E-commerce profits went up fourfold to $20 billion in 2020 in the Gulf Cooperative Council (GCC) countries, up from $5 billion in 2015, according to a recently-released Go-Gulf infographic report titled “E-commerce in Middle East – Statistics and Trends.”
The e-commerce market for the entire Middle East North Africa (MENA) region is expected to generate $48.6 billion in sales by the year 2022.
Go-Gulf, a web development company based in the United Arab Emirates that advises other businesses on the subject, attributes the increase of online shopping, both in the Gulf and across the region, to an increase in the prevalence of cell phones.
Suhail Mirza, partner at Gowling WLG, a global law firm specializing in tech and mergers and acquisition, says that this is the case in the UAE, which has one of the largest e-commerce markets in the region.
Together with Saudi Arabia and Egypt, the three countries comprise 80% of MENA’s online retail market, according to Go-Gulf.
“The widespread use of smartphones and screen time acts as a catalyst for more on-line spending,” he told The Media Line.
“People here typically have one or more smart phones, especially UAE nationals and high earning expatriates who have the majority slice of the disposable income. They’re getting more exposure to social media and all on-line retailers have been quick to use social media to promote their products. This has fueled consumer demand,” Mirza added.
According to Go-Gulf, 70% of MENA online shoppers find new e-commerce companies through Facebook, with 59% using Instagram to find new retailers.
Mirza says that the coronavirus pandemic likely is not be the only reason behind the increase in e-commerce, since phones with online capabilities were prevalent prior to its start, but the pandemic has sped things up, leading to a market that heavily favors consumers.
“All of the main grocery suppliers have shifted to online sales and even luxury restaurants provide online sales. There is no minimum expenditure as well. It’s a very consumer-friendly market,” he said. “You can order something as simple as a cup of coffee and have it delivered for $5, whereas in other countries you probably have a minimum order requirement.”
“The labor supply required to resource these services is relatively cheap and movement of goods is simple, which makes e-commerce an easier proposition,” Mirza added.
David Quaife, MENA managing director at Pattern, an e-commerce consulting agency, says that the pandemic has resolved the regional company’s ambivalence about its on-line presence.
“I would say it’s made any CEO on the fence about e-commerce make the decision. I’m sure a lot of business owners would have acted earlier to drive their e-commerce strategy and those that did are reaping the rewards,” he told The Media Line. “Seamless contactless experiences are now a standard and businesses will need to ensure they can meet these ever-changing demands from consumers as e-commerce continues its growth coming out from the COVID impact, which will no doubt bring new demands and challenges.”
When it comes to success in the UAE market, a major challenge is population size.
“The population is only 10 million, it’s not the 60 million-plus you’ve got in the UK or the billion-plus so you’ve got in India and China,” Mirza said. “When it comes to growth potential, you’ve got to look at Saudi Arabia and other GCC states with their youthful demographics to come up with a holistic strategy to scale up operations.”
“That said, we still see lots of new innovative business models entering the UAE and this will continue to be the case,” he added.
Quaife says that a major obstacle online merchants in the broader region struggle with is consumer confidence.
“Trust is hard to earn and easy to lose, even more so in the Middle East; consumers demand secure payments, authentic product and legitimate customer reviews,” he said. “Businesses need to focus on gaining and retaining the customers’ trust as well as providing an excellent online shopping experience in order to acquire and retain customers in a fast-growing and competitive digital landscape.”
The regional e-commerce market, however, still has much more room for growth, as it makes up of just 2%-3% of the region’s total commerce market, according to Go-Gulf.