Economic boost expected as KSA lifts ban on women driving

The decision to allow women in Saudi Arabia to apply for driving licenses from next year is a game-changer on many levels, not least in the economic benefits it promises to bring to the Kingdom in the long term.
The move — which was greeted with near-rapture by Saudi women on social media — is also a step toward fulfilling one of the central aims of the Vision 2030 strategy, which seeks to diversify the economy away from oil dependency and public-sector employment.
The reforms seek to increase women’s participation in the Saudi workforce from 22 percent to 30 percent — a rather modest goal set against the average level of 42 percent elsewhere in the Arabian Gulf. The decree on driving helps make that goal eminently achievable, probably before the 2030 deadline.
From that, there are many other likely benefits for the Saudi Arabian economy. A more mobile female workforce with a less troublesome commute to work would find employment much easier to find, and would also make women workers more appealing to employers.  
Capital Economics, the London consultancy, gave an example in which it said the move could result in a 0.4 percent boost to the Kingdom’s gross domestic product (GDP) in the long term, which is pretty significant given that the International Monetary Fund is projecting around 0 percent this year.
There would be a qualitative benefit for the Saudi employment market, as well as just a quantitative addition to the workforce. According to the UN, Saudi women tend to be better educated than the men, with a higher proportion having achieved university degrees. This could help boost the Kingdom’s comparatively poor productivity rates as a better-educated and work-oriented pool of labor comes on the market.
If the driving initiative helps free up the Kingdom’s restrictive labor market, it would alleviate the biggest problem facing the Saudi economy according to a recent World Economic Forum study of global competitiveness.
As the only country in the world that did not allow its women to drive, Saudi Arabia was viewed so negatively by global investors that the lifting of the ban must surely improve international perceptions of the Kingdom, and lead to an increase in foreign direct investment, which is low by international standards. This would also help achieve another goal of the Vision 2030 strategy.

Allowing women to get behind the wheel will likely see the Vision 2030 targets for female employment met even more quickly.

Frank Kane

But the benefits extend beyond the big macro-economic factors. By making more women wage-earners, the move will add to consumption levels in retail, leisure, entertainment, food and beverage spending at a time when those increasingly important economic indicators have been hit by low oil prices.
The spotlight immediately falls on car manufacturers as potential beneficiaries, as dealers prepare for a surge in buying new types of vehicle by an army of female drivers. Toyota of Japan, which makes around 32 percent of all vehicles sold in Saudi Arabia, and Hyundai, which has a 24 percent market share, might accelerate already reported plans to manufacture vehicles in the Kingdom.
They might also diversify away from the kinds of vehicle that appeal to an exclusively male market. Big sports utility vehicles are likely to give way to compacts and saloons for Saudi mothers and single working women. People carriers to assist with the new experience of the “school run” are also likely to be in demand.
Experts in the insurance industry forecast that there would be a spike in new policies taken out to include another family member; the pessimists also forecast a spike in claims and motor-repair business as a new and inexperienced driving force takes to the roads in June, when the royal decree takes effect.
It is not all good news. Uber and Careem, as well as traditional taxi services, might be expected to see a hit to their business model as women, who were previously forced to rely on chauffeured transport, get behind the wheel themselves.
That would be a big blow to the largely expatriate workforce of taxi drivers and chauffeurs, which could number anything between 500,000 and 1.4 million, according to estimates reported this week.
But, painful though the loss of employment and residence would be, it would also help to balance the Saudi current account. At the moment, as much as 6 percent of GDP leaves the country in the form of remittance payments, which would reduce as the huge fleets of taxi fleets are wound down.
The decree was a significant advance for gender equality in Saudi Arabia, but it is too early to declare a total victory. Social and cultural resistance to female employment will take some time to fully wind down. Other related planks of the Vision 2030 strategy, especially in education reform, will have to be pursued rigorously, against the kind of opposition that prevented women for driving cars for so long.
But the new regime on driving is a big step forward for the Kingdom’s women, its economy, and its strategic policymakers.
• Frank Kane is an award-winning business journalist based in Dubai. He can be reached on Twitter @frankkanedubai