The Emirate of Dubai and the UAE were ranked first in the list of fastest rising e-commerce industries in the Middle East and North Africa region in the latest news. Thanks to the government's advance initiatives, such as the Dubai Smart City, the key factors that have put the UAE and Dubai at the forefront of e-commerce growth in the MENA region are tech-eager customers and a favourable environment fostering start-up development.
The year 2019 is recognised as the year in the UAE for online shopping. Customers today can get their hands on a wide variety of consumer products and services, all available with a tap, click or swipe, as the e-commerce industry gains traction regionally and internationally.
According to a joint report by the Dubai Economic and the global payment technology business Visa, the UAE is making tremendous progress as the fastest growing e-commerce sector in the Middle East and North Africa (MENA). It ranks first in the Forbes list of 'World's Best Regarded Companies'.
In 2019, Emirates' e-commerce transactions were projected to total $16 billion (Dh 59 billion) and rise 23 per cent annually between 2018 and 2022. With these estimates, according to a joint report by Dubai Economy and the global payment technology business Visa, the UAE is making rapid progress as the fastest growing e-commerce sector in the Middle East and North Africa.
The report also stressed that e-commerce in the country had been driven by the government, encouraging a cashless economy and greater accountability. The 'emPay' digital wallet introduced by Dubai Economic and the Dubai Commerce initiative has highlighted an excellent initiative to promote e-commerce and provide digital transaction channels with more convenient access.
Let us now understand why the e-commerce market is rapidly growing in the UAE.
1. High Digital Penetration
Digitalisation is the future, and the end of the UAE has now been e-commerce. Mobile phone penetration is now at a world-record high of 210.9 per cent, according to estimates. When it comes to spending time on the internet and social media, UAE residents are among the top 10 internationally, being about seven hours and 54 minutes daily.
2. A Increase in Mobile Wallet Usage
The baseline for mobile wallets’ adoption is deep cell phone penetration, a reality in the UAE for years. With global giants including Samsung Pay, Google Pay, and Apple Pay, joining the fray, along with local players such as Beam Wallet and Etisalat Wallet and regional banks, the use of mobile wallets in the UAE has increased. You can pay bills anywhere with only a mobile, whether it's a gas station, cinemas, or department stores.
3. Improved Logistics
In the e-commerce industry, the UAE has excellent logistics support. Also, for any e-commerce company, logistics can be a game-changer. Fortunately, the Emirates is a central delivery centre, and its low cost of logistics and state-of-the-art infrastructure makes it a perfect place to flourish for e-commerce. According to the Visa survey, it enjoys an advantage as a significant global trans-shipment centre, with the port of Dubai International Airport (the sixth busiest cargo airport worldwide) and Jebel Ali offering a high logistics level.
4. Government Initiatives
In developing a digital culture in the UAE and eradicating many of the obstacles to becoming a cashless society, government pro-business policies have been critical. Cashless payments and digital commerce were listed in the UAE Vision 2021 as top government priorities. Several measures to promote it have also been adopted by the authorities, such as the wage security scheme.
5. Digital Natives
The Emirates population comprises about 30 per cent of digital-native millennials (born between 1981 and 1996) and an increasing Gen Z (born between 1997 and 2012). On-demand, near-instant clarity is often correlated with and desired by these digital groups. It is expected that their demand for easy and fast shopping experiences would quicken the acceptance of online shopping.
6. Trust in Digital Payments
Sixty-six per cent of people trust online shopping, and 70 per cent trust online payments, as per a recent Visa-DED surveillance survey analysing customer perception of digital payments and online shopping. There are tremendous opportunities for retailers, financial institutions, and customers. Therefore, we must continue to develop the trust of consumers and strengthen the online payment system so that consumers can benefit from more seamless, satisfying and safer shopping experiences.
7. Average Spend Per Transaction
The UAE retailer is among the top online spenders. The UAE accounts for the largest annual expenditure per online shopper in the broader Middle East region of North Africa at $1,648, with growth estimated at 29.6 percent by 2020. It is backed by Visa transaction data, which shows that the UAE maintains a healthy lead in average transaction size compared to both emerging and mature e-commerce markets. In the UAE, the transaction size in 2018-19 averaged $144, compared to $79 in mature markets and $26 in emerging markets.
8. Going Cashless
At first glance, with 75 percent of all transactions still made using cash, the UAE appears to be a long way off, but the country has already laid firm foundations for going digital. The UAE ranks among the regional economies that are most quickly shifting away from cash. According to Visa's research, card payments continue to rise in the UAE, reported at 70 per cent in 2018, compared to 68 per cent in 2017. Cash-on-delivery fell to 15 per cent in 2018 from 22 per cent in 2017 over the same period.
9. Striking Security
Another critical factor is striking a balance between frictionless client service and reliable security. In the UAE, banks and payment providers such as Visa are working to strengthen card protection for online transactions, adding to the process an extra layer of security. Online retailers will collaborate with payment processors to follow Verified Visa protocols, ensuring that the legitimate owner makes payments of the Visa account by giving the shopper a one-time password.
10. Growing Digital Shopping Opportunities
We have seen domestic and international growth on the digital merchant side, including a range of digital startups with in-app and mobile world-class shopping experiences. Simultaneously, we have seen conventional retailers go digital across all industries, and global brands have opened delivery services to the UAE, making it easier for customers to obtain seamless products.
Future of Ecommerce Market in MENA Region
The MENA e-commerce market has gained traction over the past couple of years, despite being late to take off. It is likely to experience substantial growth if elements of the ecosystem continue to fall into place. The area is still at the beginning of the e-commerce adoption period, and several forms in the future.
Depending on the industry, the growth trend of e-commerce has differed. The entry of major e-commerce players could help accelerate the transition to e-commerce and customer readiness and the growth of the ecosystem’s various components.
Further Growth of the Ecosystem
MENA has seen considerable progress in solving some of the problems connected to the e-commerce ecosystem over the past few years. However, in some places, quantum leaps are required to facilitate the sustainable long-term growth of the e-commerce industry, payments and logistics.
One of the main obstacles for e-commerce in MENA has been cash on delivery (COD). COD led to higher return rates and failed deliveries, adding pressure to working capital requirements while restricting distribution choices to logistics companies that support this form of payment.
To a large extent, even in markets with healthy credit card penetration rates, such as the UAE, where an estimated 75 per cent of the economy is still focused on cash, MENA remains a cash-based economy. COD seems to be a natural extension of in-store payment patterns. Still, it is embedded in customer confidence that is characteristic of emerging markets concerning online payments.
Consumers' preference to pay until they have the product in hand is the prime reason for COD use. For example, having the correct product delivered and the degree of trust in the return process can be attributed to a general inconsistency in the user experience while shopping online.
While a MENA online shopper usually uses his or her credit card to pay for online purchases with well-established cross-border e-commerce players, when faced with the option to shop with regional players, the same shopper prefers to pay in cash.
There is the potential for mobile wallets to help solve the COD problem in MENA. Mobile wallets offer a more safe and convenient way to pay than credit cards, as smartphones capture most e-commerce transactions in the country, despite the inconvenience of inputting. Mobile credit card information will allow customers to opt for COD.
Its ease of use promises to mitigate the buyers at the time of purchase and distribution for cash purchases, which will help tackle COD’s cash aspect. The payment difficulties faced by MENA are representative of many emerging markets. Cash accounts for more than 80 per cent of online transactions in India, where 50 per cent of the population has a bank account, and 4 per cent of adults have credit cards. Both the private and government sectors are trying to settle payments problems.
The evolution of e-commerce has been hampered by difficulties related to the speed and cost of product distribution in MENA. Postal services, which in most developed markets are the backbone of e-commerce distribution operations, are typically underdeveloped in MENA. Many global couriers, such as FedEx and DHL, do not sell COD, restricting regional and local players’ distribution options. It has impacted last-mile delivery pace and cost-effectiveness, placing pressure on major multi-category regional e-commerce players to develop their last-mile delivery infrastructure.
Many MENA nations suffer from weak systems of management that directly affect delivery speeds and failure rates. Through using customer smartphones as their delivery addresses, a range of players, such as Fetchr, have innovated in the environment, delivering to users wherever they are. More than $50 million raised by the company to buy new businesses and scale-up activities.
There was never a better time to be in the MENA e-commerce market. The market today stands at 8.3 billion dollars and is expected to hit 28.5 billion dollars by 2022. Digitally savvy customers in the area are hungry for a more comprehensive online range of items and new shopping experiences. E-commerce is at the forefront of retailers’ strategies, and pure e-commerce companies move into new markets and products categories. Despite the many existing obstacles, the various components of the e-commerce ecosystem, namely, payments and logistics, have come a long way.
Building on the strong momentum of the past few years, e-commerce is entering a critical region. For customers, companies, investors and players in the ecosystem, the opportunity is essential. The growth rate, exponential or linear, will depend on how quickly the three Ps come together: product selection, payments and product delivery. Exponential development has been a common trend in the area of user internet adoption and digital media investments.
E-commerce growth in the UAE has primarily been attributed to the retail sector and the vibrant mall community over the years. In short, new e-commerce businesses are projected to make a significant splash in the e-commerce industry of the UAE. E-commerce companies from developed countries such as the USA and the UK are attracted by Dubai’s business-friendly climate and other UAE places.
Should you decide to start an ecommerce business in the UAE, we at Commitbiz can help you. Our consultants have years of experience in this sector and can make the process trouble-free. Contact us today for more information.