Trade flows

Middle East shoppers embrace e-commerce

A major growth spurt in e-commerce is underway in the Middle East as consumers leapfrog to digital

The Middle East region is on the cusp of a major e-commerce growth spurt. More people than ever are shopping online, and e-commerce is transforming how we interact with brands.

Research commissioned by Standard Chartered points to a 30 per cent top-line growth year-on-year in e-commerce across the Middle East, with many markets remaining largely untapped.

Saudi Arabia, the UAE and Egypt are expected to be some of the fastest growing e-commerce markets globally in the next few years, and some intriguing developments are already happening here. Uber in Cairo, for example, has shaken the local taxi market and is now one of the leading Uber markets globally.

Less developed parts of the region will completely leapfrog organised bricks-and-mortar retail

On the retail side, we are a region that loves to shop, and which is spoiled by a great array of organised retailers, but consumers are increasingly looking for convenience, lower prices and more options.

Less developed parts of the region, including the rural areas of more developed countries, will completely leapfrog organised bricks-and-mortar retail and move towards e-commerce, much like mobile phones bypassed landlines in Egypt and more broadly in Africa.

Expect real disruptive change

We recently made a USD50 million investment in Souq.com, the Middle East’s leading online retailer. We did this, because we felt comfortable that our region is in the early stages of real disruptive change when it comes to consumer behaviour, retail shopping and mobile technology.

Up until recently, the enablers of e-commerce – including physical hardware and infrastructure and internet access – were nowhere near the standard required for e-commerce to reach its full potential in the Middle East.

We are entering a new era for regional e-commerce

However, thanks to increased smartphone penetration and improved logistics, we are entering a new era for regional e-commerce. The UAE and Saudi Arabia enjoy smartphone penetration rates above 70 per cent, and more than 50 per cent of e-commerce is done via smartphones, according to our data.

Some markets, such as Egypt, still have low smartphone penetration rates, but this will serve as a major growth opportunity for e-commerce companies operating in those areas. On the logistics side, e-commerce companies have identified the importance of last-mile fulfilment and are investing millions into their product delivery networks, which means they will be able to provide either same-day or next-day delivery.

Digital commerce firms are creating new jobs

In our view, the most gratifying part of investing in e-commerce in the Middle East is that it helps self-made entrepreneurs evolve in a space where large-scale funding is scarce, and in a region where many investors are hesitant to deploy capital generally.

As the region’s economies grow, these types of companies are turning into major employers and providing much-needed opportunities for young people. Souq.com, for example, employs over 3,000 people across multiple platforms including a large logistics business.

Further down the ecosystem, the latest applications being developed are for the most part being created by young innovators, solving problems which were either unknown or unrecognisable to the previous generation.

Transformative for entire Middle East region

As early-stage companies get larger, traditional private equity players will inevitably work closer with the local venture capital and angel community, generating further jobs and economic growth. Our region cannot afford to ignore the e-commerce space – for social reasons, as much as from a perspective of investor returns.

What is happening in e-commerce is likely to prove transformative for the entire region, and one to watch in the coming years.