Special Report: Wake-up call for Malaysia to cut dependence on foreign labour

This article first appeared in The Edge Malaysia Weekly, on April 20, 2020 - April 26, 2020.

Foreign workers make up a large part of the workforce in Malaysia

Photo by Mohd Izwan Mohd Nazam/The Edge

-A +A

THE enhanced Movement Control Order imposed on two blocks of flats in Kuala Lumpur has turned the spotlight on the crowded living conditions of foreign workers, leaving them at higher risk of exposure to Covid-19. It has also given fresh impetus to the need to wean the country off its dependence on cheap foreign labour.

 

 

On April 7, Malayan Mansion and Selangor Mansion, both in Kuala Lumpur’s Jalan Masjid India, were placed under an enhanced movement control order (EMCO) after 15 occupants tested positive for Covid-19.

The two residential buildings in the middle of the city’s old shopping area houses about 6,000 foreign workers crammed into 365 residential and commercial units. That works out to an average of 16 people in one unit.

The crowded living conditions of foreign workers all over the country is a manifestation of the labour structure. They make up a large chunk of the workforce, from factory floors in Penang to construction sites in the Klang Valley and beyond.

Before the Covid-19 outbreak early this year, much of the discussion about foreign workers focused on how their influx had dampened the wage growth of Malaysians. Now, concerns have been raised that their cramped living conditions could be a ticking time-bomb.

Fortunately, Health Director-General Datuk Dr Noor Hisham Abdullah said last Thursday that there was no significant clusters of infections among foreign workers in the country.

Be that as it may, some quarters are saying Malaysia should be weaned off her dependence on cheap foreign labour. Paying workers low wages and housing them in congested quarters should no longer be tolerated. Employers must adopt global best practices when it comes to labour management.

Automation, especially the adoption of artificial intelligence and Internet of Things (IoT) should be able to replace many of the jobs currently being carried out by foreign workers and even some locals.

The pandemic is teaching businesses in Malaysia an important lesson, especially in areas related to automation and the adoption of the digital economy, says Dr Afzanizam Abdul Rashid, chief economist at Bank Islam Malaysia Bhd.

“It is high time that businesses, especially the manufacturing sector, shift their business model into [one that is] high-technology in nature,” says Afzanizam. He believes it can be done as we have a sizeable pool of highly skilled talent in engineering and mechanisation.

“If we can do this, the country could save a lot in overseas remittances by foreign workers,” he says. The secondary income account in the country’s balance of payment, he points out, recorded a larger deficit of RM21.4 billion last year than the RM19.3 billion in 2018.

This reflects an increase in outward remittances by foreign workers, he explains. A shift towards high-technology and high-skilled labour would lift the value of the ringgit via a reduction in the outflow of remittances.

Some manufacturers continue to adopt a low-cost model that employs more low-skilled foreign labour. The reasons cited include the reluctance of locals to work in 3D — dirty, dangerous and difficult — jobs.

Malaysians, needless to say, want to earn a higher income as the cost of living has risen significantly. Most would shun low-paying jobs.

A single adult in Kuala Lumpur requires a salary of RM2,700 a month to be able to have a minimum acceptable living standard, according to Bank Negara Malaysia’s March 2018 report, “The Living Wage: Beyond Making Ends Meet”.

However, the minimum wage in major cities in the country, including Kuala Lumpur, is only RM1,200 per month. The salaries offered by some employers are far below the living wage needed to have acceptable living standards.

Even workers with tertiary education find it hard to get well-paying jobs. Bank Negara’s 2018 annual report states that a fresh graduate with a diploma could earn a real salary of only RM1,378 in 2018, which is even lower than the comparative figure of RM1,458 per month in 2010.

Is it too hard to hire locals and allow them to earn a decent living? Why do companies find it hard to reduce their dependency on cheap labour, and foreign labour at that?

“Getting foreign workers now is equally challenging (compared with hiring local workers), with the conditions imposed by the source countries as well as the more stringent conditions imposed by our local labour authorities,” says Datuk Soh Thian Lai, president of the Federation of Malaysian Manufacturers (FMM) in response to The Edge’s questions.

As a result, more and more industries are resorting to major reforms in their production processes and going for greater mechanisation and automation, he says. The Covid-19 outbreak has been a learning experience as many Malaysian businesses were completely unprepared for the MCO.

“For industries that are most vulnerable to the viral outbreak, I believe they will start exploring a more proactive deployment of automation technologies [such as collaborative robotics, autonomous materials movement and industrial IoT] to lower the worker density throughout their operations.

“This process might take time but we are sure many are already looking at such options,” says Soh.

However, FMM believes there must be holistic support for the greater adoption of automation for companies to move away from labour-intensive processes, especially to reduce the dependence on foreign workers.

“There must be continued financial and fiscal support as well as technology advisory services for companies, especially the small and medium enterprises (SMEs) as automation technology is costly,” says Soh.

The latest findings of the FMM-MIER Business Conditions Survey 2H2019, which was concluded in February this year, revealed that more respondents have automated, with varying levels of automation.

Activities in the respondents’ operations that have been automated up to 40% are, namely, assembly, inspection and testing, material handling, packaging, process control and warehousing, according to 53% to 59% of the respondents.

Mould/die change-over and information management have also been automated up to 40% in 44% and 46% of the respondents’ factories respectively, FMM states in a written response to The Edge’s questions.

Meanwhile, non-governmental organisations and labour unions such as Workers Hub for Change and Network of Action for Migrants in Malaysia have urged the government to ensure the health and safety of workers in the workplace and provide them with proper accommodation, among other things.

“Malaysia has a sad record when it comes to occupational health and safety. There is a lack of clear legally binding regulations that employers need to comply with to ensure worker safety and health,” reads a statement signed by 23 groups, including foreign organisations such as the UK’s Women of Colour Global Women Strike and Pakistan’s Marvi Rural Development Organisation.

“The belief that employers themselves decide and fix their own standards and regulations ought to be abandoned in favour of more definite legal standards and regulations as determined by parliament and/or the ministers in charge,” the statement continues. “Penalties for such offences also need to be increased, as non-compliance puts workers at higher risk of injury and even death.”

For FMM, the precautionary measures and obligation to abide by the call of the government to remain indoors during the MCO are consistent and the advice and guidance given by employers on precautionary measures to be taken before and during the MCO are the same for both local and foreign employees.

“They are key assets. The repercussion of having any worker, whether local or foreign, infected would be a high price to pay,” says Soh.

“For those housed within employer-owned dormitories as well as rented facilities, it is the employers’ responsibility to ensure that there are strict rules to be followed given the heavy repercussions in the event that foreign employees are infected by the virus,” he adds.

Despite the FMM’s affirmation, however, the greater adoption of technology, digitalisation and automation is the only way to provide an alternative to production that relies on human capital.

Socio-Economic Research Centre (SERC) executive director Lee Heng Guie says remote distancing, the use of robotic process automation, artificial intelligence and machine learning will enable businesses to continue to operate and cope with the MCO and social distancing, as well as supply chain disruptions in the event of another health crisis.

“A better health prevention system is urgently needed now to protect public health. The digital divide between the poor and rich have to be addressed as poor households remain inaccessible to digital/internet/wireless technology due to the lower coverage in rural areas,” he says.

 

How did Malaysia become addicted to cheap foreign labour?

When Malaysia’s industrialisation programme was initiated in the 1980s, it led to massive rural to urban migration as workers were needed to fill vacancies in factories that sprang up in the Klang Valley, Penang and Johor Baru.

The labour cost was low as Malaysia was just emerging from low-income status towards low-middle-income. The cost of living was also much lower and properties were much more affordable for the emerging middle-income population.

However, as the economy grew, so did the cost of living. Malaysians started to shun factory floor work because of the low wages and employers began to hire workers from neighbouring countries. his resulted in the number of documented foreign workers increasing to two million as at last August. Many more are working illegally in various sectors such as manufacturing, food and beverage, domestic help, plantations, construction and hospitality.

While the exact number of foreign workers in Malaysia, documented and undocumented, is hard to ascertain, they make up, on average, about 15% to 30% of the Malaysian workforce, according to experts.

Foreign workers risk are being exploited right from the start. They have to bear the cost of migration, which could amount to thousands of US dollars each when they apply to work in Malaysia through employment agencies in their respective countries.

The migration cost can be more than five months of their earnings, according to Global Knowledge Partnership on Migration and Development (KNOMAD), which consists of World Bank and International Labour Organisation (ILO) staff.

KNOMAD says the estimated migration cost incurred by Vietnamese workers in the manufacturing sector in 2015 averaged US$1,374 per worker. Meanwhile, the United Nations Office on Drugs and Crime in 2015 reported that it cost Bangladeshi workers US$2,700 to be hired in Malaysia.

Many of the workers have to take up loans in their home countries to pay the agents for the migration cost. This however, does not guarantee them jobs, as they have to undergo health and background checks upon arriving in Malaysia.

If they fail these checks, their temporary employment pass will not be approved. When this happens, many choose to work here illegally to repay the loans they have taken, rather than being sent back home.

Many businesses chose to hire these undocumented workers because they need cheap labour. Without proper documentation, the workers are vulnerable to exploitation by employers as well as agents.

Foreign workers housed in cramped units are a common sight, especially in low-cost apartments. Ten workers or even more are squeezed into three-bedroom apartments. Cramped living conditions become fertile ground for viruses to spread.

Malayan Mansion and Selangor Mansion are just two such residential buildings where foreign workers dwell. Many more are housed in overcrowded and substandard living units on construction sites.

In neighbouring Singapore, as many as 200,000 foreign workers have been quarantined to contain the spread of Covid-19. If Malaysia were to do the same, can we quarantine two million registered foreign workers, and at least a million others?

 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.