Stuck between a rock and a hard place

POST-Covid-19, one of the biggest issues faced globally is the shortage of workers as industries and businesses, which had previously either scaled down or temporarily closed for business, find it difficult to ramp up production or operating level.

Some argue that this is also a result of the “great resignation” that we have witnessed over the past two years, as the surge in the gig-economy workforce took place.

More workers are moving away from the traditional standard working environment and are moving towards achieving better work-life balance and at the same time earning enough to make ends meet.

Some are starting on their own, some are resorting to becoming freelance workers or part-timers, while others find themselves able to earn even more than before as ride-hailing drivers or delivery-men.

This has indeed added pressure across industries to the extent that the economy is not able to accelerate to its full potential due to a shortage of workers.

In the case of Malaysia, the great resignation is only one part of the equation, as the nation is at the same time extremely reliant on foreign workers to carry out certain tasks/jobs that no locals are keen to do.

Deemed the 3D jobs – dangerous, dirty, and difficult, Malaysians, in general, shun these jobs as they are seen as low-paying jobs and socially unacceptable.

Hence, during Covid-19, as foreign workers slowly left the country, there was indeed a vacuum in selected industries, in particular the plantation, construction, manufacturing, and food and beverage sectors.

Based on reported figures, Malaysia is having a shortage of 1.3 million foreign workers, with almost 90% of the shortage alone attributable to the shortage in the manufacturing and construction sector.

The plantation sector has a shortage of approximately 120,000 workers, while among the semiconductor and glovemakers, the total shortage is less acute at 15,000 and 12,000 workers, respectively.

Closer at the individual or household level, even getting a maid has become difficult and costly due to various reasons.

Last week, the US State Department Annual Human Trafficking Report maintained Malaysia’s Tier-3 ranking and commented that “the government does not fully meet the minimum standards for the elimination of trafficking and is not making significant efforts to do so, even considering the impact of the Covid-19 pandemic on the country’s anti-trafficking capacity”.

With such a damning report, whether rightly or wrongly, Malaysia has found it difficult to engage traditional sources of foreign workers from countries like Indonesia, Bangladesh, and Nepal.

This has created a serious issue with respect to filling the gap left by these workers as Malaysians seem uninterested in the vacant positions.

News of Indonesia lifting its restrictions on the entry of its workers into Malaysia, and their agreement to integrate the existing system between the Malaysian Immigration Department and the Indonesian Embassy in Kuala Lumpur as agreed is welcome news.

Perhaps, we should also replicate the same system for foreign workers from other source countries as well.

An interesting observation was recently made by the Plantation Industries and Commodities Minister when she revealed that the plantation sector lost approximately RM10.46bil in revenue in the first five months of 2022 due to insufficient manpower to harvest fresh fruit bunches (FFB).

According to the minister in a parliamentary reply, the calculated losses amount was derived based on the average price of RM1,390 per tonne for the 7.52 million tonnes of FFB that could not be harvested during the first five months of 2022.

In her reply, she also highlighted that the industry faced a shortage of 28,940 FFB harvesters and collectors, and based on the average output of two tonnes per day, an estimated 57,880 tonnes of FFB could not be harvested each day.

Now, assuming that the labour cost of these harvesters is approximately RM2,500 per month, the cost to hire these harvesters would be approximately RM361.8mil for the five months period that the minister had highlighted.

Against the revenue that potentially could have been generated, the cost is less than 3.5%.

The question is, why are we so dependent on foreign labour when the productivity lost far outweighs the cost?

Even if our planters were to increase the pay of these harvesters by RM1,000 or RM1,500 per month to hire Malaysians, the cost would only be about 5.5% of revenue generated for the first five months and very likely the planters will still be laughing all the way to the bank.

Of course, the price of crude palm oil has corrected substantially over the past month or so, and assuming the current FFB price of just RM800 per tonne, the labour cost of hiring these harvesters at RM4,000 per month would be less than 10% of the FFB output value – which is still an attractive proposition.

Perhaps, the planters should devise a salary scheme that will attract locals to be hired with a basic pay plus a variable that will take into account the market price of the FFB harvested, which indirectly helps the planters and harvesters to benefit from price fluctuations and manage their cost structure.

Of course, if the FFBs are harvested, the demand-supply dynamics of the crude oil production too will change, and hence, prices too will adjust to reflect the market condition.

Based on the May 2022 data from the Statistics Department, Malaysia has approximately 637,700 unemployed persons.

In addition, excluding those that have either housework or family commitment and/or schooling and training, another 1.29 million Malaysians are outside the labour force.

Hence, we have approximately two million Malaysians that can be tapped if given the right pay structure and incentives to take up jobs that are not being taken up now simply due to employers hoping to hire cheap foreign labour and paying them just minimum wages.

One of the key elements in the foreign recruitment process that Malaysia adopts is the transparency of the process as well as the involvement of recruitment agencies who act as the middlemen to bring in the foreign workers.

Some reports have previously highlighted various issues faced by migrant workers as well as employers who end up paying exorbitant fees to recruit them.

These include unhealthy living conditions, debt bondage, withholding of passports and wages, and even non-payment or late payment in wages.

While the ministry is taking steps to address some of these concerns, a more holistic, targeted and focused approach is needed to move Malaysia out of the Tier-3 ranking.

Otherwise, we will remain stuck between a rock and a hard place and the economic consequences of it will be severe as businesses will be affected significantly across major industries.

Pankaj C Kumar is a long-time investment analyst. The views expressed here are the writer’s own.

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