As e-commerce slowly grows in region, Lebanon lags behind

While the e-commerce market in the region touched the $40 billion mark in 2016 and is expected to reach $45 billion by the end of 2017, the increase is inconsistent from country to country due to the uneven rate of digitization in each nation
3 May 2017 | 15:13

BEIRUT: Consumers across Lebanon and the Middle East are slowly becoming more digital in their purchasing decisions, moving from showrooming toward ‘webrooming,’ which is the action of evaluating a product online before placing an order.

While the e-commerce market in the region touched the $40 billion mark in 2016 and is expected to reach $45 billion by the end of 2017, the increase is inconsistent from country to country due to the uneven rate of digitization in each nation, and their respective businesses, and governments, according to a report by McKinsey & Company, a business management consultancy firm.

“Several countries—including the United Arab Emirates, Bahrain, and Qatar—are leading the digital consumer charge, with high smartphone adoption rates and social media use, while other countries with weaker digital penetration are struggling to keep up,” the report said, noting that these leading GCC countries are among the top users in the world, with more than 100 percent smartphone penetration and more than 70 percent social media adoption.

Nonetheless, the region is still lagging behind the global e-commerce landscape, with the lowest percentage (53 percent) of people purchasing a product online in the last month, compared to the colossal online activity of the Asia-Pacific region (82 percent), and followed with a tie between Europe and North America (73 percent) and a second to last Latin America (65 percent), according to a recent study conducted by Global Web Index, a UK-based marketing consultancy firm.

In related news, despite ambitious government aspirations to go digital, only six percent of the Middle Eastern public has access to any established digitized e-government. And Middle Eastern countries lag far behind benchmark countries such as Norway, Singapore, South Korea, Sweden, and the United Kingdom in business digitization, from the amount of venture capital (VC) funding available to start-ups to the share of the workforce working in digital careers and industries, according to the McKinsey & Company’s report.

Additionally, the Middle East captures just a fraction of its digital potential of just 8.4 percent, in comparison to U.S. and EU markets of 18 and 15.2 percent respectively, according to the report, noting that Lebanon’s digital potential is trailing at last place with 4.7 percent.

In yet another metric, the Middle East finds itself also lagging behind. Among the top 1,000 Information and Communication Technology (ICT) companies globally by annual revenue, only one percent is located in the Middle East. In particular, "digital unicorns"—start-up digital companies that have a market capitalization of more than one billion dollars—are almost non-existent in the region.

Currently, the Middle East's only unicorn representative is Souq.com, an online marketplace based in the UAE, which was recently bought by Amazon.com.

The digital market could add $95 billion per year to the Middle East’s annual GDP by 2020 if proper funding, government initiatives, and talent acquisition is conducted, thus giving give birth to more digital-oriented startups, and growth possibilities for the region’s ICT and tech sectors, the report added.

In regards to Lebanon, the general e-commerce market is growing, albeit at a slow pace, according to Karim Saykale, founder of E-comLebanon.com – a locally based online e-consultancy firm – who has almost 17 years experience in the digital and e-commerce scene in Lebanon.

“Usually people here in Lebanon tend to go for online shopping for three reasons which are at discounted prices, group offers and exclusivity, since there’s still a lack of trust by Lebanese people with online payment security,” Saykale told Annahar, noting that the culture in the country hasn't adapted to online shopping since everything that consumers might need can be found nearby.

With regards to payments, a recent report by ArabNet concluded that cash on delivery is king in both Lebanon and the region. “For the majority of e-commerce companies surveyed in our report, more than two-thirds of their payments are made in cash, while a significant minority of companies do minimal cash transactions, some of whom choose to discourage or refuse cash on delivery,” the report said.

Feedeed.com, a locally based platform that connects clients with freelance experts depending on their skill set, also provides a ‘cash on delivery’ method to counter people’s fear of online purchasing which “is applicable to roughly 60 percent of our total transactions,” Dany Abu Jawdeh, CEO of the platform, told Annahar.

Abu Jawdeh also noted that the company goes as far as to call a customer once a request has been made on their website to confirm it, thus adding a human touch to the online transaction experience in order to make customers more at ease with using the platform.

“As a young startup, we have to accommodate these customers to eventually turn them into paying ones via credit card; if you don’t go into a startup flexible then you’re going to die,” the young entrepreneur added.

However, e-commerce expert Saykale noted that cash on delivery is a good option for customers – especially for Lebanon and the region – but is regarded as bad for businesses, since it “raises a challenge of accurate location delivery, as well as consumers changing their minds at delivery point,” he said.

Saykale also highlighted the necessity to create more governmental involvement in the e-commerce scene in Lebanon by implementing a number of initiatives and incentives that would aid in molding a more digital-oriented culture into Lebanese markets.

“There has to be clear laws and regulations set forth by the government in order to organize e-commerce locally and help guide e-merchants accordingly, as well as implementing e-services through e-government programs that would help nurture a digital culture,” Saykale said.

Other suggestions made by the e-consultant included granting more loans to digital-oriented startups that would improve people’s attitude toward doing business for the future, and also enhancing the country’s Internet infrastructure.

The Economy Ministry points that it is currently studying a new draft law for e-commerce in the country, which would help set standards for both startups and current e-merchants already in the digital market. “We’ve been studying a draft law .. (for) the new digital markets, which will subsequently fuel Lebanon’s digital industry to new heights,” a source at the ministry told Annahar.

The source also added that an e-government initiative would greatly encourage a more digital-oriented culture among people especially senior citizens, which would encourage people to start using e-commerce platforms to an even further extent.

According to a yearly report published by PayFort.com – a UAE based online payment gateway – Lebanon and Qatar registered the smallest market size growth of 2016, with online buyers mainly shopping for airline tickets, while e-commerce trailed in second place. However, by the numbers, the state of online buyers has grown significantly on a year-to-year basis in Lebanon, jumping from 1.3 million in 2014 to 2.1 million in 2015.

This increase in online buyers was due to a slight rise in Internet penetration within Lebanon, with the number jumping from 3.3 million users in 2014 to 3.6 million the following year, which is considered a marked percentage increase due to the country’s small population.

The age group of 25 percent of online buyers in Lebanon is between the ages of 36 and 40, while another 25 percent are from citizens aged 51 and above; additionally active Lebanese e-shoppers were registered to have an average income level starting of $2,666 per month, according to PayFort. 

Nonetheless, many e-shoppers and merchants have high hopes for Lebanon’s prospects in both the e-commerce and digital sectors, who believe that “the digital sector is still in its infancy in the country, thus the only way to go is up in the near future, especially when considering Amazon.com’s recent acquisition of Souq.com will likely boost the state of e-commerce in not Lebanon but the entire region to a more positive note,” Saykale told Annahar.

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