Recent, major new investments and launches suggest that the Middle East’s e-commerce sector is moving into its next phase of development.
Noon is a landmark in Middle East e-commerce
As 2016 draws to a close, one striking development in the Middle East’s technology sector is that some serious money is finally being put into e-commerce in the region.
The Middle East’s most eye-catching new e-commerce initiative is Noon.com, an online shopping platform that was unveiled in November and is set to launch services in January, initially in Saudi Arabia and the UAE but later across the region, with an inventory of 20 million products.
Noon is fronted by Mohamed Alabbar, a prominent Emirati businessman who is also chairman of state-backed property group Emaar, which runs the giant Dubai Mall. Noon is raising funding of $1bn from Gulf investors, with Saudi Arabia’s sovereign Public Investment Fund taking a 50% stake. PIF had already revealed a new interest in e-commerce when it acquired a $3.5bn stake in Uber in mid-2016.
Alabbar said he wants the share of the regional retail market attributable to e-commerce to rise from 2%, or $3bn, to 15% ($70bn) over the coming decade, with Noon accounting for a large part of that increase and becoming the region’s dominant e-commerce player.
Separately, Amazon founder Jeff Bezos visited the Middle East, also in November, and Amazon has reportedly been in talks to buy a $1bn stake in Souq.com, which is currently the biggest online shopping site in the region.
This week, UAE-based taxi-booking service Careem revealed that it would get $350m of new financing from investors including Saudi Telecom and Japanese e-commerce specialist Rakuten. Careem was set up in Dubai in 2012 and now operates in 11 countries in the Middle East, North Africa, and South Asia. Saudi Telecom said that its new investment would amount to $100m for a 10% stake in Careem, which implies a valuation of $1bn for the tech venture.
Saudi Telecom, which was already an investor in Careem through its STC Ventures unit, is making direct investments in regional tech startups as part of a strategy of diversification into new growth areas as the telecoms market matures. Other regional operators, such as Etisalat and Zain, are pursuing similar corporate venturing strategies.
Although e-commerce has been growing in the Middle East in a small way for the past few years, it lags behind the level of development that one might expect given the high and rising levels of Internet connectivity, at least in the Gulf states.
The development of e-commerce in the Middle East has been held back by factors such as difficulties over organizing deliveries and payments, as well as a preference among regional investors for more conventional sectors, such as property.
But the scale of the new investments and plans suggest that 2017 will be the year when e-commerce in the Middle East begins to fulfill its potential.
Middle East Market Outlook, 2Q16, Report ID TE0015-000377 (April 2016)
Matthew Reed, Practice Leader, Middle East and Africa