Saudis spent USD 4.3 billion on online transactions last year, according to a report by the Arab Advisors Group.
"The survey revealed that around 32% of adult Internet users in Saudi Arabia buy products and pay for services online," the Amman-based ICT research company said in a release.
"The Arab Advisors Group conservatively estimates the number of these e-commerce users to be around 3.7 million, which is around 12% of the total population in Saudi Arabia. These e-commerce users have spent an estimated USD 4.3 billion on buying products and paying for services through e-commerce transactions in 2013."
Figures vary on e-commerce transactions in the kingdom (Sacha Orloff Consulting Group, estimated Saudi Arabia's total e-commerce sales reached USD 3.5 billion in 2011), but there is little doubt that Saudi Arabia is among the most connected countries in the world, with a strong preference for social media and gaming sites.
As e-commerce topped more than USD 1 trillion worldwide last year, Saudi consumers are also waking up to a sweeping digital trend that has made many brick and mortar retailers nervous in the developed world. While Saudi Arabia's major retailers have little to fear at the moment, change is afoot.
Currently e-commerce makes up 4.2% of Saudi retail sales of USD 101.3 billion last year.
"E-commerce is still well below its potential in Saudi Arabia, largely because of the low rate of credit-card usage. However, the rapid rollout of broadband access should help to stimulate the growth of online purchases," Economist Intelligence Unit.
Saudi Arabia has just over 14 million Internet users, along with 53 million active mobile subscriptions, which is impressive for a country with a population of 28 million.
Despite restrictions on the web, Saudis spend on average of four hours and 57 minutes on the web, according to Global Webindex.
The rapid growth in population, young and IT-savvy Saudis and rising affluence is spurring rapid growth in all aspects of the country's information communications and technology sector (ICT).
The International Data Corporation (IDC) notes that Saudi IT market could reach USD 12.4 billion in 2016. As corporations and households spend billions on technology products and services, the kingdom could emerge as a hub for ICT services, despite its conservative outlook.
SME E-COMMERCE OPPORTUNITY
Rising Internet penetration has huge implications for a whole new digital e-commerce world in Saudi Arabia. This includes the so-called MOOC (massive online open courses), to healthcare services, remittances via mobile and even opportunities for small-to-medium enterprises.
"In Saudi Arabia, SME investment is forecast to grow to over USD 70 billion by the end of 2015, expanding its share of GDP by 2%," according to management consultancy Deloitte LLP.
"With the kingdom representing the vast majority of SMEs and ICT spend in general, we expect this to be one of the leading growth factors in regional SME ICT spend."
However, many SMEs have not taken the e-commerce bull by the horn and have failed to realize its boundless potential. A majority of Saudi SMEs do not have an online presence and are not comfortable with spending thousands of dollars to configure their website for e-commerce.
Saudi consumers are far ahead of the SMEs and indeed many local corporations.
HIGH INTERNET PENETRATION
Saudi Arabia has the highest Twitter penetration in the world, according to peerresearch.com and with an active Facebook subscriber base, the kingdom is among the most digital savvy places in the world - despite its reputation as a conservative country with limited social freedoms.
In addition, total mobile broadband subscription has risen from a meagre 4.9% in 2009 to 48.5% by the third quarter of 2013, according to the Saudi Communications and Information Technology Commission (CITC).
"The estimated number of Internet users in the kingdom is 16.4 million users at the end of Q3 2013, with a population penetration of 55%, CITC said.
"It is expected that the demand for Internet services will increase significantly in the next few years due to the availability of fiber-optic networks (FTTx) at very high speeds, initially in large cities, growing Internet content and the spread of handheld smart devices and applications."
The country's broadband penetration rate reached 50% at the end of Q3 2013, indicating a subscription growth rate of 25% year-on-year.
"According to industry sources, smartphone penetration is estimated to cross 50% by 2016, from the current 35%, which indicates some potential for data usage growth over the next few years," noted Mazhar Khan, an Al Rajhi Capital analyst. "The growth still looks impressive, although on account of falling data tariffs and growing competition among operators, we feel increasing data penetration will not lead to a higher contribution to the industry's top-line."
E-COMMERCE CHALLENGES
E-commerce is not without its challenges. Internet fraud, privacy issues and cyber-security are worldwide problems facing the industry, and Saudi telecom providers and regulators will need to spend heavily on security infrastructure.
In addition e-shopping takes away some of the social joys of visiting shopping malls, which are one of the few entertainment outlet for Saudis, some analysts say.
"However, marketing consultants in the region suggest that legal and social restrictions on women's behavior may lead some women to prefer shopping online," the Economist Intelligence Unit noted.
REGIONAL TREND
While Saudi-specific figures are often hard to come by, ICT research company E-Marketer gives some ideas of the scale of e-commerce development under way in the region.
Middle East and Africa digital buyers are set to exceed 50 million this year and could potentially reach 73 million by 2016. And while Middle East buyers are often considered big spenders, they are more conservative in the digital arena. The average B2C ecommerce sale in 2013 in the Middle East is estimated to be USD 542 per person, compared to USD 947 for Asia Pacific region.
As regional confidence in e-commerce grows, that figure could rise to USD 622 per person by 2016, still below the global average of USD 1,513.
As Saudis and Middle East Internet users get more comfortable with e-shopping, there is an opportunity to develop a brand new industry that could give regional SMEs a big boost.
The feature was produced by alifarabia.com exclusively for zawya.com.
© Zawya 2014
