Middle East online portals have been clocking high double-digit growth rates for some time now. Now, they need to show they can make profits out of that. Image Credit: Shutterstock

Ten years ago, when I started to follow MENA’s overall digital economy, it was less than $5 billion. Less than 20 per cent of the population had shopped online; cash-on-delivery (COD) was 90 per cent plus of the retail market.

Uber, Amazon, Delivery Hero, and noon had still not entered the market. Careem was just starting its journey.

In contrast, last year, MENA’s digital economy crossed $100 billion – almost 20x growth in the previous decade. Digital shoppers have now crossed 150 million, i.e. 60 per cent of the MENA population has shopped online. Consumers have become increasingly comfortable using digital payments pushing COD below 50 per cent.

Noon, Amazon, Careem, Talabat, and 6thstreet are already household names. At this pace of growth, MENA’s digital economy is on track to be the fourth largest ‘economic market’ in the coming years.

Just the start

2022 proved that the acceleration was not a one-off phenomenon – the digital economy not only stood its ground but also continued to grow at a rapid pace. What was most encouraging was that the growth was democratic across sectors – food delivery, online fashion, online electronics, online grocery, online travel, and gaming grew in the last year.

I do believe that we are still at the start of the digital adoption journey as only 7 per cent of MENA’s consumer spend is currently transacted online. We will continue to witness largescale consumer adoption on the digital channel. The impact of that will be:

  • More than 100 million consumers in MENA making their first online purchase in the next decade.
  • Existing online shoppers doubling their online spend.
  • Digital economy growing by more than 5x over the next decade.
  • Creation of 100+ unicorns in the MENA region.

Potential challenges

However, to get to the next stage of growth, there are still a few challenges that will need to be solved:

Right balance between growth and profitability

Consumers are embracing digital channels and demand is intact. However, the current environment might shift the balance towards profitability. Leaders will need to strike the right balance between growth and profitability to ensure not moving to one extreme of the spectrum that either hinders growth or burns significant acquisition dollars.

Creating scalable solutions

We expect to see 100+ unicorns in MENA by 2030, most of them being profitable. This will need scalability to operate in multiple geographies and/or sectors. Hence, players will need to look for scalable business models that are viable, something that gets tricky with the multiple jurisdictions across MENA.

Data-based decision-making

Businesses will need to get high-quality data on their new digital businesses, something few players can provide. This coupled with their experience will help them understand the risk-reward, produce realistic strategies, and refine them as consumer behavior evolves.

The demand on the digital channel is intact, but majority of the focus will shift towards discovery of products using online channels. Although, there are short-term challenges that the region will face, the long-term story is intact as local governments and local corporates continue to lean in.