The United Arab Emirates is the e-Commerce leader among the GCC states. The global B2CE eCommerce spending topped $3.8 trillion in the year 2017. The private sector does not solely drive the growth of the Emirates in the eCommerce sector. An essential factor in building trust in online eCommerce over the last few years has come from e-government initiatives where the process of integrating paper-based information services like utility billing/payments, traffic services, visa, licensing etc. are migrating to the online platforms to provide citizens and residents faster and more effective public services.
UAE E-Commerce Sector – An Overview
The Ecommerce industry in the UAE is on an upward trajectory. It unique growth plan, compared to both emerging and mature economies, is led by the government adoption of eCommerce payments on platforms such as Dubai Smart City. Government payments lead the eCommerce landscape by far, despite exponential growth in other categories such as quick service transportation and restaurants.
The year 2019 is hailed as the year of online shopping in the UAE. As the eCommerce market gains momentum locally and internationally, customers today can get their hands on a huge range of consumer goods and services, all available via a click, tap or swipe. The country has done it all when it comes to initiatives in the E-commerce sector. Here are the market values for 2014 and 2018 of the E-commerce sector in the UAE.
In the year 2019, the forecasted eCommerce transactions in the UAE was $16 billion, with a growth of 23% annually between 2018 and 2022.
Reasons for the Growth of E-Commerce Sector in the UAE
- High digital penetration – Growth in eCommerce comes as digital becomes the future in the Emirates. Mobile penetration is now at a world-record high of 210.9% according to the Visa’s research. Even the residents of the UAE are among the top 10 globally when it comes to spending time on the internet. These reasons have resulted in high digital penetration.
- Rising use of mobile wallets – A deep penetration of cellphones is the reference point for mobile wallet adoption, and this has been a reality for years in the Emirates. With a simple tap of their smartwatch or smartphone, residents can today pay at supermarkets, hotels, department stores, petrol stations, taxis, cinemas and many more outlets.
- Initiatives by the government – The pro-eCommerce policies government have been crucial in building the digital culture in the country and eradicating many of the barriers to becoming a cashless society. Digital commerce and cashless payments were recognised as top government priorities in UAE Vision 2021.
- Going cashless – In first glance, the Emirates looks to be a long way off with 75% of all transactions still made using cash, but the country has already laid down strong foundations to go completely digital. It ranks foremost among the regional economies most rapidly moving away from money.
- Growing opportunities in digital shopping – On the side of the digital merchant, the UAE has seen growth both domestically and internationally, including several digital startups with world-class shopping experience for in-app and mobile.
Challenges in the E-Commerce Sector
- Clogged logistics - The huge trade barriers in the area act as a blockage for logistics and online retailers to transport products. These fences affect small e-commerce players due to high rate of tariffs, changing regulations and volatile currency exchange rates.
- Payment system and delivery issue - The Emirates has low credit card diffusion. Moreover, as per an A.T. Kearney study, buyers made 60-70% of their e-commerce payments through cash on delivery due to an absence of trust in online payment systems and internet scams.
- Impact of VAT – The implementation of VAT in the UAE has also made a challenging factor for the eCommerce market. On the customer front, as most online purchases are dispatched from outside the region, the tax would be valid not only on goods but also on services. On the company front, as the tax system is new in the country, the businesses must present effective VAT compliance systems, which would lead to higher costs.
What about the Future of E-Commerce?
The key catalyst for the healthy development of the regional e-commerce market would be a shift in the cultural outlook. Can e-commerce act as a substitute to the traditional shopping experience? Or will both the in-store and digital commerce networks complement each other and to develop? It would be fascinating to see what strategies significant players position to overcome cultural barriers. But one thing is for sure, e-commerce in the UAE is here to stay and grow.
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