Striking a Balance in Foreign Labour
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.
Remittance Business Picks Up Steam
By DALJIT DHESI
daljit@thestar.com.my
THE remittance business is enjoying good growth and will march on following the inflow of foreign workers into the country amid the Government's various projects to propel the local economy.
Industry observers feel the Government's open-door policy of bringing in such workers, unskilled and skilled ones, to boost certain sectors of the Malaysian economy will see the remittance business gaining prominence as a revenue generator for remittance service providers (RSPs) despite the competition in this business.
Remittance growth
According to the Malaysian Immigration Department 2009, the migrant workers population in Malaysia totalled 1.92 million of which 80% were from Indonesia, Bangladesh and Nepal.
Currently, there are 62 RSPs in Malaysia of which 22 are commercial banks, two are national saving banks and 38 are non-bank RSPs, among others like Western Union and MoneyGram. The emergence of non-bank RSPs less than a decade ago has made the remittance business more competitive.
RAM’s Dr Yeah Kim Leng says the remittance of migrant funds is expected to rise further by 10%-15% this year.
RAM Holdings Bhd chief economist Dr Yeah Kim Leng says that with the continuous rise in the intake of unskilled foreign workers in response to the needs of the expanding plantation and services sectors, the remittance of migrant funds is expected to rise further by 10%-15% this year.
The stronger remittance, he adds, is also underpinned by the expected rise in the number of skilled expatriates and Malaysian returnees attracted to the country's Economic Transformation Programme (ETP) and accompanying investment activities.
“Remittance flows are the second largest source of external funding for developing countries behind foreign direct investment. A rough gauge of the size of banking remittance business in Malaysia can be gleaned from the country's balance of payment statistics.
“Based on the total inward and outward current transfers and compensation of employees, the remittance business exhibits a steadily rising trend. Over the 2005-2009 period, the total value of inward and outward flows averaged RM30bil annually, a 60% rise over the average for the preceding five-year period, he says.
The estimated total remittances rose by 22% to RM36.5bil in 2009 and recorded a further 12% increase in the first three quarters of 2010.
On the types of transactions performed by migrant workers, Maybank's deputy president and head of community financial services Lim Hong Tat says basically there are two types. The first involves where the fund is credited into a bank account of a beneficiary in the receiving country, and the second one is where the fund is collected in cash over the counter at the overseas appointed agent.
Most of the RSPs, Lim says, are using the Swift system or batch file processing for account crediting remittance service and usually the funds can be received within two to three working days.
The existence of non-bank RSPs like Western Union and MoneyGram in Malaysia has moved the remittance business into a new and higher level of service where the customer may opt for instant cash collection over the counter.
Apart from partnering with MoneyGram, one of the world's largest remittance service provider, it has also launched a new remittance platform known as Maybank Money Express (MME) in September 2010 which is capable of offering both account crediting and instant cash collection service.
MME is the first such service offered by a Malaysian bank that also offers instant cash collection over the counter.
Lim says MME leverages on Maybank's regional presence to provide remittance touch points in seven countries like Brunei, Cambodia, Indonesia, Pakistan, the Philippines, Singapore and Vietnam. It will expand to India and the Middle East by year-end, he adds.
Judging from the number of foreign workers in Malaysia and RSPs in the country, the remittance business is competitive and a profitable one.
Profitable though competitive
Yeah feel the remittance business is a profitable one for banks as margins from transaction charges and exchange rate conversion provides a lucrative revenue line and an incentive for banks to tap the growing remittance and cross-border banking business services.
As banks' interest margins come under pressure this year, remittance services will become an even more important segment of the banks' non-interest income stream, he notes.
Banks which have invested heavily in technology and regional network infrastructure are well positioned to service the banking needs of the ever growing pool of internationally and regionally mobile skilled and unskilled labour, Yeah adds.
United Overseas Bank (Malaysia) Bhd head of transaction banking division Andre Lee agrees. He says migrant workers' remittance business is a profitable business for banks, especially in Malaysia which is dependent on migrant workers for certain industries.
Those working in Malaysia usually commit a certain portion of their wages to support their family back home and this type of remittance happens monthly for most migrant workers during their payroll week, he notes.
Western Union’s Ratheesh Kumar says the remittance market is growing and has strong potential.
For UOB Malaysia, Lee says the bank has seen an upward trend of remittance from a transaction record of 24,000 in 2008 to 95,000 in 2009. On a month-to-month comparison, January 2011 versus January 2010, the bank's remittance figure rose by 25%.
Overall, Lee says the remittance business of migrant workers contribute about 9% of the bank's total remittance business revenue and hope to drive this business further.
Ratheesh Kumar, who is Western Union's regional vice-president for South Asia & South East Asia, says the remittance market is growing and has strong potential.
“While the Western Union service offers our agents including banks an additional fee based income, more importantly it also helps bring in customer footfalls which can be easily translated into incremental business for the bank's portfolio of products. In short, a win-win situation for both the bank and Western Union,'' he explains.
In 2010, Western Union completed 214 million consumer-to-consumer transactions worldwide, moving US$76bil of principal between consumers, and 405 million business payment.
As for 2011, Ratheesh says given the dynamic nature of the remittance industry, it would be too early to forecast the growth of the market for the year.
The company's global consumer to consumer business (migrant remittances) accounts for around 84% of Western Union's total global revenues of US$5.2bil as of last year.
Lim says the presence of a large number of about 1,800 touch points nationwide where remittance services are provided is an indication of the profitability of this business although the high number of RSPs does affect margins for the remittance business.
Maybank is targeting the migrant workers remittance business to increase 10% in 2011 from last year with the introduction of its MME service. Without churning numbers, he says Maybank's remittance business is sizeable and migrant worker remittance business consist a reasonable portion of it.
The need for formal channels
Moving forward, although the remittance business is poised for strong growth in view of the higher demand for foreign workers amid more projects taking shape to steer the economy, there is a need to make the service more efficient.
Yeah says that besides upgrading facilities for funds remittance, the expansion of branch networks of banks or tie-ups with foreign banks is needed to cater to the large number of workers looking for formal banking channels to remit funds.
In turn, this will help to curb the large illicit flows transfers through informal and illegal channels as highlighted in a recent international report, he notes.
Lim says that based on a study from World Bank Conference 2007 in Bali, about 90% of remittance outflows from Malaysia to Indonesia occur through informal channels.
The lack of requisite identification/status documents required to open bank accounts or interact with formal RSPs has been the main reason that some migrant workers opt for Hawala or Hundi (informal channels), he notes.
Hawala is an informal value transfer system based on the performance and honour of a huge network of money brokers, who are primarily located in the Middle East, North Africa, the Horn of Africa and South Asia.
The challenge for commercial banks is to create greater awareness among those who use informal channels to change to an efficient, much safer and reliable remittance services offered via formal channels.
By leveraging on Maybank's presence in the region, Lim says this will provide greater confidence to migrant workers who are familiar with or who may have accounts with Maybank branches or partner banks in their respective countries.
Another approach, he adds, is by offering reward campaigns to attract new customers to use the service.
“Visits to areas with large migrant population, businesses employing migrant workers and the use of vernacular language are some of the campaigns to publicise the service,'' he says.
Locals Put Off by ‘Dirty, Demeaning and Dangerous’ Low-end Jobs
EVER walked into a grocery store or a food stall and got greeted by a foreign worker, and then only to be met by a blank stare when you requested for something?
Language barrier is just one of the many gripes of consumers against businesses, especially small establishments, that employ foreign workers.
For these small businesses, hiring foreign labour is not a question of choice. According to many employers in this segment, locals are simply not interested in such low-end jobs.
Shamsuddin Bardan ... ‘The major reason many SMEs hire foreign workers is that they have no choice.’
“Locals consider it dirty, demeaning and dangerous,” he says in jest.
Malaysian Employers Federation (MEF) executive director Shamsuddin Bardan says many local talents just aren't interested to work in small establishments, namely SMEs (small and medium-sized enterprises).
“The major reason many SMEs hire foreign workers is that they have no choice. Being small, they can't attract locals to work for them.
“Locals prefer to work in big organisations because they are career-driven. Foreign workers, especially within the low-income bracket and those that work for small businesses are not. They work here for a few years and return to their home country.”
He adds that previously, most SMEs were family-run businesses but today, the newer generation is not interested in following the footsteps of their forefathers as they prefer to seek opportunities elsewhere.
The Malaysian Indian Hairdressing Saloon Owners Association president K. Kaviarasan says that being a barber, especially of the “old school” kind, is considered “not glamorous” by locals.
“We have to hire foreign workers because nobody (locals) wants the job. I myself am a third-generation barber but my children are not interested in carrying on the legacy,” he tells StarBizWeek.
Kaviarasan says many Malaysians are put off by the long working hours.
“Being a barber means having to work from 9am to 9pm and most Malaysians don't like working long hours. They would rather be the boss of the business and have more flexible working hours.”
Kaviarasan believes that the salary (of barbers) is not the main factor why Malaysians are put off with this line of work.
“The salary of a barber is not great but it's alright. The pay ranges from RM1,300 to RM1,500, depending on how long they've been working.”
Shamsuddin says it is a misconception that foreign workers are paid lower salaries than locals within the same job scope.
“The public perception that foreign labour is cheap is untrue. For employers to hire foreign labour, they must go through an agent and the agency's fee is high. It ranges between RM4,000 and RM5,000 per worker, depending on the situation.
“For those that require three or four foreign workers, the cost is even higher.”
Shamsuddin adds that employers are required by law to pay their foreign worker the same salary as they would a local employee. He says a foreign worker could file a complaint with the labour department if they are underpaid.
Datuk Ramalingam Pillai ... ‘Locals consider it dirty, demeaning and dangerous.’
SMI Association of Malaysia national president Chua Tiam Wee says SMEs in the country are facing a shortage of local employees for these low-end jobs.
“We can't find locals to man a kitchen in a small restaurant, a factory or a retail shop because they don't like the heat or prefer to work in an air-conditioned environment.
Chua adds that SMEs prefer to hire foreign workers because of the high level of absenteeism among locals.
“Locals take leave during holidays or festive seasons and may take medical leave for prolonged periods, but this may not be the case for foreign employees.
“Foreign workers are also willing to work overtime just to earn extra money,” he says.
Sunildeep Singh, who owns and runs the Kedai Serba Aneka Simpang Tiga grocery store in Batu Caves, Selayang, says it is easier to attract foreign labour to work at a sundry shop.
“I also believe that they are more hardworking than locals. Foreign workers are willing to work all day, even on weekends and public holidays.”
“I'm sure that our own locals can do an even better job, but they expect high pay for very little work.”
Sunil runs the shop with his wife and is assisted by a single foreign worker from India.
He says hiring foreign talent is the “norm” these days.
“Foreign talents are not difficult to get. They're abundant. You can spot them in every corner.”
Speaking from experience, Sunil says the only negative issue about hiring a foreign workers is that they may not be very trustworthy, especially with money.
“It's hard to trust them with your cash. You need to keep your eyes on them at all times,” he says, adding that his former (foreign) employee was caught stealing red-handed.
“However, my new worker seems trustworthy,” he adds.
Communication barrier
Sunildeep Singh believes foreign workers are more hardworking than locals.
One of the most common problems with hiring foreign workers is that they cannot communicate in either Bahasa Melayu or English. Shamsuddin says this can cause frustration to customers and deter them from frequenting the premises in future.
“In a lot of instances, the foreign worker is left on their own to man the premises while the proprietor is not around. Locals will end up leaving when they find that the person at the store can't communicate well with them.”
Muslim Wholesalers and Retailers Association executive secretary Kamal Musthaffa believes that language issues will not be a problem if the foreign worker does not deal with the customer directly.
“If they are not working at the front end, then it's not an issue. Foreign workers (that have problem communicating) should be designated at the back of the shop where they don't deal with the customers. They could work on just arranging or packaging of the goods.”
Shamsuddin believes that in the worst-case scenario, the country's brand-image can be affected.
“When tourists come to Malaysia, they are served by foreign workers and this would not look good for the image of our country. We need to look critically into these kinds of businesses. It should be manned by our own people and reflect our culture.”
Kaviarasan concurs that language is a common problem when hiring foreign workers, noting that it takes between one year and two years for them to be able to start conversing with locals properly.
“But they can be trained. It's not an issue.”
Shamsuddin says small businesses should endeavour to train their foreign workers and ultimately, improve their brand-image.
“There are a lot of small businesses that are operating outside the law. It is doubtful whether some of them even have proper insurance or subscribe to Socso.
“By upgrading themselves and improving their brand-image, there is no reason why they cannot hire locals.”
Shamsuddin says the local authority can also step in and improve the working conditions of small establishments that employed foreign workers.
“Many of the businesses in Petaling Street or Chow Kit are operated by foreigners. If we could may be have a building to house these businesses, it would provide a more appropriate avenue to work.
“If this happened, they (the businesses) won't face the hassle of having to push their carts and facing storage problems or being harassed by the authorities.”
Shamsuddin says the Government is trying to reduce the number of foreign workers coming into the country and has proposed to increase the levy on foreigner workers by 400% by 2015.
“But we (MEF) have objected to this. We believe not all the employers should be penalised by the levy.
“Some businesses hire foreigners as a matter of choice and intentionally don't hire locals, while others do it out of necessity (they have no choice but to hire foreigners).”
