KUALA LUMPUR (Jan 14): The government held back a surprise -- and sizeable -- hike in foreign worker levy in February last year following protests from employer groups. The hike was eventually trimmed after getting industry feedback.

Similarly, last wednesday, following a public outcry, Malaysia postponed to 2018 its requirement for employers to pay foreign worker levy instead of deducting it from the wages of their employees. The deferment came 10 days after the new rule was announced under the Employer Mandatory Commitment (EMC), after yet more protests from employer groups.

While the government's decision on the EMC is not all wrong, the reversal and hue and cry could have been averted had the employer groups been engaged and given guidance on cost planning in the first place, wrote The Edge Malaysia's editor Cindy Yeap in weekly's latest cover story 'Managing our dependence on migrant workers' for the week of Jan 16-Jan 22.

Malaysia has repeatedly said it is trying to reduce its dependency on foreign workers and move up the global value chain. Last year’s levy hike was intended to prompt greater automation, raise productivity and efficiencies, and reduce wage suppression among the locals, experts say. 

But does the government have a holistic plan to achieve these goals — one that would minimise shocks to businesses and the economy while ensuring that our foreign helpers are fairly treated, the weekly asks?

Of course, policy makers can force an overnight levy hike, but the reality is that labour-intensive industries need a longer transition period — unless the country and its economy are prepared to see a slew of closures or them taking their business elsewhere.

"Without a proper ecosystem, any levy hike would only hurt employers who hire documented foreign workers the most while creating a greater push towards the black market, industry players say, claiming that most people would choose documented workers if the process was not so painful," the weekly wrote.

At present, at 2.14 million, the number of documented foreign workers (from at least 13 countries) in 2015 exceeded the 1.99 million Indian Malaysians — the country’s third largest ethnic group after the Malays and Chinese Malaysians. Indonesians make up 835,965 or 39.2% of the 2.14 million documented workers, followed by 502,596 Nepalese (23.5%) and 282,437 Bangladeshis (13.2%).

However, the foreign worker tally could be nearer seven million, including five without work permits, if indeed 70% of foreign workers in Malaysia are undocumented (illegal) workers, as claimed by the Malaysian Trades Union Congress (MTUC). Even conservative estimates put the number of illegals at two million.

The seven million figure, if true, dwarfs Singapore’s 5.6 million population and matches Hong Kong’s 7.3 million. It also potentially exceeds the 6.65 million Chinese Malaysians in the country as at last year. It is also “potentially close to half the [official] total labour force”, Julia Goh, an economist at UOB Malaysia told The Edge Malaysia. Malaysia’s total labour force stood at 14.77 million in October 2016, of which 14.25 million were employed.

“The country’s dependency on foreign labour has become entrenched in the economy and can’t be resolved easily without collaborating with industry players and adopting a more holistic approach to deal with it over the medium term. Many industries will suffer badly if the consequential shortage of workers [due to a significant reduction] caused production and output to drop drastically. This will translate into a sharp slowdown in the country’s economic growth. Hence, there is no short cut to deal with the issue and it needs to be addressed carefully [as the impact on the industry can be significant],” said RHB Research Institute executive chairman and chief economist Lim Chee Sing.

Nevertheless, the country cannot ignore the threat from the over-dependence situation and it needs to adopt a more holistic approach to deal with it in consultation with industry players, Lim said.

“Over-dependence on foreign labour to grow the economy obviously has serious implications for the economy. Apart from being stuck in labour-intensive and low value-added industries, the middle-income trap, outflow of capital due to remittances by foreign workers and associated social issues, there are also issues of reliability or sustainability in the sense that these foreign workers will leave the country after acquiring some skills and go back home or elsewhere to look for better opportunities from time to time. Malaysia will then be stuck in a dilemma of having to train them, lose them and having to keep training new people from time to time, among others,” Lim added.

The weekly wrote that a big pool of illegals will only hamper Malaysia’s journey towards high-income developed country status. At the end of the day, there are undesirable jobs that are heavily reliant on low and unskilled foreign labour and will remain that way. There are also jobs that can be substituted by technology rather than low-skilled migrant workers. The right balance needs to be struck so that businesses want to invest and stay invested here.

If policymakers are serious about harnessing the most of Malaysia’s labour force and encouraging investments, they need get buy-in from businesses and workers to stay above board. To do this, there needs to be a carrot-and-stick approach, where those who abide by the law are rewarded and recognised and those who circumvent it are held accountable.

Assistant editor Ben Shane Lim also chips in with his take on 'Just how difficult is it to solve the illegal foreign worker problem?', and why we have to wean off this addiction to and dependence on foreign workers.

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