Malaysian Dependency on Foreign Workforce: The Economic Implication Post Covid-19

Abstract

Malaysia's National Transformation 2050 Plan envisions the country climbing to 20th in the economy, well-being, innovation, and creativity rankings. This country has hosted millions of foreign workers for decades, and addiction to them is growing. The COVID-19 outbreak has directly impacted the economy as most of Malaysia's workforce is foreign workers. This study used content analysis with ATLAS.Ti software version 9. The information obtained spans the beginning of the pandemic to the present, focusing on the effects of COVID-19 on Malaysia's economy, which primarily relies on foreign workers. Securing economic stability is a government responsibility that must be practised carefully and not violate any legal provisions to achieve economic growth, as outlined in the Sustainable Development Goals (SDG) 2030. Several quick solutions are proposed, including an advanced screening test for foreign workers to isolate positives and an instant examination of the Immigration Detention Depot's admission protocol for unlawful immigrants. In response to public criticism, the government agreed to waive a ban on employing foreign workers to fill available posts in construction, agriculture, and plantation businesses. Unfortunately, the country's efforts to become a developed nation, as in the Twelfth Malaysian Plan, TN50, and SDG 2030, have been hampered by policy inconsistencies, and the government's plan of becoming a developed nation will never come to fruition. Hopefully, this will help the government enhance its recruiting policies for foreign workers and prevent it from giving in too easily to third-party requests.

Keywords: COVID-19, sustainable development goals, pandemic, foreign worker, economy

Introduction

Foreign workers are workers engaged in various sectors across the country, whether legally or illegally, professional or unskilled (Marhani et al., 2012). Foreign workers, as defined by the International Labor Organization (ILO), are those regularly hired on the basis of their status as migrant workers (ILO, 1999). Mohamed et al. (2012) classified foreign workers as individuals serving on a contractual basis in a country where they are not citizens. Most of them work in the 3D (dirty, dangerous, and difficult) (Ismail, 2013; Kumar, 2016; Marhani et al., 2012; Rodzi, 2020).

Foreign workers in agriculture, construction, and mining have been welcome in Malaysia since the early nineteenth century, during the British colonial period (Abdul-Aziz, 2001; Dannecker, 2005; Kaur, 2017; Lee & Sivananthiran, 1996). In the 1970s, when there was a dearth of legitimate job opportunities, an influx of foreign workers began entering the country (Kanapathy, 2008; Kassim & Zin, 2011; Kaur, 2017), and it was impossible to prevent the phenomenon of foreign workers migrating to countries where economic growth is the primary goal (Noor et al., 2011).

Malaysia has significantly benefited from its relatively open immigration policy for over 50 years (Owen, 2005). Currently, there are various migrant workers residing in the country relative to the total population in the Asia Pacific (WHO, 2020a). While other Southeast Asian countries see their domestic workforces expand by only two to three per cent per year, Malaysia is growing substantially more due to its reliance on migrant labour (Kaur, 2017). Malaysia has gone from being a net importer of workers to a net exporter in months. Malaysia's rapid immigration shift occurred decades before its economy attained maximum employment and income per capita (Lim, 1996). Since most foreign workers in Malaysia are unskilled, many of them fill in labour shortages in economic sectors requiring little expertise (Milton Lum, 2020).

Foreign workers have become increasingly crucial in sectors of Malaysia's economy that rely heavily on them (Kassim, 2005). The COVID-19 epidemic at the end of 2019 prompted the most urgent assessments of national capacities for responding to health disasters. The initial cases were found in China, and the number of cases expanded rapidly. It was recognised as a significant international public health problem in early January and declared a global pandemic in March (WHO, 2020b). Malaysia's healthcare system and the economy were hit severely in early 2020 due to the COVID-19 pandemic, and as a precautionary measure, many illegal and migratory foreign workers are being held. This study, therefore, focuses on the effect of the COVID-19 outbreak on foreign workers and the resulting economic consequences, and aims to offer possible solutions at the end of the discussion.

Problem Statement

The population density in Malaysia fell from 3.1 million in 2019 to 3.0 million in 2020 as a result of the MCO-related closure of Malaysian borders and the return of foreign workers to their homeland. However, in 2020 the population accounted for 29.7 million people, up from 29.4 million in 2019. For 2020, Malaysia anticipates an annual growth rate of 32,750,000, up from 32,550,000 (or 0.4% in 2019) (DOSM, 2020a).

Last year, approximately 62,522 foreign workers returned to their home country, with 11,566 to Indonesia (Medcom.id, 2020) and 51,000 to Thailand (Bernama, 2020). Moreover, thousands of foreign workers in the garment industry lost their jobs when the industry shut down during the pandemic (Emmanuel, 2020; Loone, 2020). The job loss rate was estimated to be at 951,000 as compared to 16 million employed labour in 2019 (MIER, 2020). As of July 2020, the government announced that over 67,000 local residents and several thousand foreign workers had lost their employment (Lee, L., 2020).

This scenario greatly impacts the Malaysian economy since the Malaysian labour workforce depends on foreign workers. Remarkably, foreign workers dominated three leading sectors, namely agriculture, construction, and manufacturing, besides engineering (Rosli, 2020; Lee, Y. N., 2020). Other than the economy, it also affects productivity, household expenditure, investment, and the labour market.

Methodology

This study used content analysis with the help of ATLAS.Ti software version 9. The researcher first conducted a literature search using various search engines and databases, including Scopus, Web of Science and Google Scholar. The following terms were used to find this relevant article: "foreign workers" OR "foreign workforce" OR "migrant" AND "impact" AND "economy" AND "COVID-19". The information obtained spans the pandemic from the beginning to the present. Due to a limited number of journal articles discussing foreign workers' impact on the economy post-pandemic, the researcher extended this research using Google. In this regard, many newspapers deliberated on the government policy on foreign workers in numerous press conferences besides reports from the International Labor Organization and the World Bank. Several data have also been derived from various ministries' official websites, such as the Ministry of Health, the Department of Safety and Health and the Department of Statistics. After the screening process, all 47 articles, newspapers, and reports from ILO and World Bank were transferred and analysed using ATLAS.Ti software and all documents were then coded, categorised and themed.

Discussion

For quite some time, Malaysia has been under fire for how it treats foreign workers, especially those who are here illegally. Even before the COVID-19 pandemic hit, the government's response to a faltering economy has been to detain more undocumented foreign workers or threaten to end its immigration programmes, and when the economy is doing well, the government finds new ways to severely restrict immigration (Ganesan, 2020).

Globally, challenges of managing foreign trade had a detrimental influence on emerging countries even before the lockdowns were expanded. The drop in product prices worldwide would also weaken the market status of exporting countries and decrease jobs in exporting industries, decreasing tax revenue. Huge capital outflows have contributed to currency devaluations, accelerated debt servicing and imports of food and medical supplies, all of which have put added strain on the fiscal balance of developing countries (ILO, 2020a).

Despite the difficulties of containing the spread of COVID-19 across different phases of MCOs with the reopening of economic activities, the economy has been experiencing a continuous recovery in the third quarter of 2020, and there has been an increase in the ban on international transport. As the economic industries recovered on the first quarter, unemployment declined to 4.7% compared to 5.1% in the second quarter (DOSM, 2020b). The Malaysian Institute of Economic Research (MIER, 2020) estimated that the pandemic might substantially impact the country's macroeconomy. The real Gross Domestic Product (GDP) will be contracted by 2.61%, with real GDP growth expected to be 1.57%. On the other hand, the value of real GDP losses is estimated to be RM38 billion as compared to RM73 billion in a nominal term.

Previously, in January 2017, it is mandatory for employers who are given a certificate to employ foreign workers to sign the 'Employer Pledge' and to bear the full levy payment. On the contrary, the Malaysian Employers Federation (MEF) disagreed since it has an adverse impact on the people and the Malaysian economy as it transfers the responsibility of paying levies from foreign workers to employers. The ringgit outflow is expected to increase up to RM4 billion a year and would contribute to the expected inflation rate of more than 4%, thus leading to a sharp rise in the price of goods. The salaries of foreign workers will increase up to 15 to 16 per cent affecting around 400,000 employers to cover the cost. This does not include other costs such as providing better accommodation through centralised housing, medical examinations, and foreign workers' insurance as contained in the Employer Pledge (Adnan, 2017).

Surprisingly, given the importance of foreign workers to Malaysia's manufacturing sector, the country now faces a labour shortage as a result of the COVID-19 pandemic's temporary ban on migrant workers. More than 30,000 foreign workers were brought in for the agricultural sector in October, and on December 10, 2021, the government signed a Memorandum of Understanding with the government of Bangladesh to bring in workers from that country. Recruitment has been halted since 2018 due to a fraud issue involving middlemen who charge high recruitment fees (Benar News Malaysia, 2021). Plantations, agriculture, manufacturing, services, mining and quarrying, construction, and maids are all approved by the government to hire foreign workers. This contradicts the government's initial plan to restrict foreign worker domination to a specific sector. The government also agreed to delay the multi-level charge to employer from January 1, 2022 to July 1, 2022 to reduce the financial impact on businesses hit by the pandemic

Last year, the Malaysian economy was predicted to contract 3.1 per cent because of a sharp downturn in economic activities resulting from COVID-19 and efforts to curtail it, while the epidemic is expected to restore development of 6.9% by 2021 (The World Bank, 2020) and stabilisation by 2022 (Asian Fund Managers, 2021). The current estimate for Malaysia's GNI per capita is US$11,200, which is only US$1,335 short of the current definition of a high-income economy according to GNI per capita ratio under target 8.1 in The Sustainable Development Goals. This means that between 2024 and 2028, Malaysia is expected to transition to a high-income economy (Ritchie & Mispy, 2018).

While the COVID-19 pandemic has slowed down the momentum toward the threshold, the country now has the potential to adopt strategies for future prosperity that benefits everyone in the country. Malaysia's authority strives to continuously evaluate the consistency, inclusiveness, and sustainability of the country's growth. Additionally, the government has budgeted for the UN Sustainable Development Goals per year (The World Bank, 2021). Both policies will ensure sustainable development is maintained via tailored, outcome-oriented economic strategy, enabling the country to seize the opportunities offered by a post-COVID-19 economy and, in the next five years, re-establishing a road to high-income nation status.

Recommendations

Since the formation of the ASEAN Economic Community (AEC), Malaysia needs a comprehensive review of employment practices, including recruitment and employment conditions. The AEC Blueprint was created to invest in 'employees', share responsibilities, and enhance synergies between companies, employees, and the government to ensure competitiveness, dynamics, and inclusiveness for ASEAN members. The government should immediately involve the MTUC in discussions on implementing reforms. Employers should cooperate and support government efforts (Solomon, 2020).

Besides, the Central Bank report came out with several possible suggestions. The government stand must be clear on the low-skilled foreign worker's role in the Malaysian economy. Secondly, policy and implementation must be communicated to all industry players, even though it may create drawbacks at the beginning. Third, the government must set a limit in terms of quota, dependency ceiling and levies. This enforcement ensures control over how many workforces are needed in selected industries. Fourth, to ensure that foreign workers receive better treatment in all aspects so that employers will not have a chance to manipulate them, and lastly, effective monitoring and enforcement must be exercised, and a penalty must also be imposed on an employer who violates the rules (Wei et al., 2018).

Furthermore, Human Resource Minister contended that Malaysia removed an earlier restriction on recruiting foreign workers to protect employment for Malaysians in most industries. Foreign workers will be restricted to the manufacturing, agricultural, and plantation industries (Lee, L. 2020). Unfortunately, the decision was overturned in December last year, the restriction is already lifted, and the foreign workers were allowed to work in all sectors (Benar News Malaysia, 2021)

Undeniably, foreign workers have played an essential role in moulding the Malaysian economy for decades, over dependency on them is a distortion to the economy and eventually discourages industrial upgrading. The government has spent around RM8 billion since 2008 on technology adoption and commercialisation (Wei et al., 2018). Moreover, it will impair the pursuit of becoming a developed nation and hinder the achievement of the TN50 vision. Malaysia could profit from maintaining domestic expertise and recruiting advanced-skilled international talents. Malaysia's ambition to become a high-income economy would need the idea to maintain more of its domestic talent (World Bank, 2011). In addition, this country needs to generate approximately 2 million additional high-skilled workers to achieve parity with the average of the Organization for Economic Cooperation and Development (OECD) country. It can be materialised by creating fundamental human capital through improved health and education, improving skills and reassigning skills of the workforce, and mobilising underutilised labour resources both within and outside Malaysia. It is essential to improve the synchronisation of labour demand and supply policies (World Bank Group, 2021).

Concerning the sentiment that local workers are avoiding 3D sector involvement that foreign workers currently dominate, the allegation is rebuttable since past studies proved that local workers are willing to participate in the sectors provided the wages are commensurate. In fact, around 40% of Malaysian citizens work in Singapore as middle and low-skilled workers with attractive pay (Wei et al., 2018). About 1,123,000 Malaysians were residing in Singapore in 2015, the vast majority of whom met the necessary educational and occupational requirements. Malaysia has to learn what factors lead people to leave their home country so it can better compete for homegrown talent (Testaverde et al., 2017).

With the beginning of a new economic policy in the 1970s, Malaysia set a path toward sustainable development to reduce hunger and reorganise social imbalances. Malaysia's commitment to achieving high revenues, inclusiveness, and sustainability was reinforced when it created its New Economic Model (NEM) in 2009. It is also part of the 11th Malaysia Development Plan 2016-2020, a five-year blueprint for the country's development to ensure equitable economic growth, universal access to healthcare, and a pristine natural environment (Economic Planning Unit, 2017; Hamid, 2020).

Apart from that, Malaysia's 2020 budget seeks to facilitate a move away from low-skilled migrant jobs. However, before the pandemic, the analyst noted that the recruitment of foreign workers would induce a cheap labour policy that hampered technology implementation and slower productivity growth (ILO, 2020b). In addition, the government made an allocation to substitute foreign workers with local industries through the 2021 budget, which was previously dominated by foreign workers (Aziz, 2020). The current scenario highlights the government's commitment to fulfilling the SDG's target as planned since sustainable growth is embedded in the policy, and Malaysia is making substantial progress toward it (Hamid, 2020).

Currently, in the Malaysia 12th Malaysian Plan 2021-2025, the government strive to strengthen and enhance immigration and emigration strategies by streamlining and transparently managing migrant workers and promoting domestic skill retention and attraction.

Conclusion

The current situation shows that the COVID-19 epidemic has affected every country in the world. Over-reliance on foreign workers, particularly those with low skill levels, must be reduced if the country is to achieve its full potential as a developed nation. Addiction to foreign workers is, in fact, counterproductive to Malaysia's goal of becoming a high-productivity and high-income nation. In addition, Malaysia is embarking on the Industrial Revolution of 4.0, which places greater emphasis on the use of technology in the country. Furthermore, this remark aligns with the country's vision of Twelfth Malaysian Plan, the TN50 and the Sustainable Development Plan 2030 (SDG) specifically on Target 8 and Target 8.2 for more robust economic growth through diversification, technical advancement, and innovation. Growth in the economy is essential, but it must be balanced with the needs of the Malaysian people, which is why the government is taking steps to raise our human capital. Foreign workers appear to help the Malaysian economy, but it only exacerbates the unemployment gap between locals and foreigners. What can we glean from this experience? In disguise, the pandemic of COVID-19 is a boon for humanity. Foreign workers being held in detention centres, and even many being deported, presents a big opportunity for the local workforce to explore and take over industries that foreign workers previously dominated. With the government's support, the 2021 budget provides incentives for industries that are heavily dependent on foreign workers, such as construction and plantation, to increase local employment and participation in displacing foreign workers are goals of a monetary incentive. Therefore, the government should be stern with the policy they already plan. The sudden changes in policy implementation will hamper the Malaysian target of becoming a developed nation. It is hoped that this finding will assist the government in formulating the recruitment policy for foreign workers and not easily succumbing to any demand by the interested third party.

Acknowledgments

This work is an integral part of my doctoral dissertation, which I am writing with the guidance of Associate Professor Dr Jady bin Hashim. He has been an excellent guide; without him, neither this book nor the research it covers would have been possible. Motivated by his unbridled enthusiasm, deep insight, and painstaking attention to detail, I have been able to complete my work on schedule.

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Mohamad, M., & Hassim, J. Z. (2023). Malaysian Dependency on Foreign Workforce: The Economic Implication Post Covid-19. In A. H. Jaaffar, S. Buniamin, N. R. A. Rahman, N. S. Othman, N. Mohammad, S. Kasavan, N. E. A. B. Mohamad, Z. M. Saad, F. A. Ghani, & N. I. N. Redzuan (Eds.), Accelerating Transformation towards Sustainable and Resilient Business: Lessons Learned from the COVID-19 Crisis, vol 1. European Proceedings of Finance and Economics (pp. 805-813). European Publisher. https://doi.org/10.15405/epfe.23081.73