THE global scourge of data centers is apparently set to reach Philippine shores, thanks to the leadership’s gullibility and overweening desperation to record any sort of foreign investment. This is not the win the government thinks it is, and should be prevented from happening.
In a meeting in Abu Dhabi on Tuesday, President Ferdinand Marcos Jr. and his posse of several Cabinet officials discussed the establishment of a data center in Laguna with the founder and chairman of DAMAC Digital, the “digital infrastructure and data center arm” of the Dubai-based conglomerate the DAMAC Group. After the meeting, Marcos took to Facebook to crow about the results.
“We are very excited about DAMAC Digital’s planned investment in the Philippines, including what is set to be the largest data center in the country, with up to 250 MW (megawatts) of capacity,” Marcos said in his post. “This positions the Philippines as an emerging data center hub in the region. We continue to welcome investments that strengthen our digital economy, create high-quality jobs and prepare our country for the demands of the future.”
According to its website, DAMAC Digital “designs, builds and operates data centers that support hyperscale wholesale, retail colocation, cloud services and artificial intelligence (AI)-intensive workloads, with a focus on innovation, sustainability and global connectivity.” That is approximately the same thing that every data center builder says about itself, and approximately translates to, “we build ridiculously energy-intensive warehouses full of server boxes so that students can use AI to cheat on their homework, or generate pictures of women with five boobs.”
One question that the president or his entourage apparently did not ask is, “why here?” That is a pertinent question, because there are not many positive attributes of the Philippines to make establishing a data center an attractive or even a feasible proposition. The first requirement — and the one that is most likely to trigger the inevitable bursting of the AI bubble worldwide — is an ample, stable supply of electricity. As data centers go, a capacity of 250 MW is on the small side, but that is still a considerable amount of power going to one place, equal to roughly 5 percent of the operating margin in Luzon. If two or three generating plants go offline, which is something that happens with regularity, that amount of demand is certainly enough to compromise electricity supply for everyone else. That does not even get into the cost of electricity, which is much higher here than in most of Asia, and about double what it is in the United Arab Emirates (UAE) (approximately $0.21 per kilowatt-hour in the Philippines, and slightly over $0.10 per kWh in the UAE).
Another issue is the less than robust state of the Philippines’ data connection infrastructure. Our data transmission speeds and capacity are significantly lower than other places in the region, and pale in comparison to the state of connectivity in the UAE.
With the proposed data center presumably going into a special economic zone, some of the other chronic obstacles to investment could be avoided, and the project would certainly be granted various fiscal incentives. But the infrastructure is simply too risky, and does not guarantee that the data center could operate constantly at full capacity. So again, the question has to be asked, “why here?”
I’m sure that the answer to that question from the Philippine officialdom or the project proponent would be the standard specious rhetoric about young and dynamic workforce, competitive labor costs, the general development priority of digitalization, blah blah blah. The real reason, of course, is that because the Philippines will say yes to anything proposed during a foreign junket of our VIPs, because of the unreasonable importance attached to being able to score points with the public by being able to announce X amount of investment pledges gathered during the trip. I’m picking on President Marcos and his administration now because they were the ones that made the trip to the UAE, but really, it is not a unique failing on his part; every president or Cabinet official has done the same thing since time immemorial, because it is just the way things are done.
From the Philippine perspective, the proposed data center investment has little to offer. It will not “strengthen our digital economy,” because most of the business routed through said data center will be from somewhere else. Apart from a minor boost to the local construction industry for a few months while the thing is being built, it will not “create high-quality job.” A data center, once built and operating, requires only a handful of workers. Likewise, it would not “prepare the country for the future” in any meaningful way, because under the best of circumstances, anything operating in an economic zone, no matter what the business, operates inside a bubble. Studies have shown there is limited transfer of technology or economic development to the host countries beyond the ecozones, no matter where they are located, and that is evident from the several decades of experience here in the Philippines.
There will, of course, be some additional revenues for the electricity sector, the telecoms sector, and to the government in the form of taxes, but all of these will be muted to some degree by the fiscal incentives that will have to be granted. In exchange, the Philippines will have to bear extra strain on both its energy security and data infrastructure capacity, which are likely to impose additional costs on the rest of the population.
Despite all of this, there may still be a way to make this work in a way that reduces unintended consequences and protects the country. For starters, DAMAC Digital should be required to provide its own power supply, and that requirement can be sweetened a bit by offering the prospect of revenue generation from any power that they produce in excess of the 250 MW the data center will need. Likewise, the company should be obliged to invest in the country’s digital infrastructure. Whether building a data center here is important enough to DAMAC to accept those conditions remains to be seen.
ben.kritz@manilatimes.net
Bluesky: @benkritz.bsky.social
