International investors are setting their sights on the Middle East’s young but booming e-commerce industry, and particularly on the promising opportunity in the Saudi market.
Paypal announced the launch of its Middle East operations on Nov. 14, and three of the Middle East’s largest online retailers - Namshi, Souq.com and MarkaVIP — have all raised rounds of funding this year for major expansion.
Namshi, a UAE-based online retailer focusing on fashion and footwear, has secured 20 million dollars from JP Morgan Chase and Blakeney Management; Marka VIP, the Middle East’s largest flash sales site focusing on luxury goods, raised 10 million from multiple international venture capital firms; and Souq.com, the region’s largest online retailer with a customer base of 8 million, secured $45 million end of last month from Naspers, a South African media company, and Tiger Global, a New York hedge fund.
Saudi Arabia is the top destination for these e-commerce businesses. It ranks second in e-commerce sales in the GCC, and more importantly represents the biggest retail sector in the region, with the promise of huge growth in e-commerce in the near future. The challenges and opportunities of building an e-commerce business in Saudi Arabia is one of the central topics that will be explored in depth at ArabNet Riyadh, the largest gathering of digital executives and entrepreneurs in the Kingdom, taking place on Nov. 20-21 at the Four Seasons Hotel. The forum will bring together more than 50 expert speakers and 600 attendees, and is hosted by the Badir Program for Technology Incubators, part of the King Abdulaziz City for Science and Technology, and supported by the Communications and Information Technology Commission of Saudi Arabia.
“Being able to capture the Saudi market is a critical success factor for e-commerce ventures in the Arab region,” said Hassan Mikail, regional manager for E-Commerce at Aramex, which is the e-commerce partner for ArabNet Riyadh. “All eyes are on Riyadh, where the next phase of rapid growth will be in this sector.”
Some of the main challenges facing e-commerce businesses in Saudi Arabia and the region more broadly are payment and logistics. More than 70 percent of online buyers in the region choose cash on delivery as their preferred mode of payment, straining the cash flow of e-commerce startups. Cash on delivery purchases are 7 times more likely to be returned, according to Aramex, and this puts e-commerce companies at the risk of incurring extra shipping costs as well. Paypal’s recent entrance to the market could help alleviate some of these issues and stimulate rapid growth in the sector.
Paypal’s new Managing Director for Middle East and North Africa Elias Ghanem, said: “Paypal has big ambitions to help millions of Internet users to shop conveniently and safely online within the MENA region.”
Beyond online retail, there are also tremendous opportunities for companies that can help existing offline businesses transition to the digital realm. Over 85 percent of businesses in the GCC have no online presence, according to Google; these businesses are losing out on the 66 percent of MENA Internet users who use the web to search for products and services. Companies like Jeeran, a business reviews’ site, and Fursaty, a group-buying site, are stepping in to fill the gap and providing merchants with their first glimpse of the benefits of going online and raising consumer awareness, further driving e-commerce in the region. Jeeran and Fursaty will be discussing the ways in which they are doing this at ArabNet Riyadh.
E-commerce markets in the MENA are evolving and the online customer base is rapidly expanding. Co-Founder and Managing Director of Namshi.com Hosam Arab said: "The Middle East region is finally ripe for e-commerce as governments ease restrictions on regional trade, logistics providers scramble to improve their services to e-commerce retailers and their customers, and investment funds pour into the sector after the emergence of a number of exciting regional success stories."