The GCC's e-commerce sector is predicted to more than double to $50 billion in the next five years, up from $24bn this year, as pandemic-related movement restrictions lead to a shift in shopping habits in the region, according to a new report.
The report by consultancy Kearney forecasts that the sector will grow at a compound annual rate of 20 per cent between 2020 and 2022, with growth tapering off to 14 per cent per year from 2022 to 2025.
Kearney said that the pandemic has increased growth prospects, without which it would have expected14 per cent growth between 2020 and 2022, slowing to 10 per cent in the following three years.
“Covid-19 caused an unforeseen push and gave a new, accelerated lease of life to the sector, in line with what we have seen in global markets,” Adel Belcaid, partner at Kearney Middle East, said.
This is due to a rapid change in consumer behaviour, spurred largely by the new normal of social distancing, movement restrictions and reduced capacity in physical stores, he added.
E-commerce companies have reported stronger sales after stay-at-home directives to contain Covid-19 prompted people to shop online.
Amazon’s sales in the region grew 26 per cent to $76bn in the first quarter of this year. Meanwhile, delivery app Instashop saw a 70 per cent spike in app downloads while orders spiked by 53 per cent, according to Kearney.
The average percentage of goods that GCC household bought online rose to 8 per cent in 2020, from 2 per cent in 2015, Kearney said. Given that e-commerce growth in developed markets such as the US, China, Korea, and Germany sits between 16 per cent to 25 per cent, there is still significant room to grow.
The report also explores the likely implications of the e-commerce boom on real estate and small and medium enterprises – two key sectors within the retail ecosystem.
New e-commerce marketplaces, increased investment in digital channels by retail giants and declining physical store sales could impact commercial real estate values and challenge the survival of SMEs that are yet to adopt online sales channels, the report said.
A previous survey by the Chicago-based consultancy showed that 36 per cent of UAE SMEs have invested to prepare for an online future, but only 4 per cent are planning to sell online in the near future.
“Those who have already made the investment have weathered the storm and are well positioned to lead in the post-Covid retail revival ... more than ever, those who fail to make the required changes and investments will be sidelined and put their very survival in question,” said Debashish Mukherjee, partner at Kearney Middle East.
All stakeholders should take note and revisit their strategies, operating models and policies to develop their ecommerce operations, he added.
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UAE currency: the story behind the money in your pockets
UAE currency: the story behind the money in your pockets
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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The National's picks
4.35pm: Tilal Al Khalediah
5.10pm: Continous
5.45pm: Raging Torrent
6.20pm: West Acre
7pm: Flood Zone
7.40pm: Straight No Chaser
8.15pm: Romantic Warrior
8.50pm: Calandogan
9.30pm: Forever Young
Where to buy
Limited-edition art prints of The Sofa Series: Sultani can be acquired from Reem El Mutwalli at www.reemelmutwalli.com
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