The weeklong Yellow Friday Sale launched by Noon, an e-commerce venture between Saudi Arabia’s Public Investment Fund and Dubai’s Emaar Properties, tapped into the same online shopping mania as Black Friday and Cyber Monday in the United States and Europe and Singles’ Day in China. As Gulf Arab states accelerate efforts to develop their e-commerce sectors, online consumers are not the only ones taking notice. The United Nations Conference on Trade and Development listed the United Arab Emirates, Qatar, and Saudi Arabia among the top 10 developing economies in its 2019 Business-to-Consumer E-Commerce Index.
E-commerce sectors are promising for Gulf Arab states. Leading e-commerce firms from the Gulf, United States, and Asia are already active market players in the region, and this non-oil sector is poised for considerable growth. E-commerce development initiatives align closely with high-priority government agendas to build technology-focused, knowledge-driven economies. However, challenges related to payments, regulation, and delivery threaten e-commerce growth prospects within Gulf Arab countries and across the region.
Growing Orders
The Gulf’s e-commerce sector possesses significant growth potential, owing in large part to high per capita income and internet penetration levels. According to Bain & Company, Gulf Arab countries and Egypt account for 80% of the Middle East and North Africa’s e-commerce market, and annual growth in the e-commerce sectors of these seven countries stands at 30%. A.T. Kearney raised its estimates for the Gulf’s e-commerce market, which the consultancy believes will reach $24 billion by 2020. Bullish sales forecasts for 2022 exceed $41 billion, according to Fitch Solutions, with the UAE accounting for more than half of the regional market.
Robust e-commerce sectors can help advance two crucial objectives of regional economic strategies: redirecting spending toward domestic commercial activities and creating highly skilled job opportunities for citizens. Cross-border sales – or the amount of imports in a given e-commerce market – accounted for 50% of the Gulf states’ e-commerce sector in 2017, compared to only 13% in the United Kingdom and 6% in the United States. E-commerce firms also provide the tech-focused jobs and global reputations sought after by Gulf Arab governments.
Local e-commerce companies compete alongside – and occasionally operate in partnership with – global industry leaders. Noon, Dubizzle, and Souq.com are prominent Gulf firms. Amazon purchased Souq.com for $579 million in 2017 and began offering Arabic on its app and website in mid-2019. WorldFirst, a U.K.-based e-commerce firm acquired by Alibaba, opened an office in the Dubai International Financial Centre in November. Increasingly, Gulf retailers purchase goods from Alibaba and then sell them on local e-commerce platforms in a Business-to-Business-to-Consumer business model.
Primed for Government Delivery
Gulf Arab governments play a leading role in developing the e-commerce infrastructure and commercial frameworks. The Emirati government passed a law on e-commerce and electronic transactions in 2006. Subsequently, all online businesses operating within the UAE’s onshore economy must apply for an eTrader license through the Department of Economic Development within their respective emirate. However, the federal Telecommunications Regulatory Authority and its e-Commerce Section approve all e-commerce licenses in the country.
Dubai, more than its neighboring emirates, has invested heavily to develop its e-commerce sector. In September, the Dubai government approved an e-commerce strategy prepared by the Dubai Free Zones Council, Dubai Chamber, Dubai Customs, and Dubai Economic Department. The strategy aims to increase the market share of Dubai-based firms involved in local and regional distribution by slashing business costs – such as storage, customs, value-added tax, and transportation – of e-commerce activities by 20%. The goal of this initiative is to “solidifying the emirate’s position as a hub for global ecommerce.”
Dubai spent over $735 million on CommerCity, a 2.1 million square foot e-commerce free zone located near the Dubai International Airport. CommerCity is a joint venture between the Dubai Airport Free Zone Authority and wasl Asset Management Group, a subsidiary of the Dubai Real Estate Corporation. A second e-commerce free zone, EZDubai, launched in mid-2019 with an expected total cost of $545 million. The free zone is located in the same development area as Expo 2020 and has already attracted FirstCry, a leading Indian e-commerce firm for toddlers and children.
Saudi Vision 2030 aims to “expand the role of e-commerce to 80 percent of the retail sector by 2020” – part of efforts to develop a flourishing retail sector. The vision’s small and medium-sized enterprise development plans also include “support in marketing and exporting their products and services, with a focus on e-commerce and collaboration with international stakeholders.” Chinese firms serve as promising partners. The Saudi Arabian General Investment Authority signed a $300 million investment deal with ForDeal, a Chinese online shopping platform, and established a memorandum of understanding with Jollychic, a Chinese online retailer, in 2019.
Qatar’s Ministry of Transport and Communications oversees e-commerce development in the country. The trajectory of the sector is shaped by an e-commerce and transactions law issued by emiri decree in 2010 and an e-commerce roadmap released in 2015. The Qatari government developed Theqa, an e-commerce portal that certifies that e-commerce websites are genuine and have received approval from the ministry. Meanwhile, Qatar’s state-run postal system, Q-Post, created Connected, an international shipping service accessing the United States, Europe, and Singapore.
Oman, Bahrain, and Kuwait are slowly catching up with the fast pace of e-commerce development in the region. Oman’s e-commerce market accounts for a mere 1% of total retail sales. In 2016, the Central Bank of Oman enhanced its payment gateway for e-commerce transactions involving domestic debit cards. Indeed, better facilitation of online payments and applying advanced authentication mechanisms to digital retail activities will encourage sectoral growth. Bahrain’s Ministry of Industry, Commerce and Tourism launched the Bahrain eCommerce Academy in 2018. The academy aims to provide Bahraini businesspeople with technical skills and training to better utilize digital platforms. Talabat – the largest food delivery service in the Middle East – launched in Kuwait in 2004 and operates a network of over 13,000 restaurants and 24,000 branches.
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Weak payment, regulatory, and delivery systems remain obstacles and may prevent the e-commerce sector from reaching its full growth potential in the Gulf Arab states. Many Gulf consumers prefer to pay in cash, complicating the creation of a robust digital payment infrastructure. Gulf governments and state-owned entities have sought to address this by offering a variety of digital wallets and platforms. The UAE’s central bank regulates the Emirates Digital Wallet, while Qatar’s Ministry of Transport and Communications has an e-Payment Gateway alongside other Qatari digital wallets, like Sadad.
Though electronic payments account for around one-third of all retail payments in Saudi Arabia, the Saudi government hopes to boost the rate of noncash transactions to 70% by 2030. The Saudi Payments Network as well as the Saudi Payments Company, a new commercial entity launched at the request of the country’s central bank, encourage the transition to an increasingly cashless society. In 2016, the Saudi Arabian Monetary Authority launched SADAD Account, an online payment option that does not require bank cards or cash.
With more digital payments, ensuring cybersecurity standards and quality control of goods purchased online is crucial. The Commercial Compliance and Consumer Protection office of Dubai’s Department of Economic Development oversees an artificial intelligence-based protection service. In November, Dubai’s government announced the resolution of more than 1,200 e-commerce consumer complaints in an effort to boost confidence in the sector. Better regulation of the e-commerce sector also includes levying taxes and fees on digital transactions. Gulf Arab governments must integrate e-commerce activity into the value-added tax, excise tax, and customs systems.
Strong e-commerce sectors require seamless product delivery. The Gulf region’s postal services, which tend to be dominated by state-owned firms, are inefficient and ineffective. Package delivery costs in Saudi Arabia and the UAE are three times greater than those of best practice case studies, whereas returned and failed delivery rates are five times higher. The near collapse of Fetchr, a Dubai-based courier app once viewed as among the region’s most promising startups, illustrates the challenges associated with product delivery in the Gulf. The larger e-commerce firms have opted to develop customized last-mile delivery infrastructure, but not all of the market players can afford this luxury.
Government officials, businesspeople, and consumers across the Gulf Arab states view e-commerce development as a worthwhile investment. Nonetheless, in the rush to utilize cutting-edge e-commerce platforms and services, stakeholders must not forget to focus on the basics: payments, regulation, and delivery.
