How e-commerce is facilitating an expansion in the Saudi ICT sector

In the last two decades e-commerce has transformed the global retail sector. The adoption of e-commerce accelerated further at the beginning of 2020 due to the onset of the Covid-19 pandemic. Many customers switched to safer and more convenient digital shopping channels. “The Covid-19 pandemic has accelerated e-commerce adoption in the region, and this carries profound implications for the way marketing is conducted, with social media marketing booming as a result,” Krishan Chutani, CEO of Darbur International, a personal and health care company, told OBG. Saudi Arabia was well positioned to take advantage of this trend thanks to its robust domestic e-commerce market, updated policies and regional leadership role in e-commerce before the pandemic.

Policy & Strategy

In line with the strategic objectives of Vision 2030, the then-named Ministry of Commerce and Investment adopted the implementing regulations of the E-Commerce Law at the end of January 2020 to support the ongoing shift towards electronic transactions. The new regulations were intended to increase confidence in e-commerce transactions, provide consumers with the necessary protections against fraud and boost e-commerce activity.

Under the new E-Commerce Law, the government legally defined e-payment services and created a consumer protection framework, thereby increasing consumer trust across different channels and devices. The regulations also provided a basis for the growth of discovery commerce, where people buy products through social media based on custom recommendation algorithms. The Kingdom has also benefitted from upgrades to mada, the national payment system, to enhance security and increase its speed.

Saudi Arabia’s demographics are favourable for the adoption of e-commerce. The Kingdom has a large youth population aged between 18 and 34, comprising 43% of the total. This section of the population tends to display considerable familiarity with the online environment and social media. The average time Saudis allocate to social media has increased by more than 20% to over three hours a day in 2019-21, which places the Kingdom among the most active social media markets, above leading e-commerce markets such as the US, China and the UK. In addition, Saudi Arabia reached an internet penetration rate of 98% by the close of 2021, according to the Communications and IT Commission, with 5G networks covering over 70% of the country by the end of that year. This enhanced connectivity makes it easy for consumers to take part in e-commerce.

Prospects & Challenges

The e-commerce market grew by 25% from 2016 to 2019, and expanded by 60% in 2020 as Covid-19 lockdown measures were imposed. According to the e-commerce analytics site ecommerceDB, Saudi Arabia is the 27th largest market in the world for e-commerce in 2021, with 53% of Saudi internet users paying online for goods and services that year. E-commerce accounted for around 8% of all retail transactions in the Kingdom in 2020, some 10 percentage points below the global average, suggesting room for further growth. Indeed, the sector is forecast to expand by some 25% from its 2020 level by 2025.

Given the segment’s nascent development stage, infrastructure and last-mile delivery challenges remain. However, key enablers such as dedicated regulatory bodies and frameworks are now in place. Boosting domestic product ranges will also be key to the Kingdom’s drive to localise e-commerce activities; currently, 35% of e-commerce purchases made in Saudi Arabia are cross-border transactions. Localisation would have the broader impact of helping to diversify the economy.

E-commerce is the primary growth driver in the global retail sector, either as a standalone service or as part of a broader retail business strategy. With Saudi Arabia’s advanced digital capabilities, tech-savvy and young consumer class, and ongoing investment in enhancing logistics capacity, the ICT sector is set to maintain its growth momentum over the long term.