Saudi's new e-commerce law to accelerate $21bln market growth - analysts

Firms selling products into the kingdom could face penalties of up to $266,634 for breaching new rules

  
Image used for illustrative purpose. A Saudi man explores a website on his laptop in Riyadh February 11, 2014. REUTERS/Faisal Al Nasser

Image used for illustrative purpose. A Saudi man explores a website on his laptop in Riyadh February 11, 2014. REUTERS/Faisal Al Nasser

The new electronic commerce law passed by the Saudi Cabinet last week is set to further accelerate the kingdom’s fast-growing online retail market, analysts told Zawya.

The Saudi Cabinet approved a new electronic commerce law to regulate the relationship between the different parties in the sector last Tuesday, in a move that could stimulate a market that has been named as one of the 10 fastest-growing worldwide. (Read more here).

It could also increase online retail’s contribution to the local economy, and help to drive down unemployment among internet-savvy Saudi youth, especially women.

“Historically, there have been some unscrupulous e-commerce providers operating in the Saudi market and this law is welcomed as means to ensure that e-commerce providers do not escape the regulation they would face if operating physical stores, although the laws do not entirely align,” said Muhammad Anam Saleem, principal associate at law firm AlDhabaan & Partners, a Saudi Arabian associate of global law firm Eversheds Sutherland.

“This should increase consumer confidence and provide protection against fraudulent operators and deceptive advertiser(s) who often target ordinary customers,” he said in emailed comments to Zawya.

“The market is likely to expand further with new entrants and the clarification of the requirements for overseas companies selling into the Kingdom is especially welcomed,” he said, adding that the presence of a defined regulatory regime gives assurance and stability to online stores and encourages them to expand their offerings.

What the law says

The law requires e-commerce providers to disclose details of their trading terms, and the products and services they offer to consumers. It also provides higher scrutiny of e-commerce adverts to prevent fraud and the deception of consumers.

As per the new law, individuals practicing e-commerce activities within Saudi Arabia are required to disclose their place of business and to protect consumers’ data privacy. The new law also offers sole traders and small businesses who wish to sell online an opportunity to register with a new E-Shops Authentication Authority, Saleem said.

“In particular, this provides a framework for female entrepreneurs (operating from home) to expand their business in a legal way and participate in the national transformation - one of the pillars of Vision 2030,” he added.

Saleem said that details will become clear once the new law is published in full, but said it should “provide much-needed clarity on the position of Instagram and Facebook sellers”.

“Both platforms are very popular in the Kingdom and the region at large,” he said.

Under Saudi Arabia’s economic diversification plan, ‘Vision 2030’, authorities are looking to increase the participation of women in the labor market from 22 percent to 30 percent. (Read more here).

Currently, the regulations only impose a requirement to register with the Ministry of Commerce and Investment without any minimum capital outlay and to meet certain requirements around the delivery and return of products as well as the prevention of fraud and deception, according to Saleem.

“Another significant change is the introduction of data protection requirements aimed to prevent the use of personal data without the customer’s consent or legitimate reason and the sale of personal data to third parties. This is likely to have significant ramifications for how e-commerce companies operate, for example potential restrictions on the ability to carry out targeted advertised,” he said.

Under certain circumstances, consumers will have the right to return services or products within seven days of purchase. In cases of delivery delay beyond 15 days, they have the right to cancel a purchase.

Penalties for breaching the law include – a warning, a fine of up to one million Saudi riyals ($266,634), temporary or permanent suspension of business, temporary or permanent (partial or entire) blocking of a site and the naming and shaming of violations to the public, according to Saleem.

The law is also applicable to e-commerce providers based outside the kingdom.

“A specific clause in the regulations deals with offshore retailers selling into the Saudi market. This would be beneficial for the offshore retailers as there would be clarity on steps that they need to take to undertake business in Saudi,” Saleem said.

He said the law is similar to others that already exist within the region, but goes further by specifically targeting retailers outside of the kingdom that sell into it.

Fast-growing market

The kingdom’s e-commerce market for goods and services is estimated at 80 billion riyals ($ 21.3 billion), the Saudi Minister of Commerce and Investment Majid al-Qasabi told local daily Asharq Al-Awsat. It is also considered one of the ten fastest-growing states in e-commerce around the world, with a growth rate exceeding 32 percent per year, al-Qasabi said.

According to Ibrahim Farah, a UAE-based e-commerce manager, the Saudi e-commerce market is still developing. He said the new law will help to stimulate growth and innovation, allowing start-ups and small companies to come to life and create new markets across different sectors.

“It also allows more initiatives to experiment and bring about new solutions that are customized for the needs of the Saudi consumer when it comes to logistics and modes of payment,” he said in e-mailed comments to Zawya.

In addition, it could help to lower the unemployment rate among Saudi youth, according to Farah.

“Millennials for the most part are internet-savvy and know how to efficiently use different social networking platforms to communicate with others in the virtual world. Individuals who fall into this category and have a business idea can now easily create their own jobs at a very low cost,” he added.

Almost half of internet users in Saudi Arabia engaged in some form of online shopping last year, the country’s Communications and Information Technology Commission (CITC) said. Moreover, the rate of people paying online for e-commerce purchases have almost doubled since 2016, a CITC statement sent to Zawya in March this year showed. (Read more here).

Online shopping rates vary among different age groups, with those aged between 20-24 accounting for the largest category of online shoppers. Some 65.2 percent of internet users in this age range shopped online, as did 63.2 percent of 30-34 year olds and 61.8 percent of 25-29 year-olds.

The Saudi reform plan aims for a shift from being heavily cash-dependent towards a cashless society. The Financial Sector Development Program (FSDP) was created to support the targets goals of Vision 2030. It aims to reach an e-payment target of 70 percent by 2030, and 28 percent in 2020, up from 18 percent in 2016, according to Arab News. (Read more here).

“The new law passed recently is a bold move by the Saudi government to democratise e-commerce, removing as many obstacles as possible and lowering the barrier to entry for many Saudis to learn and exercise a new way to conduct business,” Farah said.

(Reporting by Nada Al Rifai; Editing by Michael Fahy)
(nada.rifai@refinitiv.com)

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