While the Middle East contains some of the richest nations in the world, it also contains some of the poorest. That, to a certain extent, is also reflected in the adoption of the Internet and eCommerce. While the United Arab Emirates accounts for most of the eCommerce traffic in the region, the slow but gradual adoption of online retail represents a massive economic opportunity.
Despite the eCommerce potential, the regional market size is difficult to estimate because which countries are actually in the Middle East is up for debate. While some maintain that the Middle East includes just the countries in the Gulf Cooperation Council (GCC) – Saudi Arabia, United Arab Emirates, Bahrain, Qatar and Oman – others maintain the region also includes North African countries.
While currently the fashion, consumer electronics, health and beauty, and lifestyle segments account for 90 percent of eCommerce in the GCC, that is set to change as consumers overcome their current prevailing fear of credit card fraud associated with online retail, and more bricks-and-mortar retailers move into online retailing from the current low level of only 15 percent.
Despite the huge eCommerce disparity from country to country – for example the United Arab Emirates accounting for 44 percent of regional eCommerce sales and Saudi Arabia’s current eCommerce growth – until recently only two thirds of the regional population owned a smart phone or used the Internet, and of those users, less than half realized it was possible to shop online. The exception to that is United Arab Emirates and Qatar where Internet penetration is around 90 percent.
A number of logistical, payment and delivery barriers remain for the Middle East eCommerce market though. The low credit card ownership penetration means that as much as 70 percent of online retail purchases are paid for with cash on delivery. If there is no-one home, then the merchandise does not get delivered. And in most Middle East countries a woman home alone will not answer the door to a deliveryman, meaning the product goes undelivered.
That is even if the correct delivery address can be found. Many countries in the region lack postal codes as well as street names and house numbers, resulting in purchases bought online from overseas retailers taking weeks to reach the consumer. Indeed, in some countries as many as 40 percent of packages are returned to sender with “address unknown” as a consequence.
International deliveries can also attract high trade tariffs and customs delays, and political unrest in some countries only adds to the problem. Delays can be significant and frustrating for the consumer because 90 percent of eCommerce purchases are from outside the Middle East region. Little wonder that, in 2016, digital eCommerce accounted for barely one percent of the Middle East’s gross domestic product.
That is certainly set to change as more local markets become available online. For example, the new local marketplace noon.com is set to provide an outlet for domestic retailers and third-party sellers. And global goliath Amazon has recently invested $600 million in acquiring Souq.com, a Middle Eastern and North African eCommerce platform. Amazon almost certainly will be adding local warehousing and distribution facilities to speed up delivery times.
As smart phone and Internet penetration in the region increases and logistical, payment and delivery problems are solved, the potential for eCommerce in the Middle East is set to explode. The writing is on the wall with Amazon’s interest in a region where, overall, income per capita is high.
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