Saudi Women Drive Economic Boom

In ending its ban on female drivers, the Saudi Arabian government has implemented a change that many believe will lead to significant positive impacts on the kingdom's economy.

The end of the ban, effective June 24, 2018, is a part of the kingdom's Vision 2030 program of reform. The goals of Vision 2030 are: "To rise from our current position of 25 to the top 10 countries on the Global Competitiveness Index; to increase foreign direct investment from 3.8% to the international level of 5.7% of GDP; and to increase the private sector's contribution from 40% to 65% of GDP." The Vision aims to make Saudi Arabia a "vibrant society, a thriving economy and an ambitious nation that is effectively governed and responsibly enabled." (See also: The Kingdom Is Coming to Emerging Markets.)

Other aspects of Vision 2030 are focused on human rights. It states, "Together we will continue building a better country, fulfilling our dream of prosperity and unlocking the talent, potential, and dedication of our young men and women." While not a direct contributor to output, with the introduction of women drivers, the economy saw an immediate uptick, as measured by the Tadawul All Share Index (TASI), a broad-based index of Saudi companies, as investors anticipated more women entering the workforce.

It seems that investors anticipate that allowing women to get behind the wheel will have a meaningful economic impact by encouraging Saudi women to explore employment opportunities without having to rely on others to get them there. As of 2017, according to the World Bank, only 22% of Saudi women participated in the workforce, compared with 79% of men.

The total population of Saudi Arabia is 33.60 million as of July 28, 2018, based on the latest United Nations estimates, and it’s growing, as is the number of women ready and able to drive and work. Saudi women are finally encouraged to explore new roles in economic and commercial landscapes. In fact, a survey by Kantar TNS, a research agency, showed that 82% of Saudi women plan to obtain a driver's license.

According to the McKinsey Global Institute,  if women were to participate in the economy on par with men, their contribution would add $28 trillion, or 26%, to the global economy in 2025.

As an example, after decades of steady gains, women's labor force participation in the United States peaked in 2000, an important turning point, as rising participation fueled household income and economic growth, according to the Brookings Institute. Furthermore, it helped offset a declining prime-age male labor force participation. Declining prime-age women's participation since then has weakened growth, exacerbating the labor force participation decline stemming from an aging population. With fewer workers contributing to the economy, economic growth and improvement in living standards have been weaker than they otherwise would have been. However, the demographics of Saudi Arabia differ in that an aging economy is not currently a concern: the median age in the country is 30.2 years.

Until now, weak foreign direct investment (FDI) has limited productivity in the region, but this move forward should spark investment interest from many global regions, bringing with it the adoption of new technologies and business models. By now, Saudi Arabia has become one of the hottest emerging markets for global investors. (For additional reading, check out: How to Invest in the Saudi Arabia Stock Exchange.)

Allowing women to drive represents a decline in the hard-line extremist rule and influence. In the early 1980s, efforts toward social reform came to a halt with the emergence of the religious Sahwa movement in the kingdom. But now, Saudi Arabia is seeing a reform of social culture. In fact, soon after the ban was lifted, a team of Saudi female doctors at a government-run hospital in Khobar, in the east, launched an ambulance service with an all-female staff to serve women and grant them more privacy.

Another sector in the kingdom attracting women is hospitality. Accor SA (AC.PA) includes females in its hotel management training program, and the "Young Hotelier of the Year" award at the well-respected Hotelier Middle East awards ceremony went to a Saudi Arabian woman.

The movement allows for more freedom of choice and a broader participation in change and development. So how can investors jump in for the ride? Firstly, insurance companies such as AXA Cooperative Insurance Company (8250.SR) will benefit. AXA had 11% of the auto insurance market in the kingdom in 2017, up from 9% in 2016. Furthermore, auto producers, such as Toyota Motor Corporation (TM) and Hyundai Motor Company (HYMTF), sell the most number of cars in Saudi Arabia, and their sales figures should see dramatic improvement. The finance and banking and industries will also be a draw for women, as these institutions will able to expand without having to go overseas for talent.

The oil giant, Saudi Aramco, recently opened its own driving school for women, accommodating nearly 3,600 student drivers made up of employees and their relatives. The company's highly anticipated IPO is slated for 2019, and this move should only help its valuation. (See also: What Is Saudi Aramco Really Worth?)

Finally, women in Saudi Arabia, for the first time, are working at airports, hotels, restaurants and retail stores. The Social Development Bank has proposed granting women low-interest loans to purchase private taxi cars to work with Uber, another highly anticipated IPO. Until then, a broad blend of Saudi multi-cap stocks can be found in the iShares MSCI Saudi Arabia ETF (KSA).