Foreign labour conundrum


“We’re in a very tough situation now. Even with the good crude palm oil price, we’re not able to take full advantage because we are very short of workers." Datuk Mohd Nageeb Abdul Wahab

MALAYSIA’s over-reliance on foreign labour is something that the government has been trying to do away with for the longest time.

It all boils down to striking an equilibrium - finding a balance between the nation’s productivity and competitive edge, a healthy composition of local and foreign labour force, unemployment, better minimum wages and automating enough so that manual labour is kept to a minimum.

The issue is a tough nut to crack, especially without a clear long-term direction which, throughout the years, has resulted in knee-jerk decisions and policies that would most of the time receive brickbats from the affected industries and businesses, resulting in about-turns or the postponement of certain actions.

This also has very much to do with the political stability of the country.

The 11th Malaysia Plan, which was unveiled in 2015, had a target to cap foreign workers at 15% of the total workforce by 2020.

While the composition of foreign workers is officially in the range of 15% of the national labour force now, the actual situation is far more severe.

Legally, there are around 2.2 million registered foreign workers out of Malaysia’s workforce of around 15 million.

Lee Heng uieLee Heng uie

But the undocumented foreign workers is where the underlying problem is, with conservative numbers pointing to at least two to three million illegal migrants who are working in Malaysia.

All in, their population is close to matching that of the Chinese ethnic group in Malaysia, which currently stands at 6.7 million people out of Malaysia’s population of 30 million.

Major outflow in remittance

One of the main issues here is of course the massive repatriation of billions of ringgit by the foreign workers back to their originating country.

But the exact amount of remittance is a tricky one, depending on how the data is compiled and measured.

Figures from Bank Negara show that the secondary income account of the country’s balance of payments hit a higher deficit of RM21.43bil last year, which is 11.13% higher than RM19.28bil in 2018, which goes to show that there is an increase in outward remittance by foreign workers.

Research by the Department of Statistics Malaysia (DoSM) has revealed that foreign workers’ remittance outflows have been on a rising trend from 2014 to 2018, with RM116.5bil flowing out of the country during the five-year period.

In 2018 itself, the remittance outflow was RM29.2bil, the highest of which went to Indonesia at a rate of RM10.9bil, followed by Bangladesh at RM6.2bil and Nepal at RM5.9bil.

The ranking is not surprising, as Home Ministry data has shown that Indonesians make up the highest portion of the foreign worker population at 40%, followed by Bangladeshis at 28% and Nepalese at 16%.

The average monthly remittance by foreign workers during the period was RM881, but an interesting discovery made by DoSM was that none of the three countries made up the top-five nationalities in average monthly remittance per person.

Thailand topped the list with RM1,045, China at RM1,017, Cambodia at RM988, Vietnam at RM975 and Laos at RM959.

Meanwhile, data from the World Bank shows that Malaysia’s migrant remittance outflow in 2018 was US$10.8bil (around RM44.28bil according to the average rate in 2018), which was 3% of the country’s gross domestic product (GDP).

A proper direction

The ultimate goal of having only 15% of the workforce made up of foreigners is a valid long-term target, but what is missing here is the commitment of the follow-through actions to achieve it.

There has been a lot of effort to tackle the issue of over-depending on foreign labour such as the levy hike and temporary hiring freeze during the rule of Barisan Nasional, Pakatan Harapan’s RM10,000 levy on experienced foreign workers who have been in the country for over 10 years as compared to RM1,850 for new foreign workers, and most recently, the hiring freeze until the end of the year by the Perikatan Nasional government to prioritise locals in their job hunt.

These all happened in just five years, under three different administrations. And the end result was a decline in foreign workers in 2016 and 2017 to a low of 1.8 million people and it began picking up again in 2018 to hit a figure of around 2.2 million as of 2019.

Just last week, the Deputy Minister of Human Resources Awang Hashim told Parliament that the government has decided to limit the hiring of foreign workers to only three sectors - construction, plantations and agriculture - while other sectors can only employ local workers.

This, of course, did not go down well with the other sectors such as manufacturing and construction, which employ 36.7% and 18.6% of the total foreign workers in Malaysia.

And while plantation companies and builders are about to heave a sigh of relief, industry players only found out that the allowance for the three sectors was only a suggestion by the deputy minister, as the government has not stated its stance yet.

Malaysia Palm Oil Association (MPOA) chief executive officer Datuk Mohd Nageeb Abdul Wahab tells StarBizWeek that the industry players still have to go back to the government to appeal to allow them to hire foreign workers, as they had been facing an acute shortage of 35,000 workers even before the movement control order (MCO).

The figure, the bulk of which are harvesters, was based on a survey done by the Malaysian Palm Oil Board (MPOB), but Nageeb believes the numbers now have increased significantly as the industry has not received a single foreign worker since the MCO and a lot workers have left the plantations to head back to their home countries.

“We’re in a very tough situation now. Even with the good crude palm oil (CPO) price, we’re not able to take full advantage because we are very short of workers.

“The potential production that we’re losing out on is around 10% to 25%. Taking a ballpark figure of 20% at the current CPO price, that’s close to RM15bil.

“We told the government that we will make the extra effort to attract the locals, but at the moment, we’re not seeing it yet, ” he says, adding that he is not too optimistic that the locals will be keen because it is a very tough job.

The palm oil industry is heavily reliant on foreign workers, who make up 84% of the total workforce and out of that, 70% are Indonesians, which also leads to the next problem of sourcing for foreign workers because Indonesia is heavily expanding its palm oil industry.

Rubber glove companies, which are all the rage in the stock market now, are also in urgent need of 25,000 workers, 15,000 of which they expect to be filled by foreigners.

The industry currently has 71,800 workers, 43,800 or 61% of whom are foreigners.

Back in 2008, the industry needed 10 workers to produce one million gloves a month and the automation in the sector has reduced that to an average of only 1.7 or 2 workers now.

Ensuring no disruption to economic sectors

Socio-Economic Research Centre (SERC) executive-director Lee Heng Guie said while the government has frozen the intake of new foreign workers until December 2020, indications are that relevant ministries and agencies are currently looking at ways to ease the current labour shortage so that it is not only confined to the plantation, construction and agriculture sectors.

“This is to ensure that the economic sectors’ production will not be disrupted to meet backlog orders and a big surge in demand, especially for rubber and healthcare products such as personal protective equipment.

“While the priority will be on the employment of retrenched local workers, not all locals match the requirements of those sectors experiencing shortages.

“For example, those who lost their jobs in the services industry would be reluctant to work in factories and the plantation sector.

“Likewise, locals may opt to work in the manufacturing sector relative to plantations, given the more palatable working conditions in the former, ” he says.

Lee adds that the contentious issues concerning the basic working attitude of locals and also job expectations as well as the work scope remain, such as shunning what is deemed the 3D (dirty, dangerous and difficult) jobs, the poor attitude of the new generation of local workers, discipline and absenteeism issues, an unwillingness to work overtime when needed, and being less reliable and focused on their jobs.

Automation and digitalisation

Lee says Malaysia needs a more holistic and sustainable foreign workers’ policy to reduce or curb its over-dependence on them and ensure that it supports the transformation towards the Fourth Industrial Revolution (IR4.0).

As the process takes time and requires immense capital, he says the industry needs sustainable inflows of quality and skilled foreign workers to complement the domestic workforce to meet an economic scale of demand during the transition period.

“We need to seriously relook the better execution of workable solutions towards a phased reduction of foreign workers, encourage automation and go digital.

“We have to be mindful that not all operations can be financially-justified to be automated, especially SMEs which have fragmented business operations.

“In certain industries, some jobs are not easy to automate such as garments and plantations involving the harvesting and collection of fresh fruit bunches and food and beverage (F&B).”

Economics professor Prof Datuk Rajah Rasiah of Universiti Malaya’s Asia-Europe Institute tells StarBizWeek that it is a positive move to gradually reduce the reliance on foreign workers, which has been successfully pursued in Taiwan.

He says the government should stimulate the quickening of the use of robots and drones to replace labour, with the focus on labour directed to cognitive, coding, programming and designing skills and tasks.

“The government has to focus on the bigger objective of transforming the economy from low to high-value-added activities.

“The choice of seeking foreign workers largely arose when our governance mechanisms did not raise the premium for skilled and cognitive workers while penalising labour-intensive firms that rely on low-skilled jobs.

“This can be corrected by imposing higher levies on foreign workers and removing financial incentives from labour-intensive firms.

“The Malaysian government strategised to undertake this when Malaysia faced serious overheating from 1990. However, such strategies have not been followed through since then, ” he says.

Rajah adds that Taiwan pursued that from the 1980s and successfully transformed its economy to stimulate rapid development and use of automation, human capital, and later robots and drones.

Are locals willing to take on the 3Ds with low wages?

Malaysian Employers Federation (MEF) executive director Datuk Shamsuddin Bardan says it is more of the acceptable social standing of the jobs itself rather than the pay, and believes that a rebranding of jobs can be considered by the various industries.

“For jobs such as cleaners or sweepers, nobody wants to be one. But if you call them environmental assistants, for example, that may be more attractive for locals to do it.”

SME Association of Malaysia president Datuk Michael Kang says no Malaysian is willing to take up the jobs performed by foreign workers, which are usually deemed as 3D.

He is of the view that it will not benefit the country if the government keeps pushing for a lower number of foreign workers when the local workforce is not able to take up the job.

“The problem today is not about whether we have a lot of foreign workers. It is our locals who don’t want to take up the jobs.

“I’ve repeated this many times. What we need is a foreign worker management ecosystem.

“Everybody wants their hands in (foreign worker recruitment) because agents can make money, ” says Kang.

He adds that what the government should do is to totally sever the middleman level and take on the management of foreign workers on its own.

“It’s not as easy as getting us to cut down on our foreign workers after saying you want to cut. How will this impact the economy?

“Definitely a lot of SMEs will close down because there is not enough workers, ” he says.

It is also noteworthy that the government is only looking at new foreign direct investment (FDI) that involves high-tech and less-labour intensive ones.

There is also talk that the government is looking forward to introducing a workforce composition of 80:20,80% local and 20% foreign by 2022.

It is after all, the government’s vision to automate and reduce manual labour to create more high-skilled jobs for the local market.

Kang doubts that such a composition can survive, especially for manufacturers, adding that if the government really wants to execute it, companies have to start planning for options, such as relocating their plants.

“Maybe the government can encourage these companies to move their factories overseas but park their headquarters in Malaysia.

“This could be another way, ” he says.

It is now crucial to go back to the drawing board to determine what is best for the Malaysian labour force.

It comes at a cost for sure. It is definitely not a zero sum game and has to be worth every penny when the targets are ultimately achieved.

Related story: Labour shortage worsens in oil palm sector amid pandemic

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