Dubai: Even the UAE and Gulf’s ‘digital economy’ needs travel demand to return to normalcy.
The unprecedented drop in online travel bookings was the main reason why the overall transaction levels in 2020 through apps or portals actually shrunk to $44 billion from $52 billion in 2019 within the Middle East and North Africa markets. Online travel bookings dropped from 2019’s 59 per cent of the overall online deals to 34 per cent last year, according to data from RedSeer Consulting. This too only because of the sudden increase in travel activity during the final two months of the year, when borders and travel corridors opened up temporarily.
Will travel recover this year and again push online bookings to somewhere near normal times? Hopes of a summer breakthrough are receding, and it could now be August or September before it picks up again.
In 2020, e-tailing (excluding grocery sales) represented the biggest share of the MENA markets’ overall online sales activity. Much of that was delivered by a significant increase in consumers taking to online channels for the first time. Grocery portals would have added a few percentage points to the overall online retail activity.
The size of the UAE overall retail market in 2020, compared to $65.7 billion in 2019. The COVID-19 disruption on physical retail in the March to July/August period was the main reason for the drop.
Stick with it
If a sizeable number of these new online shoppers remain, the Middle East and North Africa markets could generate $97 billion in online sales by 2023, according to RedSeer, and with online travel deals again starting to pull their weight.
“More than 60 per cent of consumers are choosing experiential factors such as service quality, delivery speed and product description in their decision-making,” said Sandeep Ganediwalla, regional Partner at RedSeer. “As digital economy is becomes mainstream, players will have to provide better experience in addition to discounts to create a right to win in the digital economy.”
Sharp drop in overseas orders
Fewer UAE and Gulf based shoppers are ordering in their requirements from overseas online channels. Part of the reason could be difficulties and delays in receiving shipments from overseas due to COVID-19 led disruptions. But if this trend of fewer orders placed outside of the region continues, this could constitute a big win for local/regional online marketplaces,
Until last year, cross-border trade made up almost 40 per cent of online retail contribution. In 2020, it was “close to 20 per cent driven by localizing, digital franchises and policy regulation,” according to RedSeer. “This has reduced consumer dependence on cross-border trade and provided them with options locally.”
Recently, UAE and other Gulf markets started imposing 5 per cent customs duty even on overseas orders of Dh300 plus. The earlier limit had been Dh1,000. This, market sources say, will prompt more regional shoppers to stick with local options for their more frequent online shopping needs.
Leaders by some distance
The UAE and Saudi Arabia represent around 70 per cent of the Middle East and North Africa’s overall online market. The next big breakthrough could come in Egypt, where shopping trends are gradually veering towards online and pulling in more demographics other than the younger ones.
“Today, 90 per cent plus customers in the UAE and Saudi Arabia say they bought a retail product online – higher than even some of the more developed markets where digital adoption is around 70 per cent,” the report adds.