When the coronavirus pandemic shut down international travel and slashed global demand for energy exports, the ensuing economic crisis was particularly hard-hitting on Middle East and North Africa (MENA) economies.
Thanks to minimal economic diversification and a historic regional reliance on hydrocarbon exports, MENA economies, almost without exception, experienced a severe economic contraction. According to the IMF, the perfect storm of diminished activity in the hospitality and tourism sector, protracted lockdowns, and collapsing oil prices culminated in a staggering $224 billion revenue shortfall for MENA economies.
“2020 was a year like no other. Nobody was expecting the severity of the first and second shocks that have deeply affected the economy of the world, and economies of the region,” said Jihad Azour, the department director of IMF’s Middle East and Central Asia department.
“This crisis was a double whammy crisis for oil exporting countries, in particular for the Gulf Cooperation Council (GCC),” Azour continued. “In addition to the pandemic, and the needed measures to protect lives and the populations… the decline in oil demand globally and drop in oil prices deeply affected the economies of the oil exporting countries.”
To rebound from the COVID-19-induced economic downturn, the member states of the GCC have turned to the e-commerce sector to boost commercial activity and shore up contracting balance sheets. Fortunately for the GCC, this decision is already paying dividends. Across the MENA region, Saudi Arabia and the United Arab Emirates (UAE)
According to a whitepaper from Wamda, the region’s e-commerce sector is finally netting the benefits of improving regulatory support, government promotional initiatives, and heightened interest from entrepreneurs and business leaders in the private sector.
Specifically, Wamda cited the effect of the pandemic on changing attitudes towards e-commerce in MENA, writing: “Today, 80 percent of young Arabs shop online frequently, compared to 71 percent in 2019. Additionally, 50 percent of those aged 18-24 in MENA are shopping more online after the pandemic.”
Spurred on by a highly digitized population and a lockdown-induced spike in consumer demand, e-commerce companies boomed across MENA, pushing the industry to a $22 billion valuation by the end of the year.
With e-commerce growth trends set to continue, the UAE has embarked on an ambitious plan to modernize digital payment networks and expand long-chain logistics infrastructure. This initiative seems at least partly due to the success of the UAE’s burgeoning online grocery shopping industry throughout 2020.
In a recent study, payments solutions provider, Network International, found that not only did UAE residents seamlessly adapt to everyday usage of online grocery platforms, but they also spent more on these online platforms than they previously spent in brick-and-mortar supermarkets.
Specifically, the total average transaction value (ATV) for online shopping baskets was 40% higher than the average value of shopping baskets transacted via point of sale (POS) in supermarkets. This trend reached its apex in November 2020, when e-commerce ATV spending was more than double that of POS spending in local supermarkets.
“Looking ahead, it’s clear that an increasing number of consumers may continue to shop from the comfort and safety of their homes, appreciating the convenience that e-commerce and contactless transactions can bring them,” said Nandan Mer, the Group CEO of Network International.
Inspired by the ongoing shift away from cash-dominated industries and the prospect of rapid, long-term growth in the online grocery industry, the UAE government has scaled up its support for a range of e-commerce initiatives, from investing in secure, click-to-pay solutions for retailers to smoothing out regulatory hurdles for multi-purpose ride hailing apps so they can function as emergency online food delivery platforms.
However, the industry has not been without growing pains. A joint study from Dubai Economy and Visa has identified several areas of focus, namely cutting down on shopping cart abandonment by reducing timeouts or authentication delays and eliminating antiquated or overly complex transaction services like cash-on-delivery and managed bank transfers.
Despite these obstacles, the UAE continues to lead the pack when it comes to the average size of e-commerce transactions. In 2019-20, UAE residents spent an average of $122 per e-commerce transaction. For reference, the average value for e-commerce transactions in emerging and developed markets over the same period was $22 and $76 respectively.
As the UAE invests in more sophisticated and resilient transaction and logistics infrastructure, the rapid pace of development has caught the attention of VISA’s general manager, Marcello Baricordi.
“The digital payments ecosystem in the UAE and wider Mena region was already experiencing strong growth, but the pandemic has helped accelerate the pace of change and progress,” said Baricordi.
With merchant adoption and consumer confidence in digital payments on the rise, it’s clear that the UAE’s e-commerce market is maturing into a stable, high-growth sector within the domestic economy and broader GCC financial system.