Saudi Arabia’s King Salman issued a decree on 26 September allowing women to drive cars in a historic decision. A high-level committee will be formed (from ministries of internal affairs, finance, labor and social development) “to study the necessary arrangements for enforcement”, according to official news agency, adding that implementation date is set for June 2018. The committee has to submit its recommendations within the next 30 days. The decree received the blessing of the official religious body, the Council of Scholars.
 
Political significance – Buying-in youth and women into Vision 2030
We see the decision as a way to buy-in a considerable and sizeable portion of the Saudi society into the royal drive for transformation of the economy. Crown prince Mohamed Bin Salman is clearly appealing to two wide groups of the Saudi population, namely youth and women, to whom the calls for economic and social change in Vision 2030 would appeal to the most. The decision comes only a couple of days after from a very special celebration of the National Day where women participation in public events was allowed for the first time in the Kingdom’s history and various entertainment events were held, again in a clear sign of the social change the authorities are pushing for.
 
The timing is definitely not to be missed, coming likely a few weeks ahead of tough economic decisions; government is said to increase gasoline prices by up to 80%, a decision that will be followed by the introduction of the value-added tax in January 2018. We note though implementation of these economic measures would only take place after finalisation of the cash subsidy scheme, the Citizen Account.
 
Economic significance – A potential boost to aggregate demand
The empowerment of Saudi women that would in turn increase their participation in the labor force would potentially have considerable consequences for the economy in the long-run. The number of Saudi women stood at 10mn in 2016, representing 31% of the total population and 49% of nationals. This sizeable human resource has been most left idle with women labor force participation running as low as 19% vs. 65% for Saudi men; the National Transformation Plan aims to boost this ratio to 28% by 2020. Saudi women unemployment at 34.5% in 2016 was c6x those of men with the bulge of unemployed women in the age of 15-24 years old. Increasing women’s active participation in the economy, along the line of Saudisation policies, would considerably boost disposable incomes of nationals thereby providing considerable purchasing power in the economy.
 
Budget, Banks, and Insurers potential beneficiaries of the decision, and retail names in the long-term; a positive FTSE decision remains key for now
 
Saudi allowing women to drive is a positive decision for the market serving as a signal that real change is happening and that reform is underway. We suspect GREs could be more active than usual supporting the market and cheering the decision, which will also be well received by foreign investors. 
 
First glance suggests some positive impact could be felt by banks (c36% of float market but impact muted on overall earnings as car loans are c10% of consumer and credit card loans) and insurance companies with decent car loans (personal loans) and car insurance franchises – RJHI  in the banking space given it has the biggest retail loan book and Tawuniya, Al Rajhi Takaful, Axa, and Malath for car insurance – and last but not least Budget and Aldrees could be direct beneficiaries, however impact is hard to quantify as women could own cars in Saudi previously, but were not allowed to drive them. 
 
Long term, the change is very positive as it could help to reduce blue collar expat numbers and help with the Saudisation push - there will many expat drivers who will be redundant now - and at the margin make Saudi a more attractive market for white collar expats. Higher female participation in the labor force should also support disposable incomes of nationals, which is positive for Saudi retail names in the medium to long term (we have Othaim and Extra in our MENA Top 20 list).
 
The FTSE's decision which is expected on 29 Sept after US markets close, remains key for now as investors are pre-positioned for an upgrade, which we still think is likely despite the concerns we raised on custodian limits in our 7 August report.