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When we asked some of the most active investors and venture capitalists (VC) in Saudi Arabia (as well as the region) their thoughts on what is it that is driving the startup ecosystem in Saudi Arabia today, the response was unanimous. It’s Saudi Arabia’s tech-savvy consumer base, with a favorable consumer spending behavior as well as a willingness to pay for value-add services. Couple that with the scalability of a market with a population of 35 million, and you get a magical combination for startup success.
Image courtesy Lucidity Insights.
Saudi Arabia is a large emerging market consisting of a young, tech-hungry consumer base with great infrastructure in place to satiate that appetite. In the past 10 years, Saudi Arabia has dramatically improved its internet penetration rates, growing from 54% in 2012 to reach 98% today. This makes internet penetration higher in Saudi Arabia than in many other leading economies around the world like the UK (95%) and the USA (90%).
Image courtesy Lucidity Insights.
In 2021, the Kingdom ranked seventh globally for the fastest mobile internet speed, giving way to even higher smartphone penetration rates. Perhaps this speaks to Saudi’s love of social media. 79% of the Saudi population are social media users, and they spend -on average- three hours and 16 minutes on social media platforms, signifying an online presence higher than that of leading e-commerce markets.
Image courtesy Lucidity Insights.
Having spoken with many startup founders, venture capitalists, e-commerce, and retail entrepreneurs, they’ve told us that Saudi Arabia’s strong and consistent consumer-base is what attracts startups from across the region to it. Saudi Arabia has the largest population in the Gulf, being home to 35 million people. Saudi Arabia relies less heavily on expats compared to the neighboring UAE- 39% of Saudi’s 35 million are expats, while 91% of the UAE’s population are non-Emirati. This means that the Saudi population is more homogenous, less transient, and, according to some investors, more reliable for retail, F&B, and consumer-oriented businesses. Investors comment on how summers can be a “dead period” for consumer-tech startups in the UAE while expats escape on summer holidays, while revenues remain a bit more consistent in Saudi Arabia in comparison.
Image courtesy Lucidity Insights.
The United Nations Conference on Trade and Development’s (UNCTAD) B2C e-commerce index value measures a country’s competence and readiness to support online shopping. Saudi Arabia ranked second in the region after UAE in 2020, with it jumping 20 points since 2016, showing tremendous improvement compared to leading countries.
Image courtesy Lucidity Insights.
E-commerce also relies on postal development, and Saudi Arabia ranked 55th out of 168 countries in the Postal Development Report 2021, up from 73rd in 2018. In 2020, the Kingdom’s e-commerce sales were only 8% of total retail sales, which is much higher than the Middle East and Africa average (at 2.7%), but when compared to more mature markets like the USA (14%), the UK (31%), and China (45%), it indicates substantial room for growth.
Image courtesy Lucidity Insights.
Learn more about the Saudi startup ecosystem by checking out the report, The Evolution of Saudi Arabia’s Startup Ecosystem 2010-2022.
This article was originally published on Lucidity Insights, a partner of Entrepreneur Middle East in developing special reports on the Middle East and Africa’s tech and entrepreneurial ecosystems.
