, access to renewables and available capital.“We think the opportunity in terms of the demand for data centres is real. There is a fast-growing population in Africa; it is a young digital population as well. There is rising data consumption. There is a lot of renewable energy potential as well. So the question is more about which countries can really convert that demand into real investment gains,” Gupta told Business Day.“We highlighted water as a bigger issue for South Africa. Power tends to dominate the conversation, but water increasingly matters, and for South Africa, this is definitely one of the key concerns. We’ve assessed it to have relatively low water resilience, and that’s because of the water stress we’re seeing in Johannesburg, in Gauteng and in some other areas as well.”In a joint submission, rights groups Housing Assembly, Foxglove, Open Secrets, Research + Action and the Planetary AI Collective asked the South African Human Rights Commission to look into the human, environmental and economic consequences of the fast-expanding sector, warning its growth is outpacing regulation and public oversight.South Africa has more than 60 known data centres with a disclosed combined capacity of about 500MW, according to the submission. Globally there is increasing regulation of data centres, including in the US, where states are already putting in place moratoriums on development, S&P Global sustainable finance team member Terry Ellis told Business Day.“In the emerging economies, those that have moved fastest are also coming up against some of those issues, and communities are increasingly concerned. Really this is just like any other type of infrastructure,” he said.“If companies or the governments want to build new roads or new power plants or water infrastructure, communities are always concerned about the proximity of those projects to where they live and the knock-on effects and pollution. “Data centres are a new emerging type of infrastructure where people are worried about them. There’s a perception risk, and there are the actual physical risks. You could expect that more and more emerging economies are going to have to deal with this issue as well, as their citizens start to voice their concerns.“At the moment, in general, the regulatory barrier is quite low. But given the community concerns and execution risks, we might see that rising up the agenda in some of these places.”Business Day