Uberizing Saudi Arabia

“This is the Thatcher revolution for Saudi Arabia?,” is the question that The Economist recently posed to Deputy Crown Prince Muhammad Bin Salman, regarding his comprehensive economic reform plan. “Most certainly. We have many great, unutilized assets. And we have also special sectors that can grow very quickly,” he responded, helping us understand some of the possible reasons behind the government’s decisions to invest $3.5 billion into Uber a few months after the interview.

The Saudi economy looks very different to its generic western cousin. Before the discovery of oil in the 1930s, living standards were as low as you would expect from a desert. The advent of the “black gold” offered a path to modern lifestyles, but a quick transition necessitated importing large amounts of foreign labor at all skill levels, as the citizenry lacked the raw numbers, and the advanced education system necessary to fulfill all the labor market’s requirements. To this day, nationals account for approximately 50% of the labor force.

While the oil wealth has immeasurably improved the lives of Saudis, it has also had some adverse consequences, embodied in a great mass of “unutilized assets” that the Deputy Crown Prince was referring to. In 2008, 72% of employed Saudi citizens worked in the public sector—a figure that is approximately five times the corresponding figure for the U.S.. Bureaucracies were shielded from market competition and were notoriously inefficient in their deployment of human resources. 

However, the elevated oil prices of 2008-2014 meant this misallocation of talent was an affordable luxury rather than an impediment to a comfortable life for the Kingdom’s citizenry.

Among Saudi nationals, one particularly underutilized asset in the workplace was Saudi women, with female labor participation at 12% in 2008. In addition to a pure income effect—many families were wealthy enough for women not to need to work—various legal and cultural restrictions limited the opportunities for female labor participation. In particular, the conservative Saudi society is traditionally wary of mixed gender workplaces—arguably a greater impediment than the illegality of driving for Saudi women.

The underutilization of nationals of both genders became even more stark after the late King Abdullah launched a scholarship program in 2005, as many Saudis with degrees from top U.S. universities were funneled toward unproductive positions in the public sector, while some Saudi women opted to remain out of the workforce despite acquiring world-class credentials.

Geology and geo-politics have changed the equation, and Saudi Arabia can no longer afford to so saliently misallocate resources. Shale oil has eliminated the prospects of oil prices being above $100 a barrel, diminishing per capita incomes in the Kingdom, while regional instability necessitates greater security expenditures. The government has responded by launching wide-ranging economic reforms, with an emphasis on getting nationals into the private sector, and female Saudis into the workplace. 

So what role is there for Uber in Muhammad Bin Salman’s neo-Thatcherite revolution? While a recurrent theme among analysts has been to focus on Uber’s popularity in Saudi Arabia among women, that is more of a red herring, as government ownership of shares in the company bears no relation to the availability of Uber’s services to the public.

In the case of Saudi women, the Uber philosophy—peer-to-peer electronic exchange—offers a way of connecting women to the economy without having to directly dismantle the cultural aversion to mixed gender workplaces. 

For example, across the Gulf States, social media platforms such as Instagram have enabled women to work in the hospitality sector from home, by fabricating spices, and preparing meals, with the advantages of flexible hours and a comfortable working environment. Uber-style technology can surely expand the range of services that can be delivered by women without violating cultural taboos, as well as elevating the efficiency too. 

Most of the best ideas are yet to be developed, but the acquisition of a board seat in Uber may represent an important step in the Uberization of the Saudi economy, as technical experience from Uber can be more rapidly absorbed, and adapted to the Kingdom’s unique economic landscape.

Uber is also fundamentally about cutting out the middle man—a philosophy that both Margaret Thatcher and Muhammad Bin Salman support. The Saudi economy has been hamstrung by a bloated bureaucracy, and the decentralized, peer-to-peer nature of economic interactions embodied by Uber are the ideal antidote. As the menacing specter of low oil prices and regional uncertainty continues to loom large, we are reminded of business guru Tim Fargo’s remarks on underutilized assets: “Your friends will believe in your potential, your enemies will make you live up to it.”

Related posts