Overview of the foreign worker situation

AT this point in time, the total number of registered foreign workers stand at 1.86 million or 13.4 per cent of our total workforce of 13.9 million, which is just shy of the government’s 15 per cent cap for foreign workers.

In reality, this number be could much higher as the immigration department has reported that 3 out of 10 foreign workers are illegal, which translates to an estimated 0.8 million illegal foreign workers present in Malaysia.

This is a significant improvement in governance of illegal foreign workers as in 2014, the ratio was reported to be 4.83 out of 10 during the National Council of Professors’ (KPN) conference in 2014.

Claims from industry experts such as the Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) however were more shocking as the organisation placed the estimate of illegal foreign workers in 2016 at four million.

Regardless of which claims are more accurate, there is no doubt that if we include illegal foreign workers into the equation, we have long passed our cap limit of 15 per cent of foreign labour in our total workforce.

Which leaves us with the question: what should we do about the situation?

According to estimates from Bank Negara Malaysia (BNM), as of 2014, foreign workers represent 80, 36, and 31 per cent of the total workforce in our agriculture, construction and manufacturing sectors.

Since then, these figures would have likely risen in proportion to the increased numbers of foreign workers within the country.

Advocates for foreign workers argue that this high percentage of foreign labour is within reason as these industries desperately lack manpower especially the labour intensive ones such as agriculture, construction and manufacturing.

As such, sudden policy changes that would deter foreign labour may be an unwise move at this junction.

During the announcement of the EMC policy deferment, Minister of transport Datuk Seri Liow Tiong Lai said the cabinet would also be looking into developing a proper ecosystem which would aim to provide convenience to industries in hiring foreign workers that would ensure the country’s economic growth.

“It is not just on levy, but on the rights of the employer to have direct access towards the workers. Rather than going through a middle man, how to cut down bureaucracy procedures and how to have fast employment of foreign workers.”

Of course, this should not be a long term solution as the negative macroeconomic implications involved in an overreliance on foreign labour.

In a publication by the International Monetary Fund, the three major macroeconomic implications of utilising foreign workers was cited to be: lower total factor productivity from an obviated need for efficiencyenhancing technologies and practices, expansion in wage distribution as wages in the unskilled segment is artificially supressed, and subdued inflation and real appreciation.

The paper explained that the presence of cheap labour prevented companies from pursing innovation and technological advancements as many would feel that utilising unskilled labour would be more cost effective due to technology’s high upfront cost.

For the expansion in wage distribution, it was highlighted that the positions held by foreign labour in Malaysia are mostly unskilled labour and as a result it is not surprising that 55 per cent of our foreign labour force has no formal education or primary education.

As a higher presence of unskilled workers at an industry level is associated with higher wage inequality, the issue has also led to wage discrimination with unskilled foreign workers being paid less than their local counterparts.

Thereby supressing the average wages of the unskilled segments regardless of wage increases and productivity gains in the tradable sectors.

“As a result, the path of the Consumer Price Index (CPI)based real exchange rate is subdued, meaning inflation and real appreciation will also be subdued,” cited the paper.

Moreover, there is also the social aspect as some arguments also allude to the fact that foreign workers are susceptible to diseases and resort to crime mainly because of their poor working terms and conditions.

In response to these concerns, over the years, the Malaysian government have previously implemented several initiatives to wean us off our love for cheap foreign labour. Top Glove Corporation Bhd (Top Glove) who employs 6,800 foreign workers is expected to have to highest total additional cost at RM12.6 million, representing a three per cent impact on its profit after tax (PAT).

The research arm of MIDFAmanah Investment Bank BHd (MIDF Research) expects that impact will be further offset by increasing sales volume as the group has registered promising sales volume growth of seven per cent year over year (y-o-y) and five per cent quarter over quarter (q-o-q) in the first quarter of 2017 (1Q17).

“We think the company will be able to maintain or register better sales volume growth with the new addition of the 1.4 billion capacity in natural rubber gloves that came in last November,” said the research arm.

Overall, AffinHwang Capital expects the EMC policy’s impact to be manageable as they estimate FY17E earnings for rubber manufacturers to lower by only two to five per cent.

However, as the policy has already been deferred to next year, it is expected that these impacts will prove to be even more manageable as rubber manufacturers will have more time to reduce its dependency on foreign labour.

Affin Hwang Capital notes that the industry on a whole has placed focus on ongoing research and development (R&D) and automation efforts in order to achieve this and function as a long term solution to the foreign worker dilemma in the sector.

Drawing from the lesson learnt from the rubber manufacturing industry, it seems that the take home away message is that our industries should continue placing effort and emphasis onto innovation and technological advancement and adoption in order to achieve more sustainable business practices rather than continually rely on unskilled foreign labour.

In theory this solution is obvious but in practice it feels less unfeasible as many industry players, especially small-medium enterprises lack the capital to invest into technology.

“The alternative adoption of labour-saving processes through the introduction of mechanisation and automation systems is difficult and not feasible at this point of time due to uncertain market conditions and the weak Ringgit,” said Soh.

He added that there are also a multitude of other unresolved issues relating to foreign labour including an unwillingness of locals taking up labour and their inability to stay long in a job.

Unfortunately, these are not problems that can be solved overnight and as there is still a very strong need for foreign labour, we will need to find a happy medium to the issue with increased governance in our management of migrant labour.

With the Cabinet Committee on Foreign Workers expected to meet again soon to discuss the matter, we can only wait and see what developments will take place.

It anticipated decisions however, are expecte to be more diversified and understanding of our labour shortages as Liow has guided that: “The Cabinet is clear that our foreign worker policy must be vibrant and be able to solve the present shortage of foreign workers in the country.”

For Small-Medium Enterprises (SMEs) however, there are already some government initiatives such as Sirim Bhd’s technology audit that will provide SMEs with an assessment of its technology management capabilities and capacities, management of technological knowledge and activities related to the improvement of the technological competitiveness of the company.

SMEs that have gone through this technology audit may also be able to apply for soft loans of up to RM5 million in order to purchase the technology needed to increase its overall sustainability and productivity.

At present, there is still a very strong need for foreign labour and as such we will need to find a happy medium to the issue.

Foreign workers not a long term solution