E-commerce is arguably the ‘new’ buzzword. Or not?
One may argue the latter for there is hardly anything new to it. To imagine a day without connectivity is a fair struggle as high digital penetration has effectively revolutionised our interaction with machines. The internet has been a catalyst in shaping our lives and digital profiles – be it using online channels for research, education and entertainment. As consumers’ digital comforts grew, online shopping – via mobile phones, computers, tablets and other devices – followed as a natural progression, and is now an inextricable part of nearly every consumer’s life. Today, e-commerce is set to position itself as the key driver of growth regionally for retail, contributing 39 per cent in 2017, and expected to cross 50 per cent by 2020, Bain & Company’s report E-commerce in MENA: Opportunity Beyond the Hype revealed.
In the MENA region, the internet ‘craze’ flew in the mid2000s fomented by mass social media and smartphone adoption. Businesses jumped in after, but digital became a cynosure of their strategies during the past decade. This coupled with impressive network connectivity and a growing millennial base helped shift the paradigm. In 2018, on average, more than 40 per cent of the Middle East’s total population constituted of young adults, aged 20 to 39, BMI Research report reveals, corroborating the region’s driving e-commerce force.
Ambareen Musa, founder and CEO of Souqalmal.com, explains: “With a digitally connected population, online shopping comes as the next logical extension. E-commerce players in the region can overtake local and global competition by designing an intuitive customer experience, engaging customers across channels, and building a trustworthy platform that cuts the time and cost of purchasing online.”
Is a young millennial – and socially impressionable – base, high internet penetration, convenience, a bit of everything or something else – driving the region’s e-commerce upward trajectory?
“The region is broadly ‘cash rich-time poor’ so digital business models that address this dynamic have a promising outlook,” explains Khalid Khan, managing director, Astound Commerce Middle East. “Cities are dominated by motorcycle food delivery drivers, zipping in and out of lanes in order to deliver food on time, and this success is visible to all. Retail continues to steadily move forward; operators are beginning to think more creatively about how they can leverage their physical store infrastructure for the digital consumer. The service industry is beginning to see traction as creative entrepreneurs bring traditional services such as car fuel provision, and dry cleaning into the digital age.”
Regional growth stands tall
Incredibly, Middle East nations are ahead of more mature e-commerce markets (US, China) in terms of internet penetration that stood at 64.5 per cent in 2018, above the
global average of 54.5 per cent, according to a joint Visa and Dubai economy study.
“The region’s e-commerce industry is set for a boom,” Nour Suliman, CEO, DHL Express Middle East and North Africa, says. “Globally, online shopping is growing exponentially in terms of volumes, scale, markets and countries, and the same trend is being seen in the Middle East prompted by a rising consumer base, high disposable incomes and changing buying habits, among other factors.
“The region’s e-commerce value is forecasted to double by 2022 with countries like the UAE making it on the list of fastest-growing e-sales in percentage growth, alongside China, India and the Philippines. And with much of the groundwork being put in place, the region is becoming the world’s fastestgrowing e-commerce playground.”
The UAE is also the most advanced e-commerce market in the MENA region with a penetration rate of 4.2 per cent, with Saudi Arabia following closely behind at 3.8 per cent, according to Bain & Company.
“Within the GCC, countries like the UAE and Saudi Arabia have some of the highest levels of smartphone ownership, internet adoption and social media penetration globally.
Coupled with a high per capita income and favourable regulatory landscape, it’s safe to say that the region is ripe for e-commerce growth,” explains Musa.
Up to 55 per cent of shoppers in the UAE, Saudi Arabia and Egypt prefer to use smartphones to shop online. More than 60 per cent of shoppers in the UAE and Saudi, and 43 per cent in Egypt have completed an online transaction at least once, Bain & Company’s report revealed.
Furthermore, the GCC region is the fastest-growing market with an anticipated 2020 e-commerce spend totalling $10.8bn, marking a compound annual growth rate (CAGR) of 26.6 per cent from $5.4bn in 2017, according to Dinarstandard’s MENASA eCommerce Landscape: B2C Products Edition report.
The Dinarstandard report also features a list of the top 100 B2C e-commerce companies of the MENASA (Middle East, North Africa and South Asia) region, which includes 11 UAEbased e-commerce portals such as Souq, Noon, Namshi and Jumbo, among others.
The list also includes three e-commerce companies from Saudi Arabia and four from Kuwait; meanwhile, multi-product marketplace websites lead among the categories with 26 companies.
Success stories pave the way
The region’s startup ecosystem has garnered the attention of regional and global investors, raking in billions in investments to support a promising market.
The total number of venture capital (VC) investments in the MENA region totalled $670m in 2018, of which 70 per cent were deployed in the UAE and 8 per cent in Saudi Arabia, a report published by STV, a Riyadh-based technology VC fund, revealed.
In 2018, 87 per cent of VC investments in the UAE were already in later-stage ventures. In Egypt and Saudi Arabia, they were recorded at 79 per cent and 75 per cent respectively, the STV study noted. As the regional VC industry develops, it will tilt further towards later-stage investments, in line with mature markets.
Companies like The Luxury Closet, UAE’s e-commerce platform selling new and pre-owned luxury goods, secured $2.3m in growth capital in 2019, having secured an earlier $8.7m round in 2018. It also secured a $7.8m growth fund in 2016 to drive expansion.
Furthermore, successful buyouts of companies have validated VC investments holistically. In 2017, the world awoke to the news of technology giant, Amazon, acquiring UAE’s flagship e-commerce platform – Souq.com – for a whopping $580m.
The acquisition was hailed as “a critical next step in growing our e-commerce presence on behalf of customers across the region” – by CEO, Ronaldo Mouchawar, at the time.
“The Souq.com acquisition by Amazon has energised the entire e-commerce sector in the Middle East. For customers, it has brought in access to new markets and products, healthy and transparent competition, and more value for online shoppers,” says Shamsh Hadi, CEO of ZorroSign.
“Sellers now also have a larger reach into the UAE market, which was not as easily available before. There is also a significant surge in online shopping which is now giving investors more confidence in funding start-ups in the e-commerce space primarily thanks to the big-ticket acquisition of Souq.”
Local investors have had their share too – Emaar Malls, the retail arm of UAE developer Emaar Properties, acquired a 51 per cent stake in UAE’s e-commerce portal Namshi for $151m in 2017, fully acquiring it two years later by paying an additional $129.5m for the remaining stake.
The chairman of Emaar Properties, Mohamed Alabbar, along with Saudi Arabia’s sovereign wealth fund, the Public Investment Fund, and other Gulf investors, also launched the $1bn e-commerce platform, Noon.com, in 2017.
Meanwhile, buyouts continued in the non-retail e-commerce space too. In 2019, ride-hailing firm Uber acquired Dubai-based rival Careem’s mobility, delivery, and payments businesses across the greater Middle East region for a whopping $3.1bn with the deal expected to close out in the first quarter of 2020.
Online food delivery platform Talabat was acquired by German e-commerce group Rocket Internet for a staggering $170m in 2015.