Costly labour crunch

MALAYSIA’S foreign labour shortage is getting more critical by the day with no clear solution in sight to bridge the shortfall of more than 1.2 million workers needed in key sectors.

Indonesia’s decision to stop the supply of workers last week has worsened the situation. Industries which rely on migrant workers don’t have any hopes of resuming operations to pre-Covid-19 pandemic capacities this year.

The country was already reeling from a dire labour lack in the manufacturing, construction, plantations and service industries before Jakarta imposed the freeze in response to Malaysia’s alleged breach of a memorandum of understanding signed in April to use the One Channel System for maid recruitment instead of the Immigration Department’s Maid Online System which supposedly allows tourist visas to be converted to work permits.

Indonesia wants all applications and approvals to be processed through its embassy to keep track of its workers and prevent them from being abused.

Here’s a breakdown of the crunch: The manufacturing sector needs 600,000 workers with producers of medical gloves and electronic chips hardest hit, causing them to suffer losses of more than RM20bil.

The construction industry needs 550,000 workers, according to Master Builders Association Malaysia. Its president Wee Hiang Chyn was quoted as saying that the industry was also grappling with a 30% hike in the cost of materials and supply chain disruptions caused by the Russia-Ukraine war.

In the plantation sector, the paucity of workers has led to the accumulation of millions of tonnes of unharvested oil palm fruits, which could cost the industry RM17.7bil in losses. Before the pandemic, Indonesians made up this sector’s 440,000-strong labour force. Today, it is short of 120,000.

There is a sense of desperation across all industries, as reflected by the latest proposal from the Malaysian Employers Federation.

It wants the government to allow industries to recruit workers from among refugees, illegal immigrants and paroled prisoners.

Its president Datuk Dr Syed Hussain Syed Husman said 168,000 refugees holding United Nations High Commissioner for Refugees cards live in Malaysia and more than 60% of them could be recruited as workers to ease the shortage until new foreign workers arrive.

Syed Hussain also urged the Joint Committee on the Management of Foreign Workers to review the conditions under the Labour Recalibration Programme to “regularise” foreign illegal immigrants to allow them to participate in the programme in addition to arranging for the recruitment of foreign workers from other source countries such as Cambodia, Laos, Nepal, Pakistan and the Philippines.

For decades, Malaysian employers have been taking the easy way out by bringing in workers from Bangladesh, Indonesia and Myanmar.

This overdependence has now come home to roost.

Besides the loss of revenue from the outflow of remittances to their home countries each year, it has also led to the creation of a colossal rent-seeking business capitalising on foreign worker recruitment, processing, placement, medical screening and other services, which is reputedly worth between RM2bil and RM5bil.

It is no secret that a parallel underground network continues to rake in massive amounts of money by providing illegal workers with fake documents for the exemption from or discounts on fees and levies.

The exigent labour shortage should be an eye-opener for how badly Malaysia needs to review its labour policies and cut the overreliance on foreign workers for industries driving its economy.

While it might take some time to ease the dependence on migrant workers for the manufacturing and plantation sectors, immediate changes can be made in the construction industry by embracing the less labour-intensive Industrial Building System (IBS).

As defined by the Construction Industry Development Board, IBS is a technique in which components are built in a controlled environment – onsite or offsite – before being assembled into a structure with minimal additional site work.

IBS requires less skilled workers, improves productivity and quality due to better controlled working environments, reduces construction time, lowers overall costs and minimises waste at sites. Prefabricated components are more environmentally friendly and promote occupational health and safety.

It is not a new technology, though. It was initiated after WWII, when millions were made homeless and houses needed to be built quickly.

After the war, it was used by countries like Finland, France, Germany, Holland and Russia to provide homes for the displaced. Nearer and more recent successful examples of IBS use can be seen in Hong Kong, Japan and in Singapore’s HDB apartments.

In Malaysia, the first two projects using IBS technology were the now demolished Pekeliling Flats in Kuala Lumpur and the Rifle Range Flats in Penang, both built during the mid-1960s.

Developers, however, have been slow to use IBS, perhaps because of the perception that it is associated with low-cost housing and bad quality, such as the Rifle Range Flats and a project in Samariang, Sarawak.

Despite being promoted by the government and the Construction Industry Development Board over the years, there has not been much enthusiasm among builders, who have been highly dependent on cheap foreign labour and using the excuse that there is an initial additional cost of between 6% and 10% compared with conventional brick and mortar construction methods not to use IBS.

IBS uses 50% fewer workers compared with the conventional method, according to Roy Yong, a veteran specialist in the technology with more than 35 years’ experience in building houses and apartments in Australia, Malaysia and Singapore. He is currently working on a project in Melaka, using just 12 workers.

Perhaps better incentives should be given to get builders to switch to IBS. Currently, they only enjoy an exemption from the 0.125% levy charged on contracts exceeding RM500,000 for projects which use more than 50% of IBS components. They also get a 60% investment tax allowance on capital spending for five years if they produce or use three basic IBS systems.

Media consultant M. Veera Pandiyan likes this observation from Canadian economist Michel Chossudovsky: “Global poverty is an input on the supply side; the global economic system feeds on cheap labour.”