Hitting the reset on labour


MALAYSIA’s rehabilitation for its addiction towards cheap foreign labour is now long overdue.

Covid-19 has come to disrupt the supply since last year and the withdrawal symptoms have already started to crop up.

The road to addiction may have very well started in the 1980s during Malaysia’s journey of industrialisation and economic growth where the temporary solution to meet the severe labour shortage was foreign workers.

The Medan Agreement was inked in 1984 for plantation and domestic workers while the later part of the 1980s would see the green light given to recruit workers from the Philippines, Thailand and Bangladesh. It was not really a problem, or at least those who tread the corridors of power did not seem to think it was, until Malaysia tried to climb the high-income ladder.

Then came the realisation that the country, which has become so heavily dependent on foreign labour, can no longer depend on that to fuel its growth.

The government has been trying to do away with this over-reliance from as early as 2006, which saw it committing to the purpose of gradually reducing the number of foreign workers, as a part of the Ninth Malaysia Plan.

Economic Action Council (EAC) executive director Prof Tan Sri Noor Azlan Ghazali says this is a vicious circle where Malaysia is trapped at the end, which calls for a serious need to get rid of the cheap foreign workforce addiction.Economic Action Council (EAC) executive director Prof Tan Sri Noor Azlan Ghazali says this is a vicious circle where Malaysia is trapped at the end, which calls for a serious need to get rid of the cheap foreign workforce addiction.

Malaysia’s number of registered foreign workers stood at about 1.8 million then but nothing much seems to have changed.

The lack of follow-through, knee-jerk reactions and flip-flopping decisions has given the country an estimate of about two million registered migrant workers and another two to three million of illegal immigrants.

It seems as if there is an impalpable disconnect as to where the government wants to go and what it has been doing.

But it has to be pointed out that this problem is not entirely that of the powers that be. It is an all-encompassing complication where firms, corporates and households are equally accountable.

With annual key performance indicators (KPIs) for corporates and the private sector to meet, the bottom line is all that matters and having low-labour costs fulfills that purpose, hence the reluctance to make that shift from a labour intensive strategy. From the perspective of consumers and households, the benefits of an advanced nation is what they desire but not many are willing to pay for it, which makes sense because wages have remained quite stagnant, which in itself is one of the spillover effects of Malaysia’s addiction towards cheap foreign labour.

And so, whether Malaysia is ready or not to catch up with the next standard of living has always been a question raised in economic discussions and forums recently as Covid-19 strips bare the country’s structural issues.

The great disconnect

In its entirety, Economic Action Council (EAC) executive director Prof Tan Sri Noor Azlan Ghazali says this is a vicious circle where Malaysia is trapped at the end, which calls for a serious need to get rid of the cheap foreign workforce addiction.

He tells StarBizWeek that the recognition that this is a problem, especially on the policy side, has been there for quite some time.

“We (Malaysia) know all these problems (but) we delay and we’re reluctant. We said it clearly in the Ninth Malaysia Plan that we want to bring this down but unfortunately, no one looked at it and without us realising, the numbers have been increasing.

“Covid-19 does not only reveal how this stalls our growth and our technological advancement but also the social implications including health, education and many other aspects,” he says.

Former Bank Negara deputy governor Dr Sukudhew (Sukhdave) Singh says the Malaysian economy will always have some need for foreign labour and there is nothing wrong with that.Former Bank Negara deputy governor Dr Sukudhew (Sukhdave) Singh says the Malaysian economy will always have some need for foreign labour and there is nothing wrong with that.

Noor Azlan, who was seconded to the EAC last year, says the pandemic also revealed limitations from the labour rights perspective.

“We take for granted that they can live wherever they want, do whatever they want as long as they give us their cheap services,” he adds.

In dissecting how Malaysia may have slipped into the foreign labour addiction, Noor Azlan believes that it could have started with the idea of – and a noble one at that – to make things affordable which then spiralled into trying to make everything even cheaper.

And in exchange for keeping prices of everything low, it leads to an abundance of foreign workforce in the country.

“Being affordable does not mean that you have to make it cheap. When you artificially keep the prices low, at the end of it, it will stall many other things and in many other aspects, it influences quality and the final deliveries.

“And finally, you start to see that it conflicts with the idea of where we want to be. The nation would like to be advanced, to be high income, to embrace the fourth industrial revolution (IR4.0) but the major input that is coming in do not have those capabilities and that is very dangerous,” says Noor Azlan.

Former Bank Negara deputy governor Dr Sukudhew (Sukhdave) Singh says the Malaysian economy will always have some need for foreign labour and there is nothing wrong with that.

Even developed high-skilled economies have a need for both skilled and unskilled foreign labour.

He says it is only when the economy becomes so dependent on foreign labour that it distorts the overall structure of the economy that it becomes a problem.

“This is particularly the case in Malaysia with its high dependence on low-skilled foreign labour.

Compensation of employeesCompensation of employees

“While not downplaying the complexity of the foreign labour issue, I believe that the fundamental problem in Malaysia is not that policymakers do not know what to do.

“Numerous studies by Bank Negara and others have already articulated what needs to be done.

“Rather, the problem is that the political will is lacking to create a sustained push to rectify the situation,” he tells StarBizWeek in an email response.

Sukhdave, who is also the former Khazanah Nasional Bhd independent director, adds that in the Malaysian context, the issue of foreign labour is deeply related to the vested interest of privileged groups in the country who have benefited economically from allowing the current foreign labour situation to persist.

He says the supply of foreign labour has also created rent-seeking opportunities and has been the source of much corruption.

And even when policy measures were announced, Sukhdave opines that they often contain unrealistic conditions, particularly with respect to timelines.

“When the industry groups protested, these measures were invariably rolled back. The outcome of this lack of clear policy direction and patchy enforcement has been the reduced motivation of businesses to restructure to significantly reduce their dependence on foreign labour.

“It is just much easier for these businesses to pay the official and unofficial levies. Malaysia’s reputation as a country where cheap low-skilled labour is easily available may also be skewing the type of new investments the country is getting, thereby perpetuating its low-skilled, low-productivity structure,” he says.

The structural shift

Underneath all the onslaught that the pandemic has brought against the economy is the revelation of a much needed structural shift but this is still dependent on the commitment of follow-through actions.

As Sukhdave puts it, the transformation from a low-skilled to a high-skilled economy will not happen overnight, but he thinks significant progress can be made over a decade if Malaysia gets things right.

And still, that is a big “if”.

“There must be the political will to create such a transformation, which is to disincentivise the creation of low skilled jobs and encourage the creation of higher-skilled jobs.

“Some industries will no longer be viable in Malaysia but others would be incentivised through cost pressures to leverage on technological upgrading to reduce cost and improve productivity.

“The political leadership must be able to see beyond this near to medium-term disruption in industrial structure and enact policies that would support the eventual transition towards a more productive and efficient economy,” he says.

Sukhdave adds that developing a high-skilled economy requires the convergence of several conditions, including enlightened economic policies; sound and well-developed economic, financial and physical infrastructure; a talented pool of workers; and public safety and credible governance.

Regrettably, he notes that Malaysia has so far failed to achieve this convergence of conditions.

palm oil fruits workerspalm oil fruits workers

As a consequence, the economy is still dominated by economic activity that has low productivity.

Given the increased global competition from other countries to attract high-tech and skill-based industries, Sukhdave stresses that there is an urgent need to put the missing components in place.

“That is not going to be easy. This is because Malaysia has failed badly in one of the most important elements of creating a skill-based economic ecosystem – the creation of a skilled labour force.

“This failure can be linked directly to the politicisation of higher education and the consequent creeping mediocrity in public education in the country.

“In my view, the issue of our public education system is the most critical but yet the most intractable component of our desired economic transformation, simply because the problem has been allowed to fester for so long and many of the weaknesses are now deeply imbedded in the system,” he says, adding that he anticipates that skills shortage will continue to remain a major hurdle in Malaysia’s economic transformation for the foreseeable future.

Dirty, dangerous and difficult

The most common and most convenient excuse to Malaysia’s heavy reliance on foreign workers is the “3D” jobs that locals shun. This is an excuse that Noor Azlan does not buy.

He reasons that the same jobs are being done in many developed countries and advanced nations.

“But instead of resorting to cheap labour, they resort to technology. If you say it is dirty, make it clean; if it is dangerous, make it safe and if it is difficult, make it easy,

“Use technology to reverse the 3Ds rather than resorting to foreign workforce immediately or the 3Ds remain 3Ds forever and this is not sustainable,” he says.

“When the majority is a low-skilled workforce, what it will do is it will start to interfere with the pricing of labour, pulling down the prices not only in their group but also those above them,” he says.

While the industry supports the national policy of reducing dependency on low-skilled foreign workers over time and the drive towards automation and IR4.0, the Malaysia’s Business and Economic Conditions Survey (M-BECS) conducted by the Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) early last year revealed that only 14% of respondents managed to reduce foreign workers significantly with the adoption of digital transformation and IR4.0.

Socio-Economic Research Centre (SERC) executive director Lee Heng Guie says this indicates that these measures may not be able to significantly reduce the dependency of foreign workers in every industry or business and that manpower is still a necessary input to complement mechanisation and automation.

“Malaysia needs to institutionalise a well-managed foreign worker management system. A holistic and clear foreign manpower system is needed to regulate the management and deployment of foreign workers to support the economy and business community,” Lee says.

Among the many sectors that have felt the squeeze is plantation – palm oil to be exact.

Construction workersConstruction workers

A pre-pandemic survey showed that the industry was short of 40,000 harvesters and rough estimates are, the figure would have multiplied by now. There are about 5 million ha of matured hectarage out of 6 million ha of oil palm plantations in Malaysia and the optimum ratio is a harvester to every 20ha, which means that the industry requires 250,000 harvesters at any one time and in most cases, 90% of them are foreign workers, mostly Indonesians.

Harvesting is the most critical job in the industry and due to the shortfall of workers, Malaysian Palm Oil Association (MPOA) chief executive officer Datuk Nageeb Wahab estimates that about RM12bil was lost last year in terms of revenue, based on an average crude palm oil (CPO) price of RM2,685 per tonne.

The losses are expected to be higher due to the spike in commodity prices this year.

Despite the various effects by the industry players to recruit locals, Nageeb says the reception was lukewarm.

“We don’t have a choice, we’ve been so reliant on foreign workers and we’re complacent that there’s no rush to mechanise.

“So that’s why the pandemic is an eye opener to us. To me, the future, potential and survivability of the palm oil sector is automation.

“We’re talking about quantum leap changes, technologies that can change the ratio of one harvester to every 100ha. These could be things like drones, lasers or exoskeletons,” he says.

The government established the Mechanisation and Automation Research Consortium of Oil Palm (Marcop) recently for this purpose.

It has been given an allocation of RM60mil – a RM30mil matching grant under Budget 2021 and RM30mil from the collection of palm oil cess.

“The whole idea is to entice tech providers to find solutions for the industry to mechanise and automate because in the long term, getting foreign workers is not only difficult, it could also give us a lot of other issues.

“Nothing will materialise yet because it is still work in progress, so the earliest, being on the optimistic side, will be in two years.

“But in the meantime, we have to live with our problems,” he says.

A committed adjustment

In the words of the former White House chief-of-staff and former Chicago mayor Rahm Emanuel: “You never want a serious crisis to go to waste”. And that is exactly the case for Malaysia.

Noor Azlan stresses that a recovery without reform is a waste and it is vital that the government starts undertaking the reforms in a gradual but very committed schedule.

“I urge the government to have a clear committed schedule to be reported and monitored so that we are gradually shifting.

“We shall no longer become the heaven for pure unskilled workforce. Even if there are foreign workers, they must work at the standard of where the nation wants to be,” he says.

Meanwhile, Sukhdave says an even more fundamental challenge that he sees in Malaysia’s economic transformation is domestic politics and politically motivated policies that hamper rather than support economic transformation.

“I note the deterioration in the social and political situation in the country, which is causing even existing investors to voice their concern.

“To put it bluntly, I expect very little to change unless we bring forth strong leaders who put the interest of the country before their own.

“Leaders who understand the challenges facing the Malaysian economy and are willing to take tough decisions, and will spend their time uniting the population with a vision of our common national economic destiny,” says Sukhdave.

He adds that if the nation is successful in making the transformation to a high-skilled economy, the productivity level of economic activity will be much higher, allowing for higher incomes – which is a stronger basis for sustainable domestic demand than reliance on debt.

While the cost of labour would be higher but given the higher level of productivity, this will be less of an issue than it currently is.

“As for the low-skilled jobs, they will not all go away, but appropriate policies and competition can encourage the use of labour-saving technologies that not only reduce the need for low-skilled foreign workers but also encourage the creation of higher-skilled jobs in these industries. This has already happened in countries like China,” he says.

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