Fixing Malaysia’s deadly addiction to cheap foreign labour

 

As I drove through the industrial area in Senai, Johor, I saw droves of Bangladeshis walking along the side of a road, presumably en route to their factory floor. And on the other side of the same road, I saw a line of Indonesians streaming out of a blue “bas pekerja” (factory bus).

But such a sight is increasingly not just confined to industrial areas. Central Kuala Lumpur has looked less Malaysian and more foreign for a while now. And when I rode the iconic Penang ferry last year, it carried just as many foreign workers as it did Malaysians – a sight that starkly contrasted with my childhood days.

These remarks are not meant to be xenophobic in the least, merely an observation of a dangerous trend that’s arresting Malaysia’s development and keeping us locked in middle-income nation territory.

Many would say that immigration has been the bedrock of the economic development of some major nations’ such as the US, Canada, and Australia. Yes, these nations and many more rose partly due to the strength of their foreign workforce, but crucially, they were a high-earning, highly educated and skilled foreign workforce.

Malaysia, however, employs low-skilled, blue collar workers by the millions, resulting in a cavalcade of issues. This has not escaped the view of many prominent Malaysian economists who have criticised the government and employers for allowing this situation to continue.

For some background, there are around two million documented and four million undocumented foreign workers in Malaysia. They account for almost a fifth of our workforce and are integral to the local manufacturing, construction, plantation, and agriculture industries.

Our deadly over-reliance on foreign labour has two main effects, chief of which is widespread graduate unemployment. Due to the cheap and relatively abundant foreign workforce at their disposal, many companies do not see the need to hire Malaysians who would have to be paid higher wages.

More importantly perhaps, this means Malaysian companies aren’t incentivised to invest in high-tech, high-value manufacturing – something that is essential for propelling Malaysia to high-income nation status.

This is why for every 10,000 employees, Malaysia only has a paltry 34 industrial manufacturing robots, which is lower than the Asian average. China has double this number, while Singapore and South Korea have a high 488 and 631 robots per 10,000 employees respectively.

According to a Bank Negara report: “This results in foreign multinationals relocating lower value-added processes to Malaysia, while moving higher productivity and value-added processes to neighbouring economies such as Singapore and PR China. In the end, this self-reinforcing image further locks Malaysia into this low-cost bind that would require significant resources to undo.”

So what do we do about this?

The single biggest thing we can do is transition from foreign-worker driven manufacturing to robotics-driven manufacturing. In fact there is no better time to do this than now, as Covid-19 has exposed the pitfalls of being reliant on a workforce that’s susceptible to infectious diseases due largely to the manner in which they are housed, resulting in nationwide manpower shortages.

In addition, the US-China trade war has seen many foreign companies relocating from an increasingly expensive China to Southeast Asia and Malaysia. This is our chance to modernise our industrial robotics capability so we can entice these foreign companies to set up shop here.

And the manufacturing industry is the obvious beachhead for our push into robotics as it is both the single biggest employer of foreign workers and is also uniquely suited for a robotic “invasion” as it often involves repetitive work in confined, structured spaces – environments that robots excel in.

To boot, robots can work around the clock, produce more consistent work, don’t complain about working conditions, and never take days off.

This is where we need to take a leaf from the playbook of China and Japan – nations that have redesigned their manufacturing sectors by placing robots and automation at the crux.

China has had the world’s largest industrial robot market for a while now, having almost a million robots in operation and accounting for 30% of the global market. But still not content, the Chinese government has launched two wide-ranging initiatives – the Made in China 2025 industrial policy and the Robotics Industry Development Plan.

As part of these initiatives, the publication China Briefing reports: “The government supports companies that implement robotics-enabled automation in key industries, including automobile manufacturing, electronics, household electrical appliances, and logistics. The government has several programmes and incentives to encourage R&D development and innovation, such as offering robot manufacturers and automation businesses subsidies, low-interest loans, tax relief, and land rental incentives.”

In addition, the Chinese government has set up more than 40 robotics-driven industrial parks around the country that benefit from incentives and its ample resources.

But while China still has a gargantuan human workforce to complement its robots, Japan does not enjoy this luxury. Its precipitously falling birthrate is expected to wipe out 24 million people from the workforce by 2050.

But having wholeheartedly embraced robots instead of taking the easy route of bringing in foreign workers, Japan is well positioned to adapt to the changing times. Being an early adopter of automation technologies has helped Japan triple its manufacturing industry’s productivity since 1970 – a far cry from its non-manufacturing sectors which only grew by around 25% in the same period.

If we contrast that with Malaysia, our sectors which employ the most foreign workers are the least productive – with the construction industry being at the lowest rung, followed by agriculture and manufacturing.

The International Monetary Fund reported that as Japan’s robot density in manufacturing rose, local gains in employment and wages rose with it. This goes a long way towards allaying the fears of many who fear robots taking over human jobs and turning many of us into walking fossils.

And since Malaysia is so reliant on foreign labour, we will likely feel the economic gain of transitioning to robotic manufacturing fairly quickly. Low-wage, low-skill jobs can be automated, leaving higher skilled, higher value robot-designing, testing and handling jobs to Malaysians.

This beachhead roboticising initiative can concentrate on the biggest industrial players in the Malaysian market, namely rubber products and electronics manufacturers.

To this end, in addition to mirroring successful Chinese and Japanese initiatives, the government should only allow companies to employ a certain number of foreign workers, exceeding which they’ll have to pay a penalty. Additionally, companies with the highest robot-to-employee ratio should be rewarded. This will incentivise companies to invest in R&D and innovate their way out of the labour shortage.

In a time of such political turmoil and economic stagnation, investments in and initiatives to supercharge our industrial robotics capabilities will be a welcome change, and an indication to investors and citizens alike that we are serious about achieving high-income nation status.

The writer can be contacted at kathirgugan@protonmail.com. - FMT

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.