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The Middle East and North Africa's consumer digital economy will more than double by 2023, led by the online retail and travel sectors, according to Indian research company Redseer.
The region's digital economy will hit $100 billion by 2023, up from $40bn to $45bn in 2020, with the biggest contributions from the UAE and Saudi Arabia, the consultancy said.
"As the digital economy becomes mainstream, players will have to provide better experience in addition to discounts to create a right to win in the digital economy," Sandeep Ganediwalla, Redseer's managing partner in the region, said.
The Covid-19 pandemic has accelerated the consumer shift to online shopping in the Middle East, leading to a boom in the region's e-commerce sector. Online sales in the Mena region are set to triple to $28.5bn next year from $8.3bn in 2017, according to research by Bain & Company and Google.
By 2023, about 36 per cent of travel bookings, 42 per cent of non-grocery retail, 13 per cent of food and beverage services, and nine per cent of groceries will be transacted through digital channels, according to Redseer.
The UAE and Saudi Arabia will continue to be the main drivers of growth in the Mena region's digital economy – contributing about 70 per cent of the total, it said.
Currently, more than 90 per cent of customers in UAE and Saudi Arabia say they have bought a retail product online – higher than some developed markets where digital adoption is about 70 per cent, the consultancy said.
The market will grow both through increased consumer adoption of online shopping and higher frequency of online purchases, Redseer said.
Cross-border trade, which previously had a large role in Middle East e-commerce with almost 40 per cent of online sales, is now reduced to a contribution of nearly 20 per cent, it said. This is driven by localisation, more digital franchises and policy regulation.
"This has reduced consumers' dependence on cross-border trade and provided them with options locally," Redseer said.
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Online retail will play a major role in the future of the region's digital economy. Its contribution rose to 41 per cent in 2020 from 27 per cent in 2019, Redseer data shows.
There was a drop in the size of the digital economy in 2020, but that was mostly because of a lack of online travel bookings. E-tail’s contribution rose to more than 40 per cent of the total, from 27 per cent previously. However, online retail penetration in the UAE and Saudi Arabia is still behind other mature countries, partly as a result of the lack of larger ticket investments in the segment, the consultancy said.
"There is a significant skew in investment values less than $100 million," it said.