How hosting locally reduces the impact of foreign exchange fluctuation

02 Mar, 2021 - 0 Comment(s)

When organizations want to host their content, they look for a hosting platform that gives them efficient, high-speed, and cost-effective service, so their content can be accessed quickly.

But while businesses and agencies in Nigeria have this same expectation, many unwittingly opt for service providers that cost them this speed and cost-effectiveness they crave. They host their data with foreign data centers.

Several consequences follow from hosting with foreign service providers. Upload and download times could be slower because the data centers are far away from the business that stores and accesses the data. There are data sovereignty issues as well; it’s not always clear whether it’s the business’s home country or the data center’s host country that has administrative rights over the data.

There’s another problem that businesses get exposed to when they use foreign hosting platforms. It’s a problem with unstable currency exchange rates.

The Exchange Rate Problem   

Organizations also have to pay for the hosting services provided from beyond their borders in foreign currency. If a company in Nigeria hosts its content with a cloud firm in the United States, it will pay that firm for its services in dollars.

According to the Nigeria Internet Registration Association (NiRA), the country loses up to $60 billion worth of foreign exchange to other countries every year as payments for web hosting services. As of 2016, less than 2% of domain names were registered in Nigeria.

There’s a problem with this. If most establishments with a web presence in Nigeria rely on foreign hosting, they will be exposed to fluctuations in foreign exchange. If the dollar becomes more expensive relative to the naira, they will have to spend more to pay hosting fees.

Let’s explain this with a simple example.

Suppose Company A in Nigeria hosts its website with a hosting firm B in the United States. The Nigerian company A pays the hosting firm B $700 annually for its hosting services.

If the current dollar-naira exchange rate is N360 to $1, the Nigerian company will be spending an equivalent of N252,000 on hosting in one year.

But if the naira slumps and the exchange rate becomes $400 to $1, the Nigerian firm will have to pay N280,000 in hosting fees in a year.

That’s a difference of N28,000.

How a Fluctuating Exchange Rate Affects Business Hosting Budgets

One thing becomes immediately apparent: companies can’t be sure how much they will have to pay for hosting when they are drawing up their budgets. Even if the cost remains constant in dollar terms, the unstable exchange rate ensures that you can’t be certain about how much naira you will be set aside for it. This uncertainty makes planning difficult and may frustrate the efforts of businesses and agencies to streamline their expenses.

Higher costs also eat into budgets and reduce net business incomes. For organizations that consider their expenditure on this front as significant, a local currency that continually depreciates against the dollar could be eroding their efforts to turn out significant profits.  

The Impact of Forex Payments for Hosting on Nigeria’s Economy

The exchange rate problem exerts significant pressure on the wider economic scale. Taken together, local companies are paying millions of dollars in scarce foreign exchange to foreign hosting firms. When these payments are made, Nigeria is left with fewer dollars. And when there are fewer dollars, the demand for them will push their naira-price higher. 

Local companies suffer as a result. They may be paying the same rates in dollar terms, but they are spending more naira to make the payment.

In a nutshell, companies that use foreign hosting firms are contributing to a problem that they are already suffering from.

The Remedy: Local Hosting

There’s a solution to the uncertainty, rising costs, and economic problems that foreign hosting brings. It’s called local hosting. Instead of spending dollars on this service, companies in Nigeria can switch to local hosting firms.

Here are some advantages that businesses can gain from local hosting, in terms of exchange rate issues and costs.

•They won’t have to contend with fluctuating rates and the confusion that comes with it. They can simply pay for hosting in naira.

•Rates don’t ‘change’ abruptly. Customers will usually be notified when fees have been reviewed upwards or downwards. 

•There’s greater certainty around the costs that the company is incurring.

•The fees are fixed and denominated in naira, so it’s easier to plan and budget.  

•The country saves scarce foreign exchange.

There are also other benefits besides the gains from denominating fees in local currency. When you host your data locally, you have more access to it. It’s easier to keep in touch with the hosting platform. Security concerns are diminished. And there’s no concern about data sovereignty.

Local Hosting: What Options Do You Have?

As Nigeria has grown more reliant on data and digital technology, cloud service providers and managed IT service companies have sprung up within its borders to fill the storage and computing needs of its many businesses. Many of these have been around for just a few years. A few have been in operation for much longer.

The quality of service you get from local hosting firms will vary as well. Some can leverage their extensive experience in the Nigerian environment, and provide high-level skill and support to their clients. But this isn’t the case for every player in this space. 

Layer3 is one of the long-lived data hosting institutions in Nigeria. For over 14 years, it has helped organizations in the private and public sectors with the data storage and network solutions they need to thrive. And it continues to improve its offerings, as technology evolves and the demands of the IT market change.

Its virtual data centers and servers, backup, and disaster recovery services are available to emerge businesses, large corporations, and public sector agencies, and are tailored to suit organizations from a wide range of sectors.

If you would like to find out more about Layer3 and local hosting, you can contact our team here.