Saudi to gain from lifted driving ban
• Permitting women to get behind the wheel will save families billions, boost productivity and prop up automotive industries
Saudi Arabia’s decision to end a driving ban for women is expected to save families billions of dollars, boost industries from car sales to insurance, and reassure investors that the kingdom’s push to diversify its economy beyond oil is on track.
It should also encourage more women to enter the workforce and raise productivity in the economy, although analysts expect the initial boost to growth to be modest.
However, hundreds of thousands of male chauffeurs who drive women around, most from south Asia and the Philippines, risk losing their jobs.
That means they will no longer send money back to their families, strengthening Saudi Arabia’s balance of payments but reducing incomes in their home countries.
On Tuesday King Salman ordered that women be allowed to drive cars, ending the religiously inspired ban that made it hard for many women to work and forced many Saudi families to employ at least one driver to transport female members.
The decree promises to change the lifestyle of millions.
About 10-million women over the age of 20, including foreigners, live in Saudi Arabia; nearly 1.4-million foreigners work as household drivers, earning about $500 a month in addition to being provided with accommodation and food.
The ban may not be lifted until June 2018, and because of conservative traditions, it may take years rather than months for women to become a significant presence on the roads in some areas.
But families’ disposable incomes are likely to rise as they lay off their chauffeurs. Saudi economic news service Maaal estimated the drivers collectively earn about $8.8bn annually.
“The removal of the need for a family driver – even when women don’t work – will help boost real income for mid- and lower-income families,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.
The drivers have been sending much of their pay back to their home countries and their departure will reduce this outflow, leaving more foreign reserves available to defend the Saudi currency from pressure caused by low oil prices. Saudi Arabia posted a current account gap of $27.6bn in 2016.
However, energy consultancy FGE estimated a 10% increase in Saudi driving activity due to women joining the traffic would add 60,000 barrels a day to domestic fuel demand. Although it is the world’s biggest crude oil exporter, Saudi Arabia is a net petrol importer.
Malik said there could be a short, one-off boost to Saudi car sales in coming months, as women buy vehicles before a scheduled imposition of valueadded tax in January 2018. In many cases, however, women would not need to buy cars as they could use vehicles relinquished by departed chauffeurs.
The share prices of companies selling car insurance rose on Wednesday, while car servicing firm Saudi Automotive gained 1.6% and car rental and leasing company United Inter- national Transportation, which operates under the name Budget Saudi Arabia, jumped 4.0%.
“We certainly expect volumes to increase, in terms of short-term rentals, but it’s definitely too early to put a number on that,” said Anil Mathews Abraham, the regional manager for Budget.
An exodus of drivers to their home countries could mean an immediate hit to Saudi domestic demand, which is already struggling because of low oil prices. Malik said overall, the reform might add only a few tenths of a percentage point to economic growth in the next few years. But she said the ultimate effect could be larger, because it would remove an impediment for women to work, making the economy more productive.
Reforms launched by Crown Prince Mohammed bin Salman in 2016 aim to increase women’s participation in the workforce to 30% by 2030 from 22%. Letting women drive could eventually raise pressure to remove other obstacles to their employment, such as a male guardianship system.
Khalid Alkhudair, CE of Glowork, an employment agency serving women, said there were about 400,000 to 450,000 job opportunities open for women in the retail industry, but many could not afford to hire drivers to take them to work.
“This law will assist in the mobility of hundreds of thousands of women. The main obstacle we face is transportation, so this is a fantastic move.”
Public transport is undeveloped in many areas of Saudi Arabia and while the government has been seeking to change this, many women are reluctant to travel alone.
One of the biggest benefits of the announcement may be to strengthen the confidence of foreign and local investors that Prince Mohammed is able to push through far-reaching reforms of the economy.
In recent months, the weakness of the economy has prompted the state to delay or reverse some reforms — a fresh round of fuel price rises has been put on hold, for example. But Riyadh’s decision to lift the driving ban suggests reform momentum remains strong.
“The determination to reform is clear, as a new Saudi Arabia is being constructed right in front of our eyes,” said John Sfakianakis, director of the Gulf Research Centre.