Sunday, May 11, 2008

When the pillars are in place, rapid e-commerce adoption follows: The case of the UAE.

The results of a recent major study conducted by the Arab Advisors Group surprised many. Based on an online survey of 1,108 Internet users in the UAE, the study concluded that e-commerce users exceeded 1.16 million. These users have spent over US$ 1.15 billion over the past 12 months on e-commerce consumer transactions.

The survey results revealed that 51.2% of Internet users in the UAE purchased products and services online and through their mobile handsets over the past 12 months. The survey was conducted on the general Internet population, including both genders and all age groups across the UAE.

Feedback from some of our friends in the UAE was a mix of surprise and disbelief. “Surely these numbers are too high”, seems to sum up their initial reactions. Yet an analysis of the facts –beyond the recent survey- would change the reaction.

E-commerce adoption has essential pre-requisites. These include high penetration of Internet and broadband services, high penetration of credit cards, the presence of a workforce and families with high disposable incomes and the presence of reliable postal delivery infrastructure.

These pre-requisites are well founded in the UAE. The country is on the vanguard of ICT adoption regionally and globally. Fixed and cellular lines are widely available with penetration rates of more than 29% and 126% by end of 2006 respectively. Equally important is an Internet users penetration that exceeds the 50% mark. Indicating high disposal income, the monthly average revenue per user for these services in the UAE is 46, 42 and 38 US$ for fixed, cellular and Internet respectively. Population growth of around 6% indicates a substantial growth in the workforce every year as the UAE further cements its position as a regional commercial and tourism hub. The sophisticated banking system and the strong drive by the government to deploy and expand the use of e-government services complete the pillars needed for e-commerce.

Clearly, supply creates its own demand. The case of the UAE shows that when the pillars are all in place, the availability of international, regional and local e-commerce options does indeed induce demand for these services. While some saw the results as too high, I –frankly- see them as low relative to their true potential. After all, the B2C expenditure on e-commerce in the UAE comes to around 265 US$ per capita. This represents a mere 0.72% of the GDP per capita in this affluent market. With the pillars well in place, the e-commerce market in the UAE will continue to grow.

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