Middle East e-commerce growth hindered by government regulations

According to e-Marketer, a market research company that monitors ecommerce trends, Middle East and Africa B2C e-commerce sales are expected to increase 31% to US$27bn in 2013 from US$20.6bn in 2012. This represents about 2% of the total global e-commerce B2C market and is the smallest region in terms of e-commerce sales.

Still, Aramex has seen its e-commerce business grow. In fact, it recently stated that this business has quadrupled in the past two years.

However, government regulations may be hindering the growth of e-commerce within the region and in particular to Dubai according to the company’s CEO Hussein Hachem. For example, Aramex is only allowed to send consolidated express freight B2B and not B2C by road. Another problem is that startup costs for small businesses remain high. Finally, customs fees are prohibitive even in free zones. According to Mr. Hachem, if a company is operating in Jebel Ali free zone as a shipment leaves the free zone, an administrative fee is added along with the transportation charge.

Other problems exist in this region as well. According to a recent Paypal study, cash on delivery remains the primary method of payment for online purchases and this is not only costly to e-retailers but time-consuming.

Perhaps because of the high startup costs to start a business, trade between online shoppers and businesses based in the region only comprise 10% of total spend. The rest comes from outside the Middle East and are delivered into the region. In fact, according to Paypal, 35% of all online purchases are made with businesses based in the US. This raises possible concerns of not only potential customs clearance delays but also the lack of timelines of delivery.

As a result of this preference to spend with overseas online retailers, Aramex launched its Shop and Ship service which enables consumers from 52 cities, including New York, London, Shanghai, Dubai and Mumbai, to purchase from any online store in the world. The service sets up postal addresses to receive orders in these cities and then forwards the packages on to the consumer’s actual home address.

However, to encourage local companies to expand online, Aramex has teamed up with Google and Paypal to launch ezstore.me which offers a website platform for businesses to build their online stores and customise them based on a number of themes and templates. To start, the site will only be available to businesses that have a trade license in the United Arab Emirates, but the consortium aims to expand to the rest of the Persian Gulf region, and eventually across the whole Middle East.

While barriers for growth are high, e-commerce is growing in the Middle East. Infrastructure and government regulations currently remain difficult but it is hopeful they will improve and ease as a means to increase domestic spending and encourage small business growth in a region that is already undergoing much growth.