Continuing broadband penetration across most of the Middle East and North Africa has not only boosted the numbers of Facebook and Twitter users but is also a major factor in the steady growth of e-commerce.

Electronic commerce, or e-commerce, is the buying and selling of products and services over the internet and other electronic systems. There are currently more than 72m internet users in Arab countries, who spend an average of two hours online daily. International analysts forecast a 54.7 % increase in internet users in the MENA region from 2012 to 2020, as more content in Arabic becomes available. There are more than 250m mobile subscriptions in the region, with Saudi Arabia leading mobile sector growth.

Estimates of the current value of the region’s e-commerce market vary considerably.

The Jordan-based Arab Advisors Group puts the value of e-commerce related transactions in the Middle East at about $11bn a year. The global e-commerce business PayPal, which launched its Middle East operations in November 2012, is similarly optimistic, estimating e-commerce in MENA to be worth $9bn in 2012.

A study by Visa and Interactive Media reported much lower figures, albeit based on data from 2010. It said that the UAE led the way among the Gulf states in e-commerce spending, with sales reaching about $2bn in 2010, accounting for 55% to 60% of total GCC e-commerce sales. Saudi Arabia was the second largest market, with an estimated $520m, followed by Qatar ($375m), Kuwait ($280m), Bahrain ($175m) and Oman ($70m).

But according to analysts, online shoppers in three key markets – the UAE, Saudi Arabia and Egypt – spent just over $1bn on internet retail sites in 2011, a figure expected to double by 2016.

Since only 15% of businesses in the region have an online presence (according to Google), the take-up of e-commerce has been slow. And with many consumers still wary of paying for goods online, 70% of the region’s e-commerce deals are cash-on-delivery.

As The New York Times observed, e-commerce in the Middle East “is still relatively young and fragmented, extremely capital intensive, and facing logistical hurdles that have led many sites to shut down… But success stories are now starting to emerge.”

In recent months international investors have committed tens of millions of dollars to three of the Middle East’s largest online retailers., the region’s largest online retailer with a customer base of eight million, secured $45m from Naspers, a South African multinational company, and Tiger Global, a New York hedge fund. This marked the largest investment made in an e-commerce and internet business in the Middle East since the 2009 sale of Arabic- language internet venture, the largest portal in the Arab world, which was sold for $165m to Yahoo!, the second-most popular internet search engine. JP Morgan Chase and Blakeney Management invested $20m in Namshi, a UAE-based online retailer focusing on fashion and footwear. And Marka VIP, a sales site focusing on luxury goods, raised $10m from multiple international venture capital firms.

In the GCC, the UAE is the market leader in e-commerce spending. With more than three-quarters of UAE households having broadband-enabled computers, the growing number of middle-and high-income consumers online has driven the growth of internet retail sales.

Saudi Arabia not only leads social gaming consumption and mobile internet subscriptions in the MENA region, but also ranks second in e-commerce sales in the GCC region, and represents the biggest retail sector in the region.

“Being able to capture the Saudi Arabian market is a critical success factor for e-commerce ventures in the Arab region,” according to Hassan Mikail, regional manager for e-commerce at Aramex, a global shipping firm based in Amman.

In Jordan, a survey by Arab Advisors in April 2012 showed “a significant growth” in e-commerce, with increases in both the number of people purchasing items online and the amount of money being spent, from $192m in 2010 to $370m in 2011.

In Egypt, analysts say, online expenditure is expected to more than triple in the next four years, with Egyptians spending as much as $447m on e-commerce in 2016, and in Morocco, analysts say, internet retailing was one of the most dynamic retailing formats in 2011, with current value growth of 18%, albeit from a low base.

Customer aversion to online payments, logistics and curbs on regional trade, including complex and different customs, tax and border regimes are obstacles to MENA e-commerce companies trying to compete on price with traditional retailers.

In Egypt, for example, the Central Bank prohibits sending funds abroad until they are checked through the Central Bank itself, which usually takes around a week, impeding the operation of international e-payment services. And concerns about money laundering and financing of terrorist networks mean that new payment providers not only have to deal with the usual red tape but also cope with layers of additional regulation.

There is also a lot of work ahead to raise consumer awareness about e-commerce. Historically, internet users in the Arab world have been more active on news and social media sites rather than transaction-based websites. Consumer mistrust in e-commerce is still widespread.

A survey by the consultancy Booz & Company and Google found a general reluctance to buy goods online because of worries about fake websites or concerns over payment security and the delivery of purchases. Another study showed that 45% of credit card holders in the UAE preferred not to use their cards online because they were afraid of fraud.

Mobile broadband access charges across most MENA are high by any global standards. In the Gulf states, Saudi Arabia and Lebanon, producers of apps, games and e-books are looking to cash in on the high ownership levels of web-connected mobile phones and tablets, but for this to happen, more books and content in Arabic must be made available.

In spite of these obstacles, the optimism of e-commerce advocates continues to grow. It is bolstered by regular forecasts of spectacular growth to come, such as the November 2012 report that online travel bookings in the Middle East are expected to account for 22% of all travel bookings made in the region within the next two years, with a total value of $15.8bn.

In the words of Elias Ghanem, managing director of PayPal Middle East and North Africa, “mobile and online commerce is very popular in North America and Europe, but it is still in its infancy in the Middle East. However, mobile technology is hugely popular and people are gaining confidence in online retailing here, through exposure to daily deals, private sales, airlines websites etc.”

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