A major $1 billion data centre project in Kenya, a partnership between Microsoft and UAE-based G42, has hit a pause. The delay stems from disagreements over a key contractual requirement: the Kenyan government’s offtake guarantee. While the project is not officially canceled, talks have broken down for now, and both sides are reassessing their options.

What Was the Project About?

The project was announced in May 2024 and was set to be a flagship for Microsoft’s expansion across East Africa. It aimed to build a geothermal-powered data centre in Kenya, mainly to serve government, businesses, and developers in the region. G42, a UAE-backed tech firm, was a strategic co-investor, sharing the $1 billion budget alongside Microsoft.

The goal was to leverage Kenya’s abundant and cheap geothermal energy to power the facility. The Kenyan government was involved by offering land, favorable power-purchase terms, and regulatory support. The project was seen as a major step toward boosting digital infrastructure and AI development in the region.

Why Did Talks Break Down?

The core issue was the offtake agreement. Microsoft asked the Kenyan government to guarantee that public agencies would buy a certain amount of computing capacity annually. This kind of guarantee is common in large infrastructure projects elsewhere, especially in higher-risk regions, to secure financing.

The Kenyan government, however, was unable to commit to the level of offtake Microsoft wanted. Kenya is facing a tight fiscal situation and is under pressure from international lenders, making multi-year commitments difficult. The government also has political considerations, as digital infrastructure is a priority, but budget constraints limit flexibility.

As a result, the negotiations stalled. The companies may consider scaling back the project to a smaller size that wouldn’t require such guarantees. The Kenyan Ministry of Information indicated the project remains active, but the original plan is on hold pending further discussions.

Implications and Future Steps

This situation highlights a broader challenge for foreign hyperscalers looking to build large data centres in Africa. Typically, they do not ask governments for binding offtake guarantees. Instead, they rely on private-sector demand and long-term capacity contracts with utilities or large corporations.

Microsoft’s move to seek such guarantees in Kenya was driven by the need to secure financing and reduce risks. With local enterprise demand insufficient to justify a $1 billion facility, the company sought assurances similar to those in Western markets. Kenya’s current fiscal and political environment has made such commitments hard to achieve.

G42, on the other hand, has been expanding globally, with new data centre projects in the US and Europe. The pause in Kenya might be seen not as a retreat but as a strategic reset. G42 has more flexibility in siting and financing, which could allow for a scaled-back version of the project funded mainly by G42, with Microsoft as a tenant rather than a co-investor.

Meanwhile, Microsoft announced a $329 million expansion in South Africa last month. The South African market offers more predictable regulatory conditions and a larger private demand base, making it easier for Microsoft to grow its Azure footprint in the region.

For Kenya, the delay could have broader effects. The data centre was meant to be a key part of an East African digital hub, supporting submarine cables, fintech development, and AI talent growth. If the project doesn’t proceed as planned, Kenya may need to find a new anchor tenant or adjust its approach to regional infrastructure development.

Whether Microsoft and G42 will revisit Kenya depends on whether the government can offer a new structure that guarantees revenue without breaching fiscal limits. Shorter contracts, smaller initial scopes, or different financing partners could restart negotiations. As of now, the original plan remains on hold, awaiting further developments.

This case also offers a lesson for other African countries like Nigeria, Egypt, and Senegal, which are in various stages of negotiating hyperscaler investments. The terms Kenya attached—particularly regarding offtake guarantees—are likely to influence future deals across the continent.

Overall, the Kenya data centre project’s pause underscores the complexities of building digital infrastructure in Africa. It reflects broader economic, political, and financial challenges that must be addressed to attract large-scale hyperscaler investments in the region.

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