RIYADH/DUBAI (Reuters) - Saudi Arabia’s decision to end a driving ban for women is likely 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 into the workforce and raise productivity in the economy, although analysts expect the initial boost to growth to be modest.
But 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.
King Salman ordered on Tuesday 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 roughly $500 a month in addition to being provided with accommodation and food.
The ban may not be lifted until next June, and because of conservative traditions, it may take years rather than months for women to become a major 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 now collectively earn about $8.8 billion 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 $27.6 billion last year.
However, energy consultancy FGE estimated a 10 percent increase in Saudi driving activity due to women would add 60,000 barrels per day to domestic gasoline demand. Although it is the world’s biggest crude oil exporter, Saudi Arabia is a net gasoline 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 value-added tax in January 2018. In many cases, however, women would not need to buy as they could use vehicles relinquished by departed chauffeurs.
The share prices of companies selling auto insurance rose on Wednesday, while car servicing company Saudi Automotive gained 1.6 percent and car rental and leasing company United International Transportation, which operates under the name Budget Saudi Arabia, jumped 4.0 percent.
“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, 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 that overall, the reform might add only a few tenths of a percentage point to economic growth in the next few years.
But she added that the ultimate impact 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 last year aim to increase women’s participation in the workforce to 30 percent by 2030 from 22 percent. Letting women drive could eventually raise pressure to remove other obstacles to their employment, such as a male guardianship system.
“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,” Malik said.
Khalid Alkhudair, chief executive 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, building metro rail systems in major cities such as Riyadh, many women are reluctant to travel alone in public.
One of the biggest benefits of the announcement may be to strengthen the confidence of foreign and local investors that Prince Mohammed is willing and able to push through far-reaching reforms of the economy.
In recent months, the weakness of the economy has prompted the government to delay or even reverse some reforms - a fresh round of fuel price rises has been put on hold, for example. But Riyadh’s decision to override social conservatives by lifting 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 Riyadh-based Gulf Research Centre.
Additional reporting by Celine Aswad, Rania El Gamal and Nawied Jabarkhyl in Dubai; editing by David Stamp
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