In recent years, industrial parks in the Philippines have started hosting an increasing number of data centers alongside the more usual call centers and manufacturing facilities. Critically, many of these investments come from “hyperscalers”—large entities that require massive, scalable cloud computing capacity.
The global scramble to set up data centers in Southeast Asia is not new. Singapore is currently the undisputed leader in the regional market, having had a very early lead in terms of the needed investments. Thailand and Malaysia were also able to get traction, thanks to the early adoption of cloud-based innovations in those countries as well as their important status in the global data storage supply chain, which has reduced the relative cost of setup for data centers.
There is some indication that things may be starting to change. A spate of major partnerships such as those between Aboitiz InfraCapital and EdgeConnex seem to indicate that major investor sentiment is turning in favor of setting up shop in the Philippines rather than in other ASEAN countries.
According to a recent report by the think tank Arizton, this growth in the Philippine data center market is likely to continue throughout the rest of the 2020s. Should this growth continue, the Philippines may become a data center hub at the level of Malaysia, Indonesia, and Thailand, which are already major players in the region.
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Wider Digitization Leads to More Data Center Investments
Up until recently, the Philippines was not the first choice for most data center locators in Southeast Asia. This was largely due to the lack of adequate digital infrastructure throughout most of the 2010s, which raised the cost of investment and made it comparatively difficult to guarantee service levels.
Recently, things have changed significantly, thanks to national initiatives to increase the amount of digital infrastructure, as well as basic infrastructure such as transportation links and power generation facilities. The availability of these infrastructure assets and the high likelihood that more will be added has encouraged more data center investors to at least consider the Philippines.
Notably, these new infrastructure additions have also lifted the brakes on the country’s emerging domestic digital economy. The added domestic demand for digital services also creates a corresponding demand for local data centers, which businesses are now scrambling to address.
With healthy domestic ecommerce and electronic finance sectors, the talent and tech supply chains for data centers could scale up and potentially improve profit margins for other investors. Thus, local digitization can create even more compelling reasons for hyperscalers to locate in the Philippines.
The Role of Green Energy in Sustaining Data Centers
Data centers are notable for their extreme energy requirements, especially when compared with other types of industrial assets. Not only do they consume immense amounts of power, but they also require this power to be reliable. Additionally, the largest hyperscalers prefer this energy to be sourced from carbon-neutral facilities.
Because of global policies that incentivize the use of green energy, these requirements are a serious challenge to the entry of data centers in any market, as carbon-emitting fossil fuel power plants remain the dominant source of reliable energy in most parts of the world.
Thanks to the country’s recent infrastructure drives, the Philippines is now in a position to list reliable renewable energy as a comparative advantage. The country has an ambitious renewable energy program that aims to generate 20 gigawatts of power through renewables by 2040.
There is even more reason to be optimistic, as a 2014 World Wildlife Fund study indicates that a 100% renewable energy mix is feasible for the Philippines. According to the study, the country has sufficient geothermal, wind, and hydroelectric potential to move the country towards a more carbon-neutral standpoint.
Thankfully, the recent political shifts have not derailed the momentum towards green energy. The current administration has also reiterated campaign promises to push for more renewable energy facilities, giving hope that more major hyperscalers may shift towards building facilities in the country to enjoy carbon emission savings.
The Philippines’ Other Advantages
Data centers are also flocking to the Philippines for much the same reasons business process outsourcers did throughout the 2000s and 2010s. The country’s workforce is young, tech-savvy, and highly proficient in English, which significantly eases foreign entry into the local market. Additionally, the country has several large industrial parks located in areas of the country that enjoy low costs of doing business, which further increases the operating margins for data center locators. Now that more digital infrastructure is being set up throughout the Philippine countryside, it has become even more feasible for cost-conscious hyperscalers to set up shop in the country.
Can the Philippines Sustain Future Growth in the Data Center Industry?
The country is in a unique position to not only take advantage of the current rush to move data centers to the ASEAN, but also to maintain a long-term lead. The Philippine national government and private businesses have long been moving in directions that have made the country specially compelling for long-term data center investments.
The country’s continued development of digital services, its drive towards renewable energy, and the presence of industrial parks that are highly attuned to the needs of foreign businesses will continue to bring hyperscalers and other data center investors into the country. By continuing to expand on these specific comparative advantages, the country may eventually become a leader in this globally important field.
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