Why Saudi’s $3.5bn investment in Uber is bad news

Especially for Saudi’s women, its own Prince Alwaleed and the future of ride-hailing.

Neil Churchill June 7, 2016

Last week, one of the world’s biggest sovereign wealth funds invested in the world’s largest taxi company; Saudi Arabia pumped $3.5 billion into Uber, furthering the Californian company's plans for world domination.

It was one of the biggest venture capital investments in history, part of Saudi's Vision 2030 to diversify its economy away from oil, and helped to value Uber at an eye-watering $62.5 billion. This all for a transport business that owns no vehicles.

While the move solidified Uber’s presence in the Middle East – where it already has over 395,000 riders and 19,000 drivers across 15 cities – it hasn’t gone down well with everybody in the Kingdom.

Shortly after the deal was announced, which will see the managing director at the Public Investment Fund, Yasir Al Rumayyan, take a seat on Uber’s board, many women in the country took to social media to criticise the deal. 

Angry at the irony that Uber took investment from the only country on the planet where women are still not permitted to drive, some claimed that the investment treated women in the country as ‘cash cows’, with Uber and the government profiting from their lack of rights to get behind the wheel. 

Many also took it to mean that Uber was endorsing Saudi Arabia’s no women driving policy, while Saudi’s sovereign wealth fund would profit directly from it.

Speaking to Bloomberg, a Saudi women’s historian, Hatoon al-Fassi, said: “They’re investing in our pain, in our suffering. This institutionalizes women’s inferiority and dependency, and it turns women into an object of investment."

The backlash from Saudi women led to some sharing images of them deleting the Uber app from their mobile devices, while the hashtag سعوديات_يعلن_مقاطعه_اوبر# (Saudi women announce Uber boycott) was created.

Speaking to The New York Times, Jill Hazelbaker, an Uber spokeswoman, said: “Of course we think women should be allowed to drive. In the absence of that, we have been able to provide extraordinary mobility that didn’t exist before — and we’re incredibly proud of that.”

Uber says that every four out of five riders in Saudi Arabia are women, who can’t otherwise drive on their own.

The social media backlash has now gone a step further with Codepink, a women-led social justice movement, creating a petition for Uber’s CEO and founder, Travis Kalanick, to “release a statement in English and Arabic urging King Salman of Saudi Arabia to lift the ban on women driving.” The petition slams the partnership as ‘shameful’. At the time of writing it has over 3,300 signatures. 

But it’s not just Saudi’s women who have reason to be distressed at the $3.5 billion agreement. One of the Kingdom’s own royal family members also has reason to be unhappy.

Prince Alwaleed bin Talal is the richest Arab in the world and renowned for his well-timed investments, as well as several headline moments

He owns Kingdom Holding Company which, valued at $12.79 billion, owns stakes in Citigroup, Movenpick Hotels and Resorts, New York’s The Plaza, London’s Savoy Hotel, Saudi airline flynas, Newscorp and Twitter, among others. 

Alwaleed added Lyft, Uber’s rival in the US, to that list at the end of last year, as he announced that his company had bought 2.3 per cent of the ride-hailing company for $104.9 million.

What that now means of course is that Saudi Arabia’s injection into Uber is in direct competition with Alwaleed’s own investment. One can assume the Saudi prince frowned as he read the news last week.

But there is also an argument that Saudi’s investment in Uber is a concern to everyone, not just Saudi’s women or the richest Arab.

Uber does not own its vehicles. The drivers, who work as independent contractors, use their own cars. In fact, Uber has very little productive assets – it is an app after all. So what does it need all the billions for?

In most countries and cities where Uber is prominent there is a local rival, the Middle East’s being Careem. Many now argue that Uber is seeking investment simply to defend its territory by way of flattening the competition through zero-sum price wars. Indeed, Uber is already spending millions in a turf war with Didi Chuxing, its Chinese rival. 

The theory is that Uber plans to beat its regional rivals into submission through a price war that will see itself lose huge amounts of money but outlast its competitors, while making big profits for its investors. It’s a textbook example of losing money to gain market share, you just need to be in it for the long-haul, which is why Saudi’s investment makes more sense to Uber than that of a private hedge fund.

The moral argument against that tactic, and one which concerns far more than just the women of Saudi or Prince Alwaleed, is that money spent on a money-draining price war is not investment, and that price wars do not increase productive capacity.

Put another way, in 20 years from now if Uber is the only taxi-hailing service left, the customer will be at its ubiquitous mercy, and you can be sure fare prices will not be what they are today.