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Thu 28 Sep 2017 08:13 AM

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How female drivers can spur growth in Saudi Arabia

Decision will make it easier for Saudi women to find jobs and reduce the reliance on expat workers

How female drivers can spur growth in Saudi Arabia
A Saudi woman drives her car along a street in the Saudi coastal city of Jeddah, on September 27, 2017. Saudi Arabia will allow women to drive from next June, state media said on September 26, 2017 in a historic decision that makes the Gulf kingdom the last country in the world to permit women behind the wheel.

Tuesday’s decree overturning a ban on female drivers in Saudi Arabia is expected to boost Crown Prince Mohammed bin Salman’s efforts to open up society, modernize the economy and reduce its oil dependence.

The decision will make it easier for Saudi women, many of whom are better educated than their male counterparts, to find jobs and reduce the reliance on expatriate workers. Below, economists lay out their expectations:

Simon Williams, HSBC
“It’s symbolic of the push to modernize the Saudi economy, even if it’s also a reminder of how far there still is to go,” Simon Williams, HSBC Holdings Plc’s chief economist for central and eastern Europe, the Middle East and North Africa said in an email.

“Practically, the potential upside is real - Saudi women are already well educated, but participation rates are low and this is an important step toward making it easier for them to work. As money currently spent on expatriate male drivers stays in the country rather than leaving the kingdom in remittances, domestic demand will get a lift, too.”

Monica Malik, ADCB
“It removes a key impediment for women to work, as would have the development of public transport (the metro),” Monica Malik, chief economist at Abu Dhabi Commercial Bank PJSC, said by email. “However, the creation of women’s jobs will be largely dependent on the underlying economic conditions and changes to regulation.”

“The other economic impact could be the short, one-off boost for car sales, though in some cases families already have an additional car for women - with drivers.” Removing the need for a driver “will help boost real income for mid- and lower-income families,” she said.

“Any economic change will likely be gradual with the weak underlying growth environment, but the social impact and positive sentiment over the transformation plan will be substantial.”

Dima Jardaneh, Standard Chartered
“A key impact of this would be a boost to household consumption, including from the potential purchase of a second vehicle for some households and the easier mobility of women,” Dima Jardaneh, head of Middle East and North Africa research at Standard Chartered in Dubai, said by email.

“Independent mobility for women would definitely ease their entry and participation into the workforce particularly that they would not have to secure a mode of transport to come to work. This would also reduce the cost of employment for women particularly if they do not have a private means of transport.”

Even so, given the low participation of Saudi women in the workforce, “a meaningful change in this would require a host of other structural measures such as a change in social norms and readiness of work places to accommodate female employees,” she said.

Farouk Soussa, Citigroup
“The relatively high unemployment rate in Saudi means that if anything, the entry of potentially thousands of women into the work force will add to labor market imbalances” and the government will accelerate the program to replace foreign workers with Saudis, said Farouk Soussa, chief Middle East economist at Citigroup Inc.

“Rather than increasing growth prospects by increasing labour input in the economy, the benefit will come from improving the skill levels and competitiveness of the Saudi labour market, albeit at the cost of adding to oversupply issues in that market.”

“The most important near-term impact will be from a reduction in Saudi women’s reliance on drivers. This will not only mean greater access to the economy, including the retail sector, but will also mean a reduction in a large component of highly unproductive foreign labor – drivers. This, in turn, will mean a decline in outward remittances and more money ‘staying home’ to circulate in the economy.”

Alia Moubayed, International Institute for Strategic Studies
Allowing women greater access to the workforce and higher earning potential will have far reaching impacts, according to Alia Moubayed, director of Geo-economics and Strategy at the International Institute for Strategic Studies.

Women tend to invest a large proportion of their household income in the education of their children and more earning among Saudi women would raise school enrolment for girls which is a “critical factor helping to reduce poverty and lifting standard of living,’’ she said by email.

Jason Tuvey, Capital Economics
“The Saudi government’s decision to lift the ban that prohibits women from driving in the kingdom is clearly a positive step for women’s rights, and could potentially have a significant economic impact by increasing the very low female labor force participation rate and boosting potential GDP growth,” Jason Tuvey, a London-based economist at Capital Economics, said in a research note.

“But we would caution that there remain many other hurdles that hinder the employment of women in Saudi Arabia. Moreover, having given ground on this issue, the religious establishment may try to reassert its authority on other reforms, such as changes to the education system.”

“If the decision improves the global perception of Saudi Arabia, it may entice greater foreign investment which is low by international standards. Weak foreign investment has limited the boost to productivity from the adoption of new technologies and production processes readily available elsewhere.”

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