Digital adoption and online spending are projected to grow in the Middle East, offering companies in the region several new opportunities to tap into, a McKinsey & Company study has shown.
The degree of digital adoption in the region has grown over the past six months, placing it on par with major economies in North America and Europe, according to the study, which focuses on the UAE, Saudi Arabia and Egypt.
The UAE, the Arab world's second-largest economy, has the highest degree of digitalisation, with 99 per cent of the population having access to the internet.
Digitalisation in Saudi Arabia, the Arab world's largest economy, is at 90 per cent while Egypt, which McKinsey described as having greatest potential to grow its digital capabilities, offers 71 per cent of its population access to the internet.
“Tailoring offerings by country and industry will be a crucial element in catering to digital consumers and capturing the full value from digital offerings,” McKinsey's analysts wrote in the report.
“Companies across industries also have an opportunity to reallocate a higher share of their advertising spending to digital channels to engage consumers more effectively.”
Enterprises and governments in the region are focusing on boosting their digital transformation due to the critical role it plays in the economy and society, as the world prepares for a future largely powered by technology.
The UAE and Saudi Arabia have unveiled several initiatives to promote the use of technology in daily activities and transactions.
Advantage, Middle East
With the Middle East having one of the highest rates of consumer digital engagement globally, companies can tap into the growing demand for online services, the study said.
“Companies in the region have an opportunity to create an advantage by developing cutting-edge features and functionality tailored to Middle East consumers that can be exported to other markets around the world,” McKinsey said.
However, trust in digital channels does not guarantee satisfaction, as companies need to focus on the factors consumers value the most.
“Companies need to prioritise user experience, product availability and information because these account for most user dissatisfaction,” the study said.
“The good news is that companies are in a position to improve their performance on each of these measures — and, by extension, consumer satisfaction.”
Apps lead the way
Consumers in the Middle East are “overwhelmingly” mobile-first, outpacing website use, the study found.
Saudi Arabia had the highest app engagement, with more than half of the consumers preferring this channel. App use in the UAE and Egypt was at 45 per cent and 40 per cent, respectively.
As a result, consumer engagement on apps in the three countries was 1.6 times higher than in developed markets in Europe and North America, where websites are still dominant, McKinsey said.
No other region in the study surpassed an app engagement of 40 per cent, with Asia-Pacific the closest at 38 per cent.
Consumers in Europe, North America and Latin America still prefer to use websites, the study found.
Greater online spend
The growth of digitalisation among consumers has led companies to improve their online platforms as they seek a bigger share of the increasingly competitive e-commerce space.
Digital consumers make up the majority of users in a number of industries, “reinforcing how digital channels have reshaped engagement and commerce”, McKinsey said.
Entertainment was the top category in the UAE, with 84 per cent of consumers preferring a fully digital experience. Banking, telecoms, travel and utilities rounded off the top five.
Meanwhile, grocery, health care and apparel lagged behind in all three countries regionally. However, this presents an opportunity, given the large number of untapped users in the region, the study suggested.
In the UAE, the underperformance of these three categories shows a pattern that might be influenced by Dubai’s strong shopping mall culture, McKinsey said, as “consumers might require a much better value proposition to switch to digital channels”.
Egypt, on the other hand, has lower digital adoption of financial services, both for banking and insurance, than its counterparts.
Travel was the leading category in all three countries, with at least 23 per cent of consumers saying they would spend 50 per cent or more in the coming years.
Overall, digital spending is projected to grow in the Middle East, with more than 50 per cent of consumers saying they are prepared to spend more while less than 10 per cent see themselves spending less, it said.
“It is no surprise that increased penetration and consumer adoption of digital channels have translated to more spending,” McKinsey said.