Social reform, a bright spot in Saudi economic environment

Saudi Arabia’s social reforms are helping the economy.
Wednesday 30/05/2018

RIYADH - Nouf al-Anzy’s new life shows how Saudi Arabia’s social reforms are helping the economy. Six months ago she got her first job, one of tens of thousands of women to do so as the Saudi government tackles prejudice against female employment.

The 22-year-old high school graduate earns 4,000 riyals ($1,067) a month as a supermarket cashier in Riyadh. Her family initially objected but now approves and the income from the job has been transformative.

“I have good money every month and I am not married and have no obligations. I can go to the cinemas, go shopping, dine out and take computer and English courses to improve myself,” she said. “I also plan to buy a car to drive.”

Consumer spending by newly employed women such as Anzy is helping offset a drag on growth from measures to bolster state finances and an exodus of foreign workers.

The extent to which the economy can pick up over the next two years after shrinking last year for the first time since 2009 may depend largely on how much female empowerment and other social reforms contribute.

Two years after it began an economic reform programme to cut reliance on oil exports, Saudi Arabia has little to show for it. Plans to spur private investment in non-oil industries — from shipbuilding to robotics — have barely got off the ground, partly because of red tape and legal uncertainties.

Bank loans to private firms have shrunk from a year earlier for 13 consecutive months, dampened by taxes and fees levied to cut the state budget deficit. Growth in private business activity is the slowest since August 2009, a corporate survey indicated.

However, social reforms introduced by Crown Prince Mohammed bin Salman bin Abdulaziz alongside the economic steps are under way and, for the next few years at least, they may have more of a positive effect on business than Riyadh’s ambitious investment plans.

Many of the measures have business implications.

Plans for tourist visas will boost the leisure sector. Curbs on the power of the religious police may help restaurants by enabling the sexes to mingle over meals out and the economy could benefit from education and court reform.

Muhammad Alagil, chairman of Jarir Marketing, a top retailing chain, said rising female employment was one reason for a 13.4% increase in his company’s sales last year despite tough economic times.

Women entering the workforce is a strong tailwind for the economy, he said, noting that a typical Saudi family could more than double its income if the wife and some of her unmarried daughters chose to work.

Measuring the effect on the wider economy is not easy: The plan to lift a ban on women driving, which the government says will happen in late June, is a case in point.

In the long run, allowing women to drive will spur industries such as auto parts, auto insurance and by improving the mobility of families, even housing, Alagil predicted. Over the shorter term, the lifting of the ban on women driving may put tens of thousands of foreign chauffeurs out of work, accelerating a drop in immigrant workers.

Last month, a ban on cinemas was lifted, part of a campaign to alter conservative social customs and encourage Saudis who sought entertainment abroad to spend on it at home.

Multibillion-dollar, state-invested projects, such as a theme park area near Riyadh and a vast complex of resorts on the Red Sea were announced.

A state-backed firm is creating the infrastructure for entertainment districts in more than a dozen Saudi cities, to house smaller private businesses that could be established quickly.

These may include scores of cinema screens, venues for public performances, restaurants and retail space, becoming new centres for economic activity in metropolitan areas.

Mazen al-Sudairi, head of research at Al Rajhi Capital, estimated spending on entertainment — recreation, culture, restaurants and hotels — at 8% of household spending. That equates to $20 billion a year.

Entertainment as a sector in the kingdom might grow into a big business that, besides boosting the national economy, can create many job opportunities.

However, customary gender segregation in most workplaces limits the ways in which women can be employed and the government has not committed itself to ending the practice, though it promises “relaxed social norms” in some of its new economic zones.

Nevertheless, state resources are being ploughed into getting women to work, including a $2,400 per year child care grant and a $213 per month transport allowance.

Khalid Alkhudair, managing director of Glowork, a women’s recruitment agency in Riyadh, said the formal listing of female employment as an objective of the government’s social reforms meant companies could no longer ignore it.

“Now every major company is being incentivised to consider the issue and make a plan. Organisations have a path laid out for them,” he said.

Demographics are in favour of the trend, he added. The female participation rate in the economy is about 19%; doubling that would put 1 million more women to work, still well below rates of about 55% seen in many Western countries.