The e-commerce industry in Middle Eastern countries has emerged. Although slightly later compared to its peers in the west and Asian countries, it has gained a lot of momentum in the past few years. In terms of gross merchandise value (GMV), the total e-commerce market in the Middle East in 2021 stood at $35 billion and is forecasted to reach $140 billion by 2027. The UAE, Saudi Arabia and Egypt are the leading countries within the e-commerce market in the region and cumulatively account for 75% of the overall regional market. Favorable economic and digital indicators in some leading Middle Eastern countries have made the region a hotbed for e-commerce growth. The countries in the region have demonstrated stable gross domestic product (GDP) growth rates and strong growth in urban population, taking urbanization to as high as 87% and 84% in UAE and Saudi Arabia, respectively, and 65% regionally. The region also shows a high youth population between the ages of 20-39, with the UAE having more than 52% of the population in this age group. Apart from economic indicators, the UAE, Saudi Arabia and Egypt also demonstrate strong technology adoption indicators. The smartphone penetration in the UAE and Saudi Arabia stands at 88%, whereas it was above 80% in Egypt. Similarly, internet penetration in the UAE and Saudi Arabia stood at 99% and 93%, respectively.

A thriving economy with a young, tech-savvy urban population with high exposure to social media has tremendously accelerated the adoption of e-commerce in the region. E-commerce marketplaces such as Amazon (previously Souq) and Noon have leveraged these regional dynamics to establish a strong foothold in the region. These market dynamics have also attracted several international e-commerce start-ups to set up shop. Apart from the socioeconomic indicators, international e-commerce companies and start-ups are attracted to the Middle East because of favorable policies, special trade and economic zones that favor e-commerce business operations in the form of trade and tax concessions, access to investments, and logistics infrastructure. These facilities ultimately make it easier to set up and do business in the region. Citing the economic benefits of a well-established e-commerce industry, government leaders and policymakers in several Middle Eastern countries have taken up initiatives to invest in infrastructure and services that enable the smooth functioning of the e-commerce industry. Governments within these countries have invested in strengthening their logistics infrastructure and improved postal and address systems to establish better last-mile connectivity. The initiatives by policymakers and government bodies create a platform for other ecosystem players like Fintechs and e-commerce players to further innovate and launch new services to ensure a better customer experience and further accelerate the e-commerce market.

A study by checkout.com found that in 2020, 27% of the population in the GCC shopped online monthly, whereas 33% of the population in the GCC shopped online more than once a year. Despite the growing adoption of e-commerce, there continues to be a few regional characteristics that have caused the penetration of online shopping (percent of online sales among total sales) to remain low. When compared to e-commerce markets in the other mature countries, where penetration of e-commerce is between 12%-25%, leading countries in the Middle East, such as the UAE and Saudi Arabia, show penetration of 6% and 4%, respectively; the regional penetration of e-commerce stands at ~2.5%. The maturity, growth and adoption of e-commerce depend on several factors related to consumer trust, behavior and regional nuances that impact this industry. For example, a major growth barrier is the prevalent mall culture seen in Middle Eastern countries. Traditionally, malls in the region were a place for family recreational activities, and even today, offline shopping at malls continues to be a family outing in addition to shopping. A significant portion of retail consumers in the region still prefer offline shopping, where they can physically experience the quality of the product before purchasing. Experiencing the product in person before purchasing also impacts the adoption of digital payments in the form of e-wallets and online card payments. Despite ordering a product online, the consumer still opts for the cash-on-delivery option. Other deterrents to online shopping have been longer delivery times, receiving counterfeit or faulty products, and complex return and refund processes. However, as the e-commerce industry maturity and consumer trust grow, consumer buying behavior will also evolve. The UAE and Saudi Arabia, the two most mature e-commerce markets in the region, are witnessing consumers moving to digital payments. Fintech companies within these countries are exploring innovative payment options that can be offered to online shoppers. Collaboration among ecosystem players to solve challenges will be key to the growth and development of the regional e-commerce industry.

The regional e-commerce industry trends have created several growth opportunities. The COVID-19 pandemic, which disrupted the world, turned out to be a blessing for the e-commerce industry. As governments worldwide enforced lockdowns and work-from-home mandates, people confined within their homes had to rely on e-commerce for daily necessities, food and groceries, healthcare, electronics, and entertainment products. During the pandemic, the demand for fresh food and groceries skyrocketed. A product category that historically was small grew significantly. Before the pandemic, the fresh food and groceries product category stood at $0.8 billion in 2019 in the Middle East. As the demand grew after the impact of the pandemic, this product category grew by more than 155% year-on-year to reach $2.04 billion. A similar impact was seen in other product categories such as beauty, healthcare and household products and consumer electronics, which grew year-on-year by 40% and 25%, respectively. The pandemic-enforced lockdowns also resulted in a significant number of new users who had to turn to e-commerce to purchase daily necessities. The new e-commerce users who began using online shopping due to the pandemic will continue to use e-commerce even after the pandemic.

Not only has the pandemic brought new e-commerce users, but it has also created opportunities for all ecosystem players. One such opportunity that was created and accelerated as a result of the pandemic is Q-commerce. As the demand for fresh food and groceries grew, there was also an increasing demand to have these food products delivered quickly, encouraging e-commerce players to look at Q-commerce. E-commerce marketplace players aligned their offerings and invested in infrastructure and partnerships to deliver fresh food and groceries to the consumer in less than an hour. The Middle East Q-commerce market, which is forecasted to reach $15 billion by 2024, presents tremendous opportunities for all ecosystem players; hence the market is witnessing a lot of investment and acquisition activity. To penetrate the Q-Commerce market in the region, global players like Delivery Hero have acquired regional players like InstaShop, whereas local players like Yalla Market and Rabbit have secured funding to expand operations. Another opportunity that has come out of e-commerce is the cross-border shopping opportunity. Online shoppers today purchase niche products from online stores of retail outlets and e-commerce platforms based in other countries. Typically, shoppers do this due to the limited availability of certain products in their country or niche products available only in select stores outside their country.

Moreover, innovative logistics and supply chain service providers leverage technology and partnerships to provide faster delivery and returns and have made cross-border e-commerce shopping more seamless. Cross-border shopping provides a great platform for local manufacturers and brands to showcase and promote their unique products to international markets. Cross-border also provides opportunities for organizations and e-commerce players to act as local distributors for unique, in-demand products from other countries. The demand for cross-border e-commerce in the region has grown; in 2020, the year-on-year growth was 214%, which was 10x the global cross-border e-commerce growth.

While e-commerce continues to present several unique opportunities for all ecosystem players, there needs to be strong collaboration between them to grow and develop this market in the Middle East. As the adoption of online shopping increases, e-commerce players need to closely work with technology providers, fintech companies and policymakers to provide consumers with better shopping, payments, delivery and overall customer experience. Collaboration will be key to unlocking the true potential of the e-commerce industry in the region.