THE presence of foreign workers in Malaysia dates back a long time. It is difficult to pinpoint exactly what made Malaysia the mecca to the millions of workers who have come to Malaysia to seek employment in industries ranging from plantations, construction, manufacturing and even food and beverage.
Pre-Covid, the foreign worker population at its height stood at a whopping two million although unofficial figures could be higher by over a million if the illegal workers are taken into account.
Malaysia stopped the intake of foreign workers for about two years following the pandemic in 2020.
As a result, the number of registered foreign workers had declined to 1.1 million in 2021, Hong Leong Investment Bank (HLIB) Research notes in a June 29 Economics and Strategy report.
Although borders have reopened, the research firm says that the foreign labour scarcity still seems quite a distance from a sustainable resolution, with the country said to be lacking close to 1.3 million workers across various sectors.
For perspective, this is more than the number of legal foreign workers in 2021, points out HLIB Research.
Bank Islam Malaysia Bhd
chief economist Mohd Afzanizam Abdul Rashid believes the figure will continue to grow because Malaysia has become dependent on foreign workers, especially for tasks that require physical strength and endurance.
“This is a signal that the country is facing structural problems given that the economic activities are still being dominated by the low value-added,” he tells StarBizWeek.
To address this, he says the education sector needs to be realigned to accommodate the demand from the industries by producing graduates that are well-equipped with the right skills.
“Of course, this will take some time to materialise and any sudden cut in foreign labour supply will shock the economic system,” he adds.
One of the bigger economic impacts of having a large population of foreign workers is the massive amounts of money that is remitted out of Malaysia to their home countries such as Bangladesh, Myanmar, India and Indonesia.
The issue, however, isn’t unique to Malaysia. Countries like Singapore, Hong Kong and Dubai are also in the same situation.
In the case of Malaysia, foreign workers’ remittance have been increasing in the last couple of years prior to Covid-19. In 2018, it stood at RM45.1bil, while RM46.7bil was remitted in 2019 based on the World Bank’s estimates. In 2020, the figure stood at RM36.5bil and declined further to an estimated RM35.9bil in 2021.
With the return of foreign workers, remittance will grow. However, there will not be a unique effect on the ringgit, reckons Dr Carmelo Ferlito, the chief executive officer of the Centre for Market Education (CME).
On the contrary, Ferlito believes that “some negative tensions may be offset as the current labour shortage in some key industries is weighing heavily on the local economy”.
Businesses are stuck
“Too many businesses are stuck because of the lack of manpower. By blocking the hiring of foreign workers, the government has not produced any benefit, only harm,” he says, calling on the government to consider a massive ease of restrictions.
Sunway University economics professor Yeah Kim Leng estimates that the new minimum wage of RM1,500 (from RM1,200 previously) will add about RM5bil in annual remittance – assuming registered foreign workers in 2021 receive the revised wage and remit 60% of that earnings.
“The outflows could have a dampening effect on the ringgit but the impact is likely to be insignificant and offset by the increase in Malaysia’s output and export earnings contributed by foreign labour,” he says.
He points out that the annual foreign workers’ remittance account for only 2% to 3% of national income, which is less than the repatriation of profits and dividends by foreign direct investors into the country.
From a broader perspective, he says the monies to the recipient countries will contribute to their growth and development. Their enhanced growth is likely to lead to higher imports of goods and services from Malaysia, he adds.
AmBank Group chief economist Anthony Dass says that the remittances will have some levels of knock-on impact on the ringgit, especially on cross rates like Indonesian, Bangladesh and Nepal.
“There are many other factors that influence the ringgit’s movements. There also seems to be more emphasis on the US dollar-ringgit, and less on cross rates. Probably it is time for us to look at the performances of key cross rate currencies and examine their impact,” he tells StarBizWeek.
Dass says that migrant workers have become an integral part of Malaysia’s economy. “We cannot totally substitute them. Many low-entry level jobs will remain less attractive to the locals irrespective of higher salaries. We also need to understand that low-entry jobs complement the high value-added jobs.”
According to him, not all industries are ready for the Fourth Industrial Revolution (IR4.0). Hence, with the absence of foreign workers, the low value-added jobs will hinder the progress of high value-added jobs.
“Almost all sectors of the economy, from agriculture right up to services, are unable to operate at full capacity partly due to lack of workers. This is seen to be frustrating businesses and industries.
“This may then hinder the ability to fulfill supply obligations, given that Malaysia is a key manufacturing and supply chain hub in the region,” he says.
Revenue loss
For example, he notes that the revenue loss for the palm oil industry is estimated at RM28bil to RM31bil due to the shortage of labour, while for the other industries, it is estimated at 10% to 20%.
“Hence, the economic cost of not having them is far more significant compared to their remittances,” points out Dass.
Some years ago, it was reported that the government was mulling the setting up of a mechanism to reduce the remittances by foreign workers in a bid to stem the outflow of the ringgit.
Quoting sources, the report said that under this scheme, foreign workers would be required to pay a part of their monthly salaries into a fund to be set up by the government, in a way similar to the Employees Provident Fund (EPF) contributions.
Is the idea worth revisiting? CME’s Ferlito thinks not.
“Foreign workers come here precisely because by earning in ringgit, they can be better off than what they would be in their home countries. They often earn just the minimum wage and to deprive them of some amount of that low wage is definitely an unfair move,” adds Ferlito.
Saving system
Yeah, on the other hand, thinks the creation of a foreign workers’ saving system is worth exploring. The EPF or a new organisation can be tasked with the initiative. However, he admits that its setup and administration could be onerous and burdensome.
“The administrative feasibility, complexity and costs will have to be weighed against the benefits of creating a savings pool that can be used to deepen the country’s financial system,” he says.
AmBank’s Dass says any policy to reduce remittances by foreign workers to their home countries could risk the government losing revenue if they opted for informal remittance channels.
Contribution to the economy aside, foreign workers are a big consumer base, benefitting sectors like telecommunications, accommodation and retail and remittance services.
Their spending is estimated at RM23bil annually or about 3% of total private consumption in 2021, says Sunway University’s Yeah. This is based on a conservative 60% of income remitted with the remaining spent locally.
Take the case of Digi.Com Bhd. Many years ago, as a smallish telecommunication company, the company struck big being one of the first to offer prepaid services targeted at foreign workers.
Back to the present, there are new opportunities to tap in the likes of Merchantrade Asia Sdn Bhd, which aims to give foreign workers an e-wallet or debit card.
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