Over the last six years, e-commerce has grown to become a significant growth-catalyst of the Middle East’s economy; a development that is reflected in a number of major deals.
The founder of Noon, Mohamed Alabbar, who launched the $1bn e-commerce platform in 2017, has been prominent in the sector, with Emaar Malls Group has acquired 51 percent of the online fashion retailer Namshi for $151m in the same year.
There have also been a number of deals in neighboring Saudi Arabia in recent years, including Al Tayyar Travel Group Holding’s acquisition of online travel company Al Mosafer and the launch of another online platform, Tajawal. Alongside Souq, some of the other regional stars, such as Wadi, Fetcher, Talabat, and Careem, are well-known success stories.
The opportunity is clear. In Saudi Arabia alone nearly 30 percent of the 28 million residents are below the age of 15. Online customers in the region are estimated to be 50 million and are comparable to the size of India’s digital shoppers.
E-commerce & The Middle East
The population in the Middle East & North Africa (MENA) region is about 350 million and there are about 110 million (and rising) internet users among them. Out of these 110 million internet users, 30 million are shopping online. Middle Eastern countries have always been at the forefront when it came to adopting new technologies. This has been the same when it comes to embracing e-commerce too. Starting from the leading homegrown online retailers such as Souq, Cubone, Wadi etc. to global titans like Amazon, eBay, and Ali Express, there have been several e-commerce firms which had triggered enormous growth in the sector. These titans have generated more revenue to the e-commerce development firms.
This is the reason that many local and global companies have attracted attention from investors. Middle East e-commerce site Wadi.com has raised UD 67 million in funding 10 months after its launch in 2015. Souq which is Middle East’s own home-grown e-commerce platform has scaled up so high that it has obtained USD 75 million as investment from Naspers and USD 150 million from Tiger Global Management recently. The company has raised a funding of USD 275 million to date and plans to utilize the funds to boost its technology and mobile services.
Souq, considered the Amazon of the Middle East, boasts the value of more than one billion AED (USD 275 million). It has around 23 million visitors visiting it monthly and it has sold over 8.4 million products. This attracted Amazon to acquire it for USD 650 million dollars. The luxury e-commerce brand ounass.com which is compatible in both Arabic and English is another example. It sells a wide variety of products ranging from cosmetics to footwear.
To promote business, it has come up with two hours to same day delivery, cash on delivery, free shipping, and easy returns or exchanges. Noon.com is another luxury online regional marketplace which has been launched recently. It has about 20 million products in its kitty. Created by businessman and billionaire Mohamed Alabbar, the new platform will sell a variety of products and benefit from same day delivery operated by Noon Transportation.
With the rise in acceptance of e-commerce by users in the Middle East, the e-commerce development companies have grown progressively. The revenue raised by these e-commerce sites is expected to be valued at USD 10 billion (AED 36.7 billion) by 2018 in UAE, according to Sarwant Singh, Senior partner and head of visionary innovation group at Frost & Sullivan. It is guaranteed that these numbers are going to increase with time steadily.
MasterCard and PayPal conducted surveys on the shopping behavior of Middle East users and the survey shows that 80 percent of the purchases done online in the Middle East are made with cash-on-delivery. Credit and debit cards make up 15 percent and PayPal the remainder. The online surveys also say that the top category in which many users have used the e-commerce sites is for travel, after which comes electronics.
The region offers an excellent customer base with higher per capita income and a propensity to consume. According to Berlin-based e-commerce incubator Rocket Internet’s annual filings, Namshi was a profitable company with just over $100m in sales in 2015. Cleartrip’s Middle East operations became profitable in just three years from launch.
With a market size of $27bn, the UAE will continue to lead the region’s e-commerce scene that is forecasted to clock $69bn by 2020. The Dubai Chamber has estimated that online retail spending in the country will hit double-digit growth over the next few years. To put this into perspective, the retail sector currently contributes nearly 11 percent to the country’s GDP.
Saudi Vision 2030 and the Digital Oman Strategy both hope to spearhead a digital transformation, while The Dubai CommerCity is one of the most recent major initiatives to promote e-commerce in the region. The AED2.7bn free zone aims to attract foreign direct investments and foster entrepreneurship among the UAE’s youth, offering state-of-the-art warehouses that will help companies ship their goods to local markets in record time.
These developments present excellent market opportunities for companies and will contribute immensely to the region’s growth and its transition to a digital economy.