Understanding how Data Centers act as Economic Enabler for a Nation.
How Data Center holds the Key to the Digital Ecosystem of a Geographic Region?
Data is one of the key utilities of the 21st century. We often fail to acknowledge the fact that data centers are the backbone of today’s connected and digital world. They not only store and relay the information we produce every single day but also go a long way in boosting our economy. Because of this economic attribute, the data center ecosystem attracts many international tech companies for the nation. Moreover, the presence of data centers ensures an excellent investment climate and employment opportunities for the local community. For instance, in 2016, Google data centers generated US$1.3 billion in economic activity, US$750 million in labor income, and 11,000 jobs throughout the United States. Let us explore the economic prospects of data centers in detail in this article.
So what are Data Centers?
Data centers are physical facilities that house the computers and equipment which power the information needs of the modern economy. In the business exposition, it refers to a centralized space possessing an organization’s shared IT operations and equipment to store, process, and disseminate data and applications. The key components of a data center design include routers, switches, firewalls, storage systems, servers, and application delivery controllers.
These are of primarily three types, viz., enterprise data center, managed services data centers, colocation data centers, and cloud data centers. Irrespective of the type, each data center requires power subsystems, uninterruptible power supplies (UPS), ventilation, cooling systems, fire suppression, backup generators, and connections to external networks.
Why do we need them?
Data centers form an integral part of digital infrastructure. Industries like health care, retail, transportation, telecommunications, fintech, and entertainment depend heavily on it to cater to their data storage and transmission activities. Further, there are industries like logistics, pharmaceuticals that require access to substantial amounts of real-time and historical data from connected platforms and devices. They can generate high value-add technical and engineering jobs and provide the kind of cloud operations and services that will enable our transition to an efficient, digitally-enabled future.
Hence at present, states, countries are competing to attract data centers to their jurisdictions, while using tax incentives to entice data center operators. In March 2018, Facebook funded the research firm RTI International’s report on the multiplier effect of data centers. The report mentioned that “For every 1 data center worker, there were five jobs supported elsewhere in the economy by operating expenditures – after the surge in jobs caused by capital expenditures.”
Meanwhile, another study prepared for Google in February 2018 surveyed the impact of Google’s significant investments in data centers and fiber infrastructure in Europe. Since 2007, Google has made EUR 4.3 billion (nearly $5 billion) in data-center related investment. The report, European data centers: How Google’s digital infrastructure investment is supporting sustainable growth in Europe, concluded that Google data centers have delivered large benefits to local communities across the European Union.
The economic lever
The previous reports reveal how digital infrastructure leaders are committed to bringing a positive impact on local economies. According to intelligence and advisory firm Arizton, the global data center market is estimated to reach US$174 billion by 2023, while reaching about US$10 billion by 2023, in the US alone.
Most of the benefits of having data centers reflect on the initial capital investment and the ongoing operational expenditure, which creates and sustains jobs across the wider economy. The capital investment is a major driver of tax revenue growth because, though they might yield low on employment, data centers are highly capital-intensive. The initial capital investment directly creates construction jobs for the building of the data centers, as well as public infrastructure, including roads, water services, and electrical and network infrastructures. This also boosts local community development. Once built, data centers operating around the clock need to be manned by IT personnel and security and operations staff, hence generating perfect employment opportunities in the long run.
In a CBRE study focusing on economic and fiscal impact due to a US$1 billion data center development, it was observed that a US$1 billion data center could generate upward of US$200 million in total tax revenues over ten years. This study was based on a typical state/community’s tax structure as well as economic and demographic characteristics and considered the one-time construction phase and ongoing operations as well. The report concluded that the US$200 million fiscal impact is equivalent to a corporate headquarters creating 1,700 jobs with a US$130,000 average salary and making a $40 million capital investment.
Even now amid pandemic crisis, experts believe that the presence of data centers can help to spur economic recoveries after COVID-19. Other indirect economic benefits include new avenues for automation of various processes through cloud adoption by deploying advanced technologies. This further helps in reducing the carbon footprint too. Since data centers have multi-layered and constantly-upgraded security systems in place to prevent data theft and save money spend on stringent data security plans in corporate spaces. Moreover, data centers aid in scaling the business resources as per necessity, which again saves infrastructure and operational costs. So, data centers can be deemed as the agents of growth for the economy.