E-commerce in Egypt: A giant in the making

Online shopping in Egypt is growing, having attracted millions in investment since the 2011 revolution, but will this nascent industry take off?

With Egypt's economy in disarray and its prospects looking increasingly bleak two years into the post-revolutionary period, there are few sectors to which terms like “growing” and “attractive” are still applied. This is not the case however, for Egypt's internet economy, which in 2011 accounted for 1.1 per cent of GDP, according to a 2012 Boston Consulting Group (BCG) report.
E-commerce in particular, generally defined as the buying and selling of goods and services online, has attracted millions of dollars from local and international investors eager to tap into the potential of the Egyptian market, which, with its 31 million internet users, has the largest population of internet users in the MENA region.
"We believe that e-commerce is a particularly attractive segment of the technology market with very strong growth potential,” says Tarek Assaad, managing partner at Ideavelopers, an Egyptian venture capital fund investing in early-stage technology companies.
In 2011 Ideavelopers invested $10 million in nefsak.com, an e-commerce website selling a wide range of goods from a variety of brands. Launched in late 2008, Nefsak was the first website of its kind in Egypt that gained traction. “People thought we were crazy,” recalls founder Sherif Nassar.
The gamble seems to have paid-off, as Nefsak is now one of a trio of large multi-category online stores in Egypt, along with souq.com and jumia.com. Souq's Egypt site was established by Dubai-based Jabbar Internet Group in early 2011, and is now the only such website to figure among the top forty visited in Egypt, according to web analytics site alexa.com.
Egypt's jumia.com, launched in July of last year, was created by Rocket Internet - a German company that specialises in launching online retail sites in the style of Amazon at lightning speed in countries worldwide. Jumia, which was launched almost simultaneously in Egypt, Nigeria and Morocco, has since rocketed in the rankings of sites visited in Egypt, becoming number 100.
Jumia benefitted from the investment of tens of millions in Rocket Internet by JP Morgan bank. Multinational media group Naspers Limited and investment manager Tiger Global reportedly invested similarly large sums in Souq.
Yet as much as it seems to make investors salivate, e-commerce represents only 0.2 to 0.3 percent of retail spending in Egypt, according to BCG. “We are only scratching the surface when it comes to e-commerce in Egypt,” says Omar Sodoudi, general manager of Souq.
Obstacles include low credit and debit card penetration in a population where only 9.7 percent of all adults have an account at a formal financial institution, according to the World Bank.
What's more, even card owners in Egypt “are afraid to shop online,” says Jumia managing director Jeremy Doutte. To encourage buyers, online retailers have offered cash on delivery forms of payment in addition to secure online payment, and focused on providing strong customer services to build consumers' trust in the entire process.
Ali, 21, recently purchased a Samsung Galaxy S3 mini mobile phone from souq.com. "I have no time to go to the shop and look for a phone, so I looked on the internet, and when I found a good offer, I made my decision."
It was his first online purchase, and he opted to pay in cash upon delivery, even though he owns a card, as the safer option. "I didn't want to pay online and then discover it wasn't the phone I chose when they delivered it. I would not have bought it otherwise," he said.
E-commerce in Egypt has also not been impervious to the economic impact of the revolution, agreed Nassar and Sodoudi. Though it could be argued that the upheavals of the revolutionary period have made online shopping an appealing alternative to bracing traffic and protests, the economic crisis has meant that Egyptians are saving more and shopping less—be it online or offline.
In November 2012, Nielsen reported that 64 percent of Egyptians predicted that their purchases would be restrained, a seven percent increase from the previous quarter.
“But in spite of short term uncertainty, the e-commerce market is growing in comparison to other sectors of the economy,” affirms Ideavelopers' Assaad.
“E-commerce will witness the largest growth [in the coming years] if only because Egypt is a virgin market,” explains Nassar. That, ultimately, explains the “scramble for Egypt” among international e-commerce companies and investors.
It remains to be seen whether investments will pay off, but it seems that in the meantime, Egyptian online shoppers will be spoilt for choice.
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