Top 7 Risks to GCC Data Center Supply Chains

The GCC data center market is growing fast, but this rapid expansion comes with challenges. From trade restrictions to outdated infrastructure, these risks threaten operations and project timelines. Here's a quick summary of the key risks:

• Trade Restrictions: Complex import regulations and customs delays.
• Extreme Heat: High temperatures strain cooling systems and equipment.
• GPU & AI Hardware Shortages: Global supply issues slow AI adoption.
• Rising Material Costs: Construction expenses are increasing across the region.
• Vendor Security Risks: Weak third-party cybersecurity measures.
• Skills Shortages: Limited local talent in advanced tech fields.
• Outdated Infrastructure: Ageing power grids and IT systems hinder growth.

Quick Overview

To navigate these challenges, GCC operators must focus on better planning, stronger partnerships, and adopting advanced technologies.

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1. Trade Restrictions and Border Controls

Trade restrictions and border controls present tough challenges for data centre supply chains, especially when it comes to importing essential infrastructure components. Regulations and approval requirements have added layers of complexity, creating operational roadblocks.

In the UAE, customs authorities enforce strict Hardware and Software (HS) code classifications. Duties can go as high as 12%, with an additional 5% tax applied on imports. On top of that, telecom and electronic equipment require specialised approvals from the Telecommunications and Digital Government Regulatory Authority (TRA), further complicating the process.

Recent maritime disruptions have worsened delivery timelines. By mid-2024, vessel traffic through key shipping routes saw a sharp decline. For instance, the Gulf of Aden experienced a 76% drop in tonnage compared to late 2023. This situation forced ships to reroute, driving up global vessel demand by 3% and container ship demand by 12%. These disruptions underline the importance of mastering local import protocols to navigate such challenges effectively.

Adding to the strain, Singapore's container port faced severe congestion in June 2024. Around 450,000 standard 20-foot containers were waiting to berth, with docking times stretching up to a week. This backlog significantly delayed shipments bound for the GCC, exposing the vulnerabilities in regional supply chains. Such logistical issues highlight the critical need for a deep understanding of local import requirements.

Key Import Requirements in the UAE

For data centre operators, having a strong customs compliance strategy is non-negotiable. Partnering with experienced Importers of Record (IOR) is a smart way to handle complex regulations and ensure smooth customs clearance. Keeping all documentation in order and meeting technical compliance standards can also help avoid delays and costly penalties.

To stay ahead, operators should plan for extended lead times - typically 2–3 weeks for standard imports. Building relationships with multiple logistics providers and maintaining flexible routing options are equally important in strengthening supply chain resilience. Effective planning and strategic partnerships are key to navigating these challenges successfully.

2. Heat Impact on Equipment Supply

The extreme heat in the GCC presents significant challenges for cooling systems and equipment supply chains in data centres. With the Middle East warming at twice the global average rate, keeping these facilities at optimal conditions has become both more complicated and expensive.

Cooling systems alone account for a staggering 60–70% of operational costs. During peak months (May to September), cooling and air conditioning systems consume 70% of the UAE's electricity .

Here are some of the key supply chain challenges caused by these environmental pressures:

This highlights the urgent need for effective cooling solutions to ensure data centre resilience.

To tackle these challenges, companies are introducing advanced technologies. For example, in February 2025, Trane Technologies launched a 1MW Coolant Distribution Unit designed for high-performance workloads in extreme temperatures.

"If one thing is clear, it is that we need to be prepared for these extreme weather conditions to become more commonplace, so adapting to this inevitability is crucial." - Karsten Winther, President for Vertiv in Europe, Middle East and Africa (EMEA)

Environmental challenges also drive up infrastructure development costs in the GCC, which are 20–30% higher than in temperate regions. To mitigate these costs, operators are turning to advanced cooling technologies, including:

• Liquid Cooling Systems: These systems can improve Power Usage Effectiveness (PUE) by 0.1 to 0.2 points compared to traditional air cooling.
• District Cooling Solutions: These use 50% less energy than conventional methods and can reduce peak power demand by up to 30%.
• AI-Enabled Cooling: Advanced monitoring systems optimise cooling efficiency in real time.

District cooling solutions, in particular, are expected to grow significantly, with a projected CAGR of 7.89% from 2024 to 2030. However, operating in temperatures that reach up to 45°C increases equipment failure rates by 3–7%. To combat this, operators are maintaining larger inventories and diversifying their supplier base. These cooling challenges underline the broader vulnerabilities in supply chains for GCC data centres.

3. GPU and AI Hardware Shortages

The GCC region is grappling with a significant challenge: securing the specialised AI and GPU hardware needed to meet skyrocketing demand. This shortage of critical components is slowing down deployment timelines and straining operational capabilities.

In a major move to address this, the UAE has secured a deal to import 1 million NVIDIA H100 GPUs by 2027. This agreement could generate over AED 18.35 billion in annual revenue for Nvidia. While this highlights the UAE's commitment to building a robust AI infrastructure, it also underscores the immense pressure on global supply chains.

One of the key issues lies in the global semiconductor industry, where over 70% of manufacturing capacity is concentrated in East Asia. This heavy reliance on a single region exposes GCC data centres to significant supply chain risks, pushing operators to come up with targeted solutions.

To tackle these challenges, operators in the region are taking proactive steps, such as:

• Stockpiling critical components: Advanced storage management systems are being used to maintain larger inventories and buffer against supply disruptions.
• Focusing on local production: Efforts are underway to develop domestic manufacturing capabilities, reducing dependence on overseas suppliers.

"The supply chain has never been so constrained in Arista history... To put this in perspective, we now have to plan for many components with 52-week lead time."

• Jayshree Ullal, CEO of Arista Networks

But the challenges don’t stop there. The GCC semiconductor market is undergoing significant changes, driven by rising demand for energy-efficient components, the growing adoption of IoT and 5G technologies, and increasing concerns around cybersecurity. Supply chain complexities are also driving growth in the procurement sector, with the market expected to hit AED 764.85 billion by 2032.

"I personally am skeptical on capacity release in 2023. This could be the new normal."

• Vlad Galabov, director of cloud and data center research at Omdia

4. Building Material Price Changes

In addition to logistical challenges and component shortages, rising material costs are putting extra pressure on GCC data centre supply chains. The fluctuating prices of construction materials in the region are driving up costs and delaying projects. For instance, construction expenses in the UAE are predicted to climb by 2–5% in 2025, while Saudi Arabia could see increases of 5–7%.

The Data Centre Cost Index highlights this trend, rising from 6% in 2023 to 9% in 2024. Key materials like steel, copper, and specialised infrastructure equipment are becoming more expensive, forcing developers to rethink their budgets and timelines. These cost increases are adding to the broader supply chain challenges faced by data centres across the GCC.

This surge in costs reflects the overall dynamics of the regional market. For example, the GCC cement market hit 94.5 million tonnes in 2024 and is expected to grow to 142.8 million tonnes by 2033. While this growth is fuelled by strong construction activity, it also points to potential supply shortages and price increases.

Construction Costs by Country

"Year-on-year cost inflation has become a fact of life for the global construction industry. Clearly, this year will be no different with moderate rises on the horizon. But the real challenge is uncertainty, which will be exacerbated by continuing macro-economic and geopolitical volatility. So, resilience will be the key to survival and success in 2025 and beyond."

• Alan Manuel, Group CEO, Currie & Brown

Strategies to Manage Rising Costs

To counter these escalating costs, data centre operators in the GCC are adopting several proactive strategies:

• Supply Chain Diversification: Expanding supplier networks to reduce reliance on single sources and better handle price fluctuations.
• Local Sourcing: Collaborating with domestic manufacturers to cut logistics expenses and avoid tariff impacts.
• Pre-emptive Purchasing: Buying long-lead items early to lock in prices and secure availability.

Stricter environmental regulations are also increasing compliance costs but encouraging the adoption of eco-friendly innovations. While challenging in the short term, these initiatives could lead to more stable costs and environmental benefits over time.

"The region continues to provide significant opportunities for construction. However, clients should approach with caution. There are many uncertainties that could impact costs, delays and feasibility. Robust risk management strategies and flexibility in project planning will be needed to build resilience for the long term."

• Doug McGillivray, Managing Director for Southern Gulf, Currie & Brown

Additionally, modular construction is emerging as a practical solution, helping to reduce costs, shorten project timelines, and improve efficiency.

5. Vendor Security Risks

Vendor security poses a significant challenge for GCC data centre supply chains. A staggering 82% of organisations have faced at least one data breach linked to third-party vendors, with remediation costs averaging AED 27.5 million. Alarmingly, only 40% of companies in the Middle East and Africa carry out thorough vendor risk assessments. This issue becomes even more critical as GCC data centres increasingly rely on third-party solutions to streamline their operations.

Current Threat Landscape

The numbers paint a concerning picture: 62% of breaches involve third-party vendors, whose security measures are often five times weaker than those of the primary organisations.

"Organisations are increasingly reliant on third parties, such as technology and cloud vendors, which store sensitive data or access critical systems. This risk is higher if the third party's cybersecurity controls are poor. There is also the risk that the third party's own suppliers are compromised. If the data or systems are compromised, then the impact could include brand and reputational damage, legal and regulatory fines or penalties, and remediation costs."

• Luke Ellery, Analyst, Gartner

The interconnected nature of supply chains means that vulnerabilities in one vendor can cascade through the system. As Luke Ellery highlights, weak cybersecurity controls in third-party vendors can lead to far-reaching consequences, from reputational harm to hefty fines.

"A robust third-party cybersecurity framework is essential to mitigate these risks. Entities must define a robust framework in order to understand their third-party landscape in terms of both the criticality of services offered and the levels of access given. They must also vet and continuously monitor the critical controls needed to mitigate the risks of any third-party vendors they work with."

Critical Control Measures

With cyberattacks rising by 20% between 2022 and 2023, data centres must adopt proactive strategies to strengthen their defences. Here are three key measures to consider:

• Adopt Zero Trust Architecture: Introduce strict role-based access controls and network segmentation to minimise the risk of internal breaches.
• Enhanced Due Diligence (EDD): Perform in-depth evaluations of operations, financial stability, and business history for high-risk vendors.
• Leverage AI-Driven Monitoring: Use AI-powered systems for real-time threat detection and automated risk assessments.

The stakes are high. Global cybercrime costs are projected to skyrocket from AED 33.8 trillion in 2024 to AED 50.7 trillion by 2028. To safeguard the entire supply chain, data centres must treat vendor security with the same urgency as other operational challenges.

"Third parties are always a concern when it comes to who has our data; that's why we are continually assessing new and existing third parties in a matter commensurate with cyber-risk to the company."

• Ariel Weintraub, CISO, MassMutual

6. Skills and Workforce Shortages

The GCC data centre industry is grappling with a major talent crisis. In Dubai, 90% of IT workers are expatriates, highlighting the region's heavy dependence on international expertise. This reliance not only poses risks to workforce stability but also amplifies the supply chain challenges discussed earlier.

Current Market Challenges

The shortage of skilled professionals in emerging technologies is a pressing issue. A staggering 73% of Middle East CEOs report difficulties in finding qualified talent. This is particularly concerning for Saudi Arabia, which currently operates 22 co-location data centres and has plans for 40 more.

The talent gap spans several critical fields, including:

• Specialists in advanced technologies like AI, machine learning, and cloud computing
• Cybersecurity professionals
• Data analytics experts
• Infrastructure engineers

Impact on Operations

This talent shortage has far-reaching consequences for operational efficiency. Without the right expertise, organisations struggle to fully leverage technological advancements.

Strategic Solutions

To address these challenges, data centres in the GCC must adopt focused strategies to develop and retain talent:

• Strategic Talent Development
  Invest in robust learning and development programmes to ensure sustainable upskilling.
• Technology Integration
  Build specialised technical teams to drive efficiency and innovation.
• Cultural Transformation
  Create inclusive workplaces that respect regional values while adopting global best practices.

"By 2025, the winners won't be those hiring the most but those developing talent the fastest." – Zinnov

With the GCC data centre market projected to surpass AED 312 billion by 2025, addressing the workforce challenges is not just important - it’s essential for the region’s sustainable growth. Tackling this issue requires immediate action and a long-term vision.

7. Outdated Infrastructure Constraints

Beyond trade, vendor, and other risks, physical infrastructure challenges are a major hurdle for supply chain stability. In the GCC, the growth of data centres is increasingly held back by ageing power grids and network systems. Securing reliable power has now become a key factor in determining project timelines.

Power Grid Limitations

The region's power grids are under significant pressure. Data centres designed for AI applications require as much as 10 times the energy of traditional facilities. This demand often exceeds what the current grid can handle, creating delays and adding to the costs of new projects.

Financial Implications

The financial strain of outdated infrastructure is hard to ignore. Here’s how it adds up:

• Maintenance costs increase by 10–15% after the first decade of operation.
• Custom system integrations cost around AED 12.85 million annually.
• Downtime costs are staggering, reaching AED 33,000 per minute.

Modernisation Initiatives

Efforts to address these bottlenecks are already underway. For instance, Masdar’s initiative to develop a 1 GW renewable energy facility, set to be operational by 2027, aims to alleviate power shortages. Similarly, ACWA Power’s 11 solar projects in Saudi Arabia contribute over 12 GW of photovoltaic capacity, showcasing a move towards renewable energy solutions.

Security and Compliance Risks

Legacy systems don’t just hinder operations - they also come with higher risks. These include:

• A 42% increase in breach-related costs.
• Regulatory compliance costs rising by 35–45%.
• Difficulty in finding skilled personnel for system maintenance.

Strategic Solutions

To overcome these challenges, data centre operators can take proactive steps:

• Power Planning
  Collaborate with utility providers early in the planning phase to secure power access and complete necessary impact studies.
• Infrastructure Modernisation
  Adopt a hybrid approach, balancing the upkeep of existing systems with a gradual shift to modern alternatives.
• Renewable Integration
  Partner with renewable energy providers to lock in long-term power agreements and meet sustainability goals.

"Strategic partnerships, customer-centric design, and investment in AI-driven infrastructure will define the next phase of GCC's data center evolution."
– Ramez Dandan, Former Regional CTO of Microsoft

GCC Market Specifics

The unique dynamics of the GCC region play a significant role in shaping the resilience of its data center industry, particularly when paired with supply chain risks.

Regional Growth and Investment

The data center market across the GCC is forecasted to expand significantly, growing from AED 11.75 billion in 2024 to a projected AED 19.46 billion by 2031.

Temperature Management Challenges

The GCC's extreme heat presents a unique challenge for data center operations. To ensure systems remain operational, facilities require multiple cooling units, quarterly maintenance routines (like cleaning condensers), and predictive capacity planning to handle fluctuating demands.

Major Infrastructure Developments

Several large-scale projects are shaping the region's data center landscape:

• AWS is investing AED 19.46 billion in a new regional hub, which will include three availability zones by 2026 (announced in March 2024).
• Neom's DataVolt project is underway, aiming to develop a 1.5GW data center, which will be a cornerstone for the region's tech ambitions.

Regulatory Environment

The GCC's regulatory framework is evolving rapidly, particularly in areas like data protection, cross-border data transfers, and AI governance. These changes add complexity to supply chain management and operational strategies in the region.

Energy and Sustainability Focus

The energy demands of data centers are a growing concern. According to the International Energy Agency, global data center electricity consumption could surpass 1,000 terawatt-hours by 2026. In the GCC, efforts to address this include:

• Masdar's 1GW renewable energy facility, set to be operational by 2027.
• The use of green bonds and sustainability-linked loans to support environmentally friendly projects.

"We always assumed there would be power, but obviously that was woefully inaccurate, so now we're chasing where power is."
– Phill Lawson-Shanks, Chief Innovation Officer, Aligned

Economic Impact

Digital transformation is reshaping economies across the GCC:

• AI is expected to contribute approximately AED 495.9 billion to Saudi Arabia's economy by 2030.
• The UAE is targeting its digital economy to account for 20% of GDP by 2031.

Market Competition

The competition within the GCC data center market is heating up:

• ICS Arabia is working on three data centers in Saudi Arabia, with an investment of AED 6.98 billion.
• Ezditek is building a 64MW facility in Riyadh's Al-Jenadriyah Technical Zone, costing AED 2.64 billion.

"As the Middle East emerges as a global data centre powerhouse - driven by AI, cloud demand, strategic investments - it presents unmatched upside for infrastructure investors and digital operators seeking scalable, high-growth opportunities."
– PwC

This competitive and rapidly evolving environment highlights both the challenges and opportunities within the GCC's data center ecosystem.

Summary and Next Steps

The supply chain in GCC data centers faces vulnerabilities in areas like vendor management, infrastructure, and technology. These risks can lead to significant disruptions, but implementing effective risk management strategies could save organisations an average of AED 135.9 million annually by improving prevention and response measures.

Strategic Recommendations

Addressing these challenges requires a multi-faceted approach. Here are the key areas of focus:

Vendor Management Improvements

A robust vendor evaluation system is essential. Organisations should assess suppliers based on their financial stability and compliance records, categorising them by risk level. Maintaining detailed performance histories can help in mitigating potential disruptions.

Infrastructure Expansion

With data center capacity in the region expected to grow from 1 GW in 2025 to 3.3 GW by 2030, infrastructure upgrades are critical. Priorities include:

• Transitioning to renewable energy for power management
• Adopting advanced thermal solutions for efficient cooling
• Sourcing hardware from diverse suppliers to reduce dependency

Technology Integration

Currently, organisations have visibility into just 2% of their supply chain operations. This underscores the need for digital platforms that enhance tracking, ensure compliance, and improve operational resilience. Such technologies enable real-time data sharing, fostering stronger partnerships across the supply chain.

Regional Collaboration Initiatives

Regional collaboration plays a vital role in strengthening supply chain resilience. The GCC’s competitive edge in operational costs and infrastructure development opens doors for enhanced public-private partnerships, further stabilising the supply chain ecosystem.

Monitoring and Adaptation

To stay ahead of potential risks, organisations should adopt AI-driven monitoring systems that can:

• Track supplier performance and identify disruptions
• Automate compliance and risk assessments
• Enhance overall supply chain visibility

The adoption of Data Centre Infrastructure Management (DCIM) solutions is expected to grow significantly, with projections reaching AED 32.3 billion by 2032.

Immediate Action Items

To quickly improve supply chain resilience, organisations should:

• Conduct thorough vendor evaluations
• Develop contingency plans for critical components
• Implement AI-powered monitoring tools
• Establish regional partnerships for resource sharing
• Build detailed supplier risk profiles

FAQs

What strategies can GCC data center operators use to handle trade restrictions and border controls effectively?

GCC data centre operators can tackle trade restrictions and border controls by implementing smart, forward-thinking strategies. Here are some practical steps they can take:

• Work with a variety of suppliers to avoid over-reliance on specific vendors or regions.
• Cultivate strong ties with local authorities to simplify customs procedures and address regulatory needs effectively.
• Create backup plans to manage sudden geopolitical shifts or changes in tariffs.

On top of that, considering alternative logistics routes and negotiating flexible vendor agreements can help cut down on delays and extra costs. By staying prepared and adaptable, operators can keep their operations running smoothly, even in challenging trade conditions.

What cooling technologies are data centers in the GCC using to handle extreme heat conditions?

Data centres across the GCC are turning to cutting-edge cooling technologies to combat the region's intense heat. Among these, liquid cooling methods like immersion cooling and direct-to-chip cooling are gaining traction. These systems are far more effective at dissipating heat than traditional air cooling, making them ideal for managing the high temperatures and energy demands of dense server setups.

Another trend is the use of hybrid cooling systems, which blend air and liquid cooling to strike the right balance between energy efficiency and performance. These systems are particularly well-suited for the challenging climate of the GCC. By adopting these solutions, data centres are not only boosting operational efficiency but also aligning with the region's increasing emphasis on sustainability and energy conservation.

How are GCC data centres tackling the shortage of skilled professionals in advanced fields like AI and cloud computing?

GCC data centres are tackling the challenge of a limited skilled workforce in advanced technologies like AI and cloud computing through focused efforts. A major strategy has been the introduction of upskilling and reskilling programmes, aimed at equipping employees with critical skills in areas such as AI-driven automation and data analytics - both vital for today’s tech-driven operations.

Moreover, collaborations with universities and technology companies are playing a crucial role in cultivating new talent. By aligning academic programmes with industry demands, these partnerships ensure that graduates are ready to meet the needs of an ever-evolving tech sector. This forward-thinking approach is helping to close the skills gap while supporting the region’s expanding data centre industry.

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