By Rohan Samarajiva

The Sri Lankan tech community has always prided itself in being at the cutting edge of technological adoption. I have heard many speeches about how we were the first to adopt mobile telephony, or something else. So, it’s understandable that the President’s proposal re making Sri Lanka a data center hub has resonated with those in the tech community. Hub is not just a word we attach to things; it evokes a bicycle wheel—a hub and spokes. Data coming in and data going out, hopefully with some value addition in the hub. Other countries are creating hubs too. So our hub has to offer lower costs, better quality or something else.

But this is going to cost the taxpayer. LKR 500 million in 2026 (USD 1.6 million), with more in subsequent years. Is the proposal well thought out? Is it feasible? What benefits will flow to the national economy from the LKR 500 million plus?

Examples of tech misadventures

These questions were not answered in the case of previous government proposals for glitzy technological leaps. In the case of the Sri Lankan satellite (ChiChiSat), I posed some questions to a representative of Surrey Satellite Technology Limited that was the ostensible partner of the Telecom Regulatory Commission. Unsatisfied with the answers, I made my concerns public. In the end, SSTL was replaced by the Chinese. Good thing no public funds appear to have been spent.

The process was even murkier in the case of the broadcast tower built at President MR’s suggestion. In the end the Lotus Tower included no space for broadcast transmission, but ate up a lot of public money, including a government guaranteed USD 88.6 million loan from China’s ExIm Bank that must be paid off by July 2026. Current operational income is not adequate to pay off the debt.

The Public Financial Management Act, No. 44 of 2024, seeks to preclude mindless expenditures such as the above. The present discussion will hopefully inform the review that is now mandatory for public investment projects such as data centers.

What do data centers need?

Sri Lanka currently has six Tier III data centers. They are relatively small and serve the domestic market. Tier III centers must assure uninterrupted power supply. Only 1.6 hours of downtime are allowed per year. 

In the case of Tier IV data centers, which Sri Lanka cannot have until the electricity reforms are completed two years after the “appointed date” which is sliding, power and cooling systems are isolated from each other. In these centers all components are duplicated. They are to be completely fault- tolerant, with expected uptime of 99.995% (max 26.3 minutes of downtime annually).

Viet Nam, with low energy rates and a high percentage of renewable energy, is making a concerted effort to create a data center hub (not just to serve the domestic demand, but to provide data center services for external entities and thereby earn export revenues). Its situation will shed light on what must be done here.

Viet Nam has 34 active data centers and is angling to become a data center hub, though there is domestic business case given it booming economy and large population (102 million). It allows 100 percent foreign ownership. Data centers may purchase power directly from renewable energy generators. In Viet Nam, the average construction cost is USD 6.9 million per megawatt, which is cheaper than most others in the region, such as Thailand, Indonesia and Malaysia. Sri Lanka which levies protectionist taxes and levies on most material needed for data centers will be even more expensive.

Google is investing between USD 300-650 million in a data center in Viet Nam which is likely to be operational by 2027. Companies such as Amazon, Alibaba and Microsoft have indicated interest. Currently Vietnam has five undersea cables, with ten more planned to be completed by 2030. Sri Lanka has eight landing in Colombo, Mount Lavinia and Matara. If data centers are located away from these densely populated areas, reliable and redundant domestic fiber connections to the landing station will be required.

Viet Nam’s planned fully state funded Tier IV data center will be the largest in Southeast Asia. It will span more than 20 hectares and will have 1,300 server racks. The full cost is not known.

In 2025, Vietnam established the National Data Development Fund, a fund that operates as a non-budget state financial fund with an initial investment of 38.4 billion USD. This is expected to finance digital infrastructure, national data systems and future data centers that the government plans to invest in.

Viet Nam illustrates the scale of investments that have to be attracted (obviously, a fiscally constrained government limited in its ability to mobilize debt cannot build data centers like the Viet Nam). But that is not the only factor. Any investment in Sri Lanka must consider the competition from other South Asian countries. And look at the comparative input costs and availability of inputs in the desired locations. The Table provides an indication.

Costs, benefits and risks

Decisions on whether a government promotes or facilitates the establishment of data centers within its territory must consider the availability of the key inputs of land, electricity and water and the opportunity costs. Two million liters of water for a data center means 2 million less for something else. As many governments are beginning to appreciate, water extraction affects specific localities and can generate fierce opposition.

What benefits will data centers yield? They do not generate a lot of employment. Bangladesh’s Tier IV data center created only 69 jobs. Will there be tax revenues? Not unless the government desists from giving tax holidays. In any case, it’s not that easy to levy taxes on these kinds of businesses.

Beyond these economic factors, some governments are motivated by non-economic factors such as data localization. In the 2026 state budget the Malaysian Prime Minister announced that the government would allocate RM 2 billion to build a sovereign AI cloud. If all states prioritize sovereign cloud facilities, will there be business for externally focused hubs such as Viet Nam’s?

The cost-benefit assessment does not offer obvious support for tax holidays such as the 21 years offered by the Indian government. But of course, each government must set out what it wants from data centers, assess the costs and benefits and reach the appropriate conclusions. The answer for a large economy such as India will not be the same as for a small one like Sri Lanka.

The enthusiasm for data centers to support the current silicon-based architectures needed for today’s Large Language Models must also take into account the possibility that they may become obsolete in future. Perhaps quantum or biological computing will lead the next phase of AI development leaving the large data centres being built today stranded.

Disclaimer: The views and opinions expressed in this article are those of the writer and do not necessarily reflect the official position of this publication.