Monday March 14, 2005 - THE Government’s recent proposal to allow foreignworkers, currently restricted to sectors such as palm oil plantations,construction, restaurants and domestic help, to work on farms and insmall- and medium-scale industries, has contributed further to thecontroversial debate over the large presence of migrant workers in thecountry.

Understandably, this proposal did not go down well with a large portion ofthe population, already discontented over the extension of yet anotheramnesty that allows illegal foreign workers to leave unpunished. Thepublic fears that this, and the Government’s stop-go policy, could openthe floodgate for the arrival of even more unskilled and semi-skilledworkers in Malaysia.

In addition, allowing all sectors of the economy to hire foreign workers,as some unions and associations feared, could affect the bargaining powerand job opportunities for local workers. Companies, wanting to save costs,might prefer to hire foreign workers at the expanse of the locals.

Malaysia already has too high a foreign labour population, with theproblem compounded by the fact that about 65% to 70% of them are from justone source.

There are an estimated one million legal foreign workers in the country.Add another one million illegal workers (with many having left during theamnesty likely to return as legal workers), the pool of foreign workersrepresents a staggering 20% of total labour force, far higher than whatthe system could handle.

Worse, the pool is notoriously skewed towards the unskilled and semi–skilled. Skilled workers accounted for a miserly 3% of the total, surelynot a percentage that could help Malaysia prepare to face the challengesfrom an increasingly competitive global economy.

Malaysia’s problem with foreign labour could also be linked to itssomewhat poor regulatory and enforcement record. In the 90s, bans onforeign workers have been imposed occasionally and on an ad-hoc basis,when problems with foreign workers arose or in response to the fluctuationin business cycles, only to be quickly revoked following appeals fromemployers.

With such frequent policy changes, it is, therefore, hardly surprisingthat an estimated 400,000 illegal workers have decided to stay put despitethe extended amnesty.

To be sure, foreign labour, by lowering the cost of doing business, hascontributed positively to Malaysia’s economic growth. Willing to toleratelow pay and tough working conditions, they have filled the gaps in sectorswhere there are acute shortages of labour and in jobs that Malaysians nolonger want. This would involve the 3-D jobs (dirty, dangerous anddifficult), particularly in construction and plantations. They have alsokept inflation low by suppressing wage increases.

But their large presence does carry adverse security and socialconsequences. Problems ranged from minor complaints over the congregationof foreign workers in public places around the city on weekends and publicholidays, and the additional burdens on public services and amenities, tothe undisputed link between rising crime rate and their large presence.

Since their influx, Malaysians have been forced to fortify their housesand gated housing estates have become increasingly popular. Someeradicated diseases have also been re-introduced in Malaysia by migrantworkers.

Clan conflicts, fights between workers of different nationality, thesetting up of immigrant community enclaves and riots have also upsetMalaysians.

The Hualon factory incident, where 500 odd Indonesians rioted in the NilaiIndustrial Estate after the police detained 16 of them for alleged drugabuse, is clearly a consequence of a single community becoming too large.

Also, times have changed. The Malaysian economy is now at a stage where itneeds to restructure to broaden the base for sustainable expansion. Itneeds to move away from labour intensive to higher value-added processes.

Based on the experience of other countries, there is convincing evidencethat the high dependence on cheap foreign labour could hinder or retardsuch restructuring process in addition to lowering the level of nationallabour productivity.

The Government’s reasoning that some companies could close down because ofthe lack of workers is somewhat weak. In this era of globalisation,companies could overcome this problem by moving up the value-added chainor invest in labour-saving production processes, such as automation andmechanisation. In addition, they could outsource part of the activities orrelocate labour intensive production processes to lower cost economies.

Migrant workers will, no doubt, continue to feature strongly in theMalaysian economy for some time. In this respect, Malaysia needs a clearand comprehensive long-term foreign labour policy, setting out the short,medium and long-term targets and strategies that would be consistent withits restructuring goals of shifting towards high-tech and skillindustries.

And more importantly, regulations need to be strictly enforced. With aclear long-term road map and advance warning, labour-intensive firms couldthen plan ahead and adjust to remain competitive.

Within the overall objective of gradually reducing the country’sdependence on foreign workers, policies should be aimed at re-aligning thehuge imbalances between unskilled/semi-skilled and skilled workers. Itwould also require moving away from over-sourcing workers from anindividual country, which could hurt bilateral relation when problemarises.

Security reasons aside, the current slowness in administrative approvalsto legalise the undocumented foreign workers in Indonesia, which isclearly hurting the construction and plantation sectors, also clearlyunderlines the need to vary the sources of labour recruitment.

To minimise job competition, policies should ensure that companies hireforeign workers not because there are cheaper but because they could notsource workers locally.

On the other hand, continually allowing uncontrolled access to low-cost,unskilled foreign workers could act as a disincentive for firms toupgrade, thereby impeding the restructuring process.

In the long term, the failure to change could retard economic progress,keep the country uncompetitive and condemn the economy to a low growthtrajectory.