Malaysia's Migrant Economy!

Striking a balance in foreign labour

By CECILIA KOK cecilia_kok@thestar.com.my

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Harbouring the hope of providing a better future for her family, Sutimah left her village in Surabaya, Indonesia 23 years ago and travelled almost 2,000 km by boat to Peninsular Malaysia in search of a better-paying job.

She started work as a housemaid, earning less than RM400 a month. But for Sutimah, that was a sufficient amount that could alleviate the poor living conditions of her family.

“I tried to send as much money home as possible each month so that my family could live more comfortably, and my children could have access to better education,” says the 45-year-old mother of four.

Nor Zahidi Alias says rapid economic development is the primary reason for many countries’ increasing dependence on foreign labour

Sutimah, who has just been granted permanent resident status in Malaysia, is now working as a cleaner with an agency that pays her a monthly salary of RM1,000. She still sends back a big portion of the money that she earns each month, as the financial burden of her family keeps growing, particularly since her husband became paralysed a few years ago and could no longer work as an odd-job labourer.

“I have never thought of going back to Indonesia to work. I couldn't, it's just too difficult to make ends meet and to provide for my family,” she says.

Sutimah's experience, though not representative of all, speaks of a typical factor that drives people to leave their homelands and work in another country. Invariably the migrants will cite poor living conditions and a lack of opportunity for upward social and economic mobility as the main reason in their quest for greener pastures.

Promised land?  For south and southeast Asian economies, especially those that are lagging behind Malaysia, many migrant workers perceive the latter as a land flowing with milk and honey.

Official data show that Malaysia attracts a huge number of migrant workers into the country. According to official record, the number quadrupled from less than 500,000 in 1999 to more than two million, representing about 17% of the country's workforce in 2008.

It is believed that the number has since reduced to less than two million over the last two years as many migrant workers were sent home at the height of the global financial crisis in 2009. As at the end of February 2010, total registered foreign workers stood at 1.8 million, down from 1.9 million at the end of December 2009.

What's more intriguing is the fact that the actual number of migrant workers living in Malaysia could be more than double of what the official data suggest. It is believed many of these migrant workers have entered, or re-entered the country illegally.

While Malaysia cannot claim that it offers the lucrative benefits that many first-world nations have, its relatively better economic prospects and political stability have been the major pull factors.

So, is that a boon or a bane to the Malaysians economy? According to experts, it can be both ways.



“It goes without saying that foreign workers have indeed contributed to the growth of our economy, especially in sectors where we have an acute shortage of workers such as construction,” says the Malaysian Trade Union Congress deputy president Mohd Jafar Abdul Majid.

“But our economy is swamped with foreign workers who are unskilled or have low skill sets that could not contribute meaningfully to Malaysia's aspiration of becoming a high-income economy; and I think we have been too dependent on this group of foreign workers for far too long,” he adds. This is based on the significant increase in the number of unskilled or low-skill migrant workers in the country over the past two decades.

Filling the gap

In the Economic Report 2010/2011 compiled by the Finance Ministry, it was stated that of the 1.8 million registered migrant workers in Malaysia, 38.2% were employed in the manufacturing sector, 16% in the construction and 14.2% in the plantation sectors.

Indonesia accounted for the highest number of registered foreign workers in Malaysia at 50.9% . This was attributable to their country's proximity to Malaysia and its cultural and language similarities with Malaysia.
Bangladesh was second highest, accounting for 17% of the total foreign workers in Malaysia, followed by Nepal at 9.7%, Myanmar, 7.8%, India, 6.3% and Vietnam, 4.2%.

“The high dependency on foreign labour is not a characteristic unique to Malaysia,” says Malaysian Rating Corp Bhd chief economist Nor Zahidi Alias.

He says countries that have been experiencing high growth rates such as Singapore and the Gulf states, including the United Arab Emirates and Saudi Arabia, are also experiencing the same phenomenon of having to rely on foreign labour in many sectors in their economies.

“Rapid economic development is the primary reason for the countries' increasing dependence on foreign labour,” Zahidi explains.

In general, the rising standard of living and educational levels that usually come in tandem with economic development will to lead to an aversion to the 3D (dirty, demeaning and dangerous) sectors by the local population. The void in these sectors has to be filled by unskilled migrant workers and Malaysia is not spared.

Robust economic growth in the past two decades has led to higher standard of living and improved the literacy rate among the people.

In addition, the sustained boom in economic activities has also led to substantial job creation as employment expanded faster than the labour force.

A tight labour supply situation further fuelled the growing demand for foreign labour, especially in the manufacturing and construction sectors.

Flawed strategy?

Since the 1980s, Malaysia's economy has been driven largely by the export-oriented manufacturing sectors, especially the electrical and electronic segments. The Government, perceiving migrant workers as a cheap source of labour that could enhance the country's export competitiveness had been encouraging the deployment of foreign labour in the 1990s.

As a result, local manufacturers had been able to enjoy a steady supply of cheap labour for the past two decades, and Malaysia has been able to maintain its competitiveness.

Migrant workers have been used as the foundation of the country's rapid-growth strategy. The presence of migrant workers in the country has been more than just filling the gap in the 3D sectors.

But economists are questioning if the huge influx of foreign labour is indeed the right move.
Some economists say it has been a flawed strategy.

Professor Datuk Dr Mohamed Ariff of the Malaysian Institute of Economic Research says the opening of the floodgates for cheap foreign labour in the past is a major mistake that has put Malaysia in the middle-income trap.

“It was a short-sighted growth strategy that attempted to maintain the country's competitiveness based on a low-wage system,” he explains, adding that he firmly believes that if Malaysia had not allowed the massive influx, local manufacturers would have been forced to innovate, automate to boost productivity to maintain their competitiveness so that they could move up the value chain.

Economists concede that the continuous dependence on cheap foreign labour would be a drag to the country's economy, as it would not encourage local corporations to mechanise - the initiatives of which are necessary to push the economy into a high-income level as defined by World Bank.

In addition, the huge number of unskilled or low-skilled foreign workers in the country has also raised concerns of security and incidences of highly contagious diseases in the country.

They are also seen to be putting additional strain on the Government's fiscal position as foreign workers could also have access to subsidised facilities including fuel and medical care.

“Over-reliance on foreign workers can have detrimental consequences, and that is why the Government is looking at ways to reduce dependence on them. The nation's prevailing dependence on low-skilled foreign workers cannot be done away with overnight, as a sudden repatriation of them can have serious repercussions on the economy, especially in sectors like manufacturing, construction and plantation,” he explains.

“Production activities will stall as quick replacements are not readily available. This will inevitably lead to a loss of competitiveness, closures or stagnations of businesses,” Zahidi says, adding that the distinctive roles of foreign labours in the 3D sectors cannot be underestimated.

To lift Malaysia to a higher developmental plane, economists say more incentives should be introduced to spur businesses to become less labour-intensive.

“For certain, it is only when businesses become accustomed to capital-intensive modes of production can their reliance on low-skilled foreign labour be reduced,” Zahidi says.

Skilled foreign labour

Not all foreign workers in Malaysia are unskilled or have low skill sets. A small number of them are highly skilled professionals who play an invaluable role in enhancing the country's productivity and competitiveness.

Generally termed as expatriates, these professionals are considered to be an asset to the country, as they bring with them the knowledge and skills that could enrich the local labour force.

“Inflows of skilled foreign labour should not be discouraged. As demonstrated by other countries such as Singapore and some of the Gulf states where highly skilled foreign labour are critical in the spurring a country's development. There is certainly a positive role that certain classes of foreign workers can play in any economy,” Zahidi says.

According to Economic Report 2010/2011, as at the end of July last year, the number of expatriates in Malaysia stood at 31,371, accounting for less than 2% of the migrant workers in the country.

They were mostly employed in the services (64.8%) and the manufacturing (22.2%) sectors, and they came mostly from India (17.8%), China (10.2%) and Japan (7%).

Under the 10th Malaysia Plan, the Government planned to attract highly-skilled expatriates to promote a knowledge and innovation-based economy, especially in the technical and professional services. Part of this effort is reflected in Talent Corporation Malaysia Bhd, which aims to attract, motivate and retain high-skilled human capital in the country.

Finding the right balance

The Government's effort in reducing the country's dependency on low-skilled foreign workers has been ongoing, as evidenced in the gradual reduction in the number of registered foreign workers over the last two years. Its target is to reduce the number of foreign workers to 1.5 million by 2015.

But this would be a challenging task. “Economic transition has not been easy; neither has the country's policy to reduce its heavy reliance on low-skilled imported labour because the technology base of Malaysia is still relatively low,” says independent consultant Dr Vijayakumari Kanapathy (formerly a senior analyst with the Institute of Strategic and International Studies).

“So, given the structure of Malaysia's economy, the reliance on imported labour in the immediate future is likely to continue,” she adds.

Mohd Jafar concurs, saying: “To be fair, all stakeholders play a role in reducing the country's reliance on migrant workers. Employers need to move away from their dependence on cheap foreign labour and go up the value chain, while policymakers need to implement better regulation and improve on the enforcement part, especially in preventing the illegal immigrants from entering the country.”

Malaysia needs to shift its focus from importing cheap labour to managing labour flow that can maximise growth and facilitate its structural adjustment towards a higher income economy.

This will also minimise the negative social impact brought about by these foreign nationals. But striking a balance between short and long-term needs of the economy will prove to be a complex challenge.

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