How Saudi Arabia is Changing the Game for E-Commerce in the GCC
How Saudi Arabia is Changing the Game for E-Commerce in the GCC
By Borhene Ben Mena
CEO, Shipa Delivery
Saudi Arabia was met with skepticism a few years ago when it announced plans to shake up regional supply chains and make the country the GCC’s dominant e-commerce player.
At the time, cross-border deliveries into the Kingdom were a paperwork and bureaucracy nightmare. Inland logistics networks did not exist. Global online retailers preferred to serve Saudi customers by routing goods through other regional hubs such as the UAE or Bahrain.
Today, the skeptics are believers. Saudi e-commerce will top $10 billion in revenue this year, making the country the world’s 28th largest online market and bringing it on par with its regional neighbor, the United Arab Emirates. Growth in online revenue is forecast to expand at 13.5% annually through 2027, much faster than the global growth average of 11.2%. In key areas such as investment, logistics capacity, and shipping volumes, Saudi Arabia is set to leapfrog the UAE -- home to a more mature e-commerce sector -- and establish itself as the region’s e-commerce leader.
What’s Driving Saudi E-Commerce Growth?
Saudi Arabia’s Vision 2030 strategy contains overarching economic objectives that are driving growth in its digital economy. It wants to be a global and regional transport and logistics hub, and it is determined to expand non-oil sectors such as local manufacturing and exports.
The country’s Vision 2030 plan singles out e-commerce as a critical lever it needs to foster expansion of small and medium-size companies, which account for about 20% of GDP in the Kingdom but generate close to 70% in advanced economies. The broader Saudi retail sector “suffer(s) from limited penetration of modern trade and e-commerce,” the Vision 2030 document laments.
How have the Kingdom’s e-commerce ambitions played out on the ground? Dramatically. To address the lack of a domestic logistics network, Saudi Arabia has simplified licensing for domestic delivery providers and created multiple tiers of licenses. The result has been explosive growth in the number of delivery operators – from five to roughly 20 international players and an estimated 100 or so homegrown providers. At the same time, fresh investment has poured in to boost warehousing, fulfillment, and trucking capacity. The result is that smaller Saudi cities and towns, especially in the interior and south, that were effectively “off the grid” when it came to e-commerce just a few years ago are now connected to an efficient, fast-improving logistics and transportation network.
There is no shortage of Saudi regulators with a finger in the e-commerce pie. But key ministries and agencies – the Ministry of Commerce, Communications & Information Technology Commission, Saudi Customs, Saudi General Investment Authority, Transport General Authority, and others – have gone paperless by automating processes for digital and logistics businesses. They have simplified the rules, eased burdensome requirements, and cleared up gray areas. For some procedures, there is same-day or instant approval.
To boost consumer confidence and fight fraud, the Ministry of Commerce last year issued new rules requiring e-tailers to offer warranty information on invoices, and provide multiple payment options, tracking, order cancellation procedures, and return-and-refund instructions. The country’s E-Commerce Council sent a powerful message by cracking down on more than 200 vendors for failing to provide consumers with contact information, chat options, secure payment channels, complaint-resolution mechanisms, and Arabic-language service.
In both logistics and e-commerce, Saudi policymakers have deployed the might of the country’s powerful sovereign wealth fund, the Public Investment Fund (PIF).
PIF’s clout has allowed it to take sizeable stakes in leading global retailers, e-commerce companies and payments providers, including Noon, Shopify, Pinterest, Walmart, Visa, and PayPal. And PIF has been the Kingdom’s bridge to China, investing in Alibaba and Pinduoduo, paving the way for their expansion in the Saudi e-commerce market.
To modernize and expand the country’s logistics network, PIF has invested in the major state-owned infrastructure providers: Saudi Public Transport Company; Riyadh Air; Saudi Railway Co.; The National Shipping Co. of Saudi Arabia; and Saudi Global Ports.
According to the World Bank, Saudi Arabia and fellow GCC members, the UAE, Qatar, and Bahrain, have the world’s highest internet usage per capita at 100%. Saudi Arabia claims one of the world’s highest smartphone penetration rates (97%). In addition, mobile broadband subscriptions are higher in the Kingdom than in most advanced markets, and the country ranks 10th in the world for fastest internet speed.
Just as it is OPEC’s dominant member and “swing producer,” Saudi Arabia is the heavyweight of the six-country GCC. It accounts for 62% of the GCC’s population; 84% of the landmass; and 50% of the combined GDP.
Saudi Arabia’s SME sector is another advantage because it is larger, more diverse, and more vibrant than SME sectors in the UAE and other GCC countries. The Kingdom’s eagerness to put resources into the development of local merchants and Saudi brands that have export potential has been demonstrated by its support for the fashion-oriented Saudi 100 Brands campaign and other initiatives.
Saudi policymakers are using that leverage to make the country the region’s e-commerce powerhouse, as well: starting Jan. 1 2024,it will be much more difficult to serve the Saudi market from Dubai or any other transshipment hub. That’s because merchants, marketplaces, and other players in the digital eco-system (including lawyers, consultants, and banks) will need to be “Saudi-ized” with a physical and legal presence and employees in the Kingdom.
The Saudi-ization of marketplaces, platforms, merchants, and brands is increasingly important because sellers realize it is essential to their success. Earlier this year, global consulting firm Kearney and Saudi consultancy Mukatafa issued a report predicting that 74% of online shoppers in the Kingdom will shift from global to local platforms.
The rapid growth in Saudi e-commerce has meant growing pains. Delivery service is uneven, especially in mid-size and smaller cities and towns, in part because many merchants are keener on low prices than on service quality. To respect conservative sensibilities, delivery providers use special protocols that allow their male drivers to drop packages at households where only women are at home – a cumbersome solution because cash-on-delivery is still a preferred payment method for many.
Talent acquisition and retention is also an issue. That’s because all the players in the Kingdom’s e-commerce ecosystem – merchants, marketplaces, fulfillment specialists, last-mile delivery providers, and others – are competing for local talent and trying to persuade critical expatriate staff to consider relocating to Saudi Arabia.
Large distances can mean higher shipping costs in Saudi Arabia than in the relatively compact UAE. But for last-mile delivery operators, those costs are at least partly offset because they employ Saudi drivers and couriers. In the UAE, most delivery personnel are third-county nationals who require visas, housing,and other accommodations.
What’s to Come
The statistics hint at the potential of the Saudi e-commerce market. Checkout.com says 91% of Saudi shoppers already “regularly shop (via) e-commerce.” Fourteen percent of Saudis spend money online at least once a day, and digital payments are rapidly gaining acceptance, it says.
Worldwide, online sales are forecast to be nearly 21% of total retail revenue this year, while in Saudi Arabia e-commerce accounts for only about 7% of all retail activity. That’s a gap e-tailers are keen to close, and trends clearly favor them: A 2022 U.S. Commerce Department report, citing research by BCG and Meta, says the average spend per e-commerce user in Saudi Arabia increased by more than 50% during the prior three years.
With tremendous near-term growth almost a certainty, Saudi Arabia can make believers out of any remaining skeptics.
Ben Mena is CEO of Shipa Delivery, which provides same-day, next-day and on-demand delivery across the GCC.