2015 Malaysian Labor problems

Abuse, exploitation fail to stop blue-collar workers flocking to Singapore to cope with ringgit fall

BY JULIA YEOW, NEWS EDITOR

Published: 14 October 2015 7:00 AM

Singapore’s prosperity and strong dollar is a ‘pull’ factor for many Malaysians, who seek greener pastures in the island republic. – Reuters file pic, October 14, 2015.When 21-year-old Zuhalfizi Ismail from Negri Sembilan arrived to work in Singapore last month, he was confident his family’s mounting debts would be paid off within the year, and he would have saved enough to marry his childhood sweetheart.

But barely a month into his job as a cleaner with a large Singaporean firm, he now finds himself out on the streets, pockets empty, in one of the richest nations in the world.

“My boss cancelled my permit, and I have to go home. But when I asked for my salary, he said my contract says they can forfeit my salary because I worked less than three months,” Zulhafizi told The Malaysian Insider.

He is also one of hundreds of thousands of Malaysians in Singapore working blue-collar jobs that locals shun and, ironically, which migrant labourers in Malaysia are doing.

Zulhafizi, who was working as a general cleaner, said his job was terminated because he had repeatedly demanded to be paid for working overtime.

“They made me work 12-hour days for six days a week, but said I would only get S$500 (RM1,500) a month.

“They promised me S$1,200 before I came, but now they say I signed the contract agreeing to S$500.”

HOME executive director Jolovan Wham said Zulhafizi’s situation was similar to most of the foreign workers who come to the centre.

“Work contracts are signed in English which most of the foreigners have very little understanding of.

“Because his employers didn’t technically breach the contract, unfortunately, he doesn’t really have a case,” said Wham of Zulhafizi’s case, adding that HOME was now trying to work out an amicable settlement with his employers.

Seeking greener pastures 

Singapore’s thriving economy is a boon for immigrants from poorer neighbours and is now especially enticing for Malaysians with the continued decline in value of the ringgit, Asia’s worst performing currency.

Most of the semi-skilled or low-skilled workers are willing to accept lower wages than their Singaporean counterparts, and put up with less-than-satisfactory working conditions for the possibility of bringing home much higher wages than if they were to work in Malaysia.

Wham says apart from contractual disagreements, he has received complaints of physical intimidation by employers seeking to “discipline” their workers.

“One guy from Sarawak once complained that he was made to do push-ups.

“Another one was shoved and threatened with a punch,” Wham told The Malaysian Insider.

Every morning from Monday to Friday, Malaysian semi-skilled and skilled workers gather in Singapore’s Woodlands area with the hopes of being picked up for a day’s work, which will earn them up to S$80 (RM240). – The Malaysian Insider pic, October 14, 2015.A total of 146 Malaysian blue-collar workers sought assistance from the Malaysian High Commission in Singapore from January to June this year, the high commission revealed. Total number of complaints for the whole of last year was 145.

High commission officials believe the figures are a fraction of the actual number of complaints, as many blue-collar workers find approaching non-governmental organisations, like HOME, for help to be less intimidating.

“Most of them have problems with their work permits, or their employers are not paying them or are keeping their passports,” a senior official at the high commission told The Malaysian Insider on condition of anonymity.

“We try to help by contacting their families in Malaysia, or by informing Singapore’s Ministry of Manpower. But honestly, there’s usually very little we can do,” he said, citing “diplomatic sensitivities”.

According to statistics provided by the Ministry of Manpower, the total number of work permits issued for semi- and low-skilled jobs in 2014 was 991,300. From January to June this year, 993,900 work permits for blue-collar jobs – including cleaners, constructions workers and factory workers – were issued.

The island-state recorded more than 1.35 million foreign workers last year, a figure that has already been surpassed as of June this year.

A 2012 World Bank report placed the number of Malaysians working in Singapore at more than 400,000, a figure that Malaysian officials believe has grown much higher in the past two years.

This means almost half of the tiny republic’s foreign labour force is made up of Malaysians, and the majority of them are in blue-collar jobs.

Risking arrest, fines and deportation

The attractiveness of earning in Singapore dollar, which was trading at S$1 to RM3.01 by the end of yesterday, has even emboldened Malaysians to risk hefty fines and arrest.

Every weekday morning at specific areas around Woodlands – Singapore’s northernmost suburb – hundreds of semi-skilled and skilled Malaysians with no legal permits will wait with the hopes of being picked up by employers looking for day-job workers.

Jobs ranging from painting to electrical and plumbing works pay from $50 to $80 a day, almost double of what they would get back home for the same amount of work.

The men wait at coffee shops, bus stations and other fixed spots around Woodlands from as early as 7am, waiting for owners of small cleaning or construction businesses to drive by and take their pick of workers.

At the end of the day, the workers get dropped back at the pick-up point, where they will make their way home with their day’s wages.

“Most days we don’t get any work, but sometimes if we’re lucky, an employer will ‘book’ us for a few weeks,” said Ah Lim, a Johor native who was one of the many Malaysians waiting on the steps of Woodlands Centre last Thursday morning hoping to be picked up.

Under Singapore’s Employment of Foreign Manpower Act, foreigners working without legal permits face a S$24,000 fine and up to 24 months’ jail.

Ah Lim, who works as a freelance electrician back in Johor Baru, said he was aware that he could be jailed and fined if caught, but says it was a risk he and his friends were willing to take.

“There’s very little work (in Johor Baru), so it’s better to take the risk and come here every day. By noon, if nobody comes, then I will return home,” he said.

“But I will come and try my luck again the next morning.”

Malaysians doing jobs foreigners at home do

Wham says while Malaysians make up a small percentage of the migrant workers coming to his organisation, he has already seen an increase in the numbers.

“The Malaysians who come here are doing jobs that foreigners are doing back in Malaysia. They work in low-skilled jobs as cleaners, or work in the service sector,” Wham said, referring to Malaysia’s 2.1 million legal foreign workers, and almost as many illegal migrants, who are employed in industries, such as construction, manufacturing and the service sectors back home.

“So Malaysia is both a receiving and sending country (of blue-collar workers). It’s quite a unique situation,” he said.

For Zulhafizi, his short-lived and bitter experience with one employer has not been enough to deter him from trying to seek re-employment in Singapore.

“If I manage to save S$1,000, and send it back every month, that’s RM3,000! I can’t even earn half that amount in Malaysia, much less save that amount,” he said.

“Of course, this experience has left me with a bitter taste, but it’s worth risking it again. I can’t find the same opportunity in Malaysia. There, my family is ‘sesat’ (lost).”

The structural regression of Malaysian manufacturing

7 October 2015

Authors: Jayant Menon and Thiam Hee Ng, ADB

Malaysia’s manufacturing sector is reversing to a state reminiscent of its post-colonial stage of development. Regrettably this situation was avoidable.

When the Federation of Malaya gained independence from Britain in 1957, economic conditions were ripe for rapid and sustained growth. Its primary export sector was showing immense potential for expansion. Primary commodities — particularly tin ore and natural rubber — accounted for a third of Malaysia’s GDP and over 75 per cent of exports by 1970, a legacy of its colonial past.

But manufactured exports accounted for less than 10 per cent, raising concerns that heavy reliance on a few commodities left Malaysia vulnerable to terms-of-trade shocks from swings in commodity prices. There was little economic diversification up to the 1980s, with already undersized manufacturing focused on little more than processing agricultural and mining output.

Several terms-of-trade shocks in the early 1980s — followed by global recession a few years later — did ultimately balloon fiscal and current account deficits, setting the stage for radical reform. A new National Development Policy was introduced in 1990, easing the affirmative action strictures of the pro-ethnic Malay New Economic Policy (NEP) and placing wealth creation ahead of wealth redistribution. The Promotion of Investment Act of 1986 extended generous incentives for private investors and relaxed regulations on foreign direct investment (FDI), allowing for full foreign ownership of export-oriented companies. Massive FDI inflows ensued.

These reforms opened Malaysia’s gates to the global production network and it succeeded in developing a vibrant and competitive electronics sector. Manufacturing grew sharply from about 12 per cent of GDP in 1970 to over 30 per cent by the mid-1990s. The share of electronics in manufactured exports soared from below 50 per cent in 1980 to peak at more than 70 per cent in 2000. But its share has fallen to below 50 per cent again in 2015.

While Malaysia had an early start in electronics, it could not build on this technological advantage. As wages started to rise, skills remained weak. After the Asian financial crisis (AFC) struck in 1997, FDI in Malaysia never recovered and domestic investment slumped as well. Since 2006, Malaysia has been a net exporter of capital, a process many suspect is driven more by capital flight than outward FDI.

Although a net labour importer, Malaysia remains a net skills exporter, with growing numbers of professionals migrating to Singapore and other welcoming industrialised countries. With these developments, Malaysia’s good fortunes have reversed in recent years, both in manufacturing and across the economy.

Like its early post-colonial phase, Malaysia is moving back to processing its agricultural and mineral resources. The only difference now is that the commodities themselves have changed. Rubber and tin have shifted to palm oil and petroleum. Petroleum refining and palm oil processing accounted for almost 19 and 12 per cent of manufacturing output in 2012, respectively — with both of these industries now bigger than electronics.

While developing countries are often encouraged to process agricultural or mineral outputs before exporting to increase their value, Malaysia appears a rare example of an upper-middle-income country — aspiring to high-income status — that is stunting or even reversing its previous successes in manufacturing.

This manufacturing retrenchment has been demonstrated by the overall contraction of this sector’s share of GDP, which fell gradually to 24 per cent in 2008 to remain roughly at that level ever since.

Why should we care about Malaysia’s manufacturing contraction? The main concern about petroleum refining and palm oil processing is that they are capital-intensive and generate few jobs. Despite their importance in overall output, just 14,400 workers are employed in petroleum refining, compared to the nearly 200,000 workers employed in electronics. Furthermore, agro- and petrol-processing industries generate relatively low-productive, low-skilled jobs and so wages are also low. The largest share of manufacturing workers are plant and machine operators who have an average annual salary of around US$4000 when per capita incomes average US$11,000.

Malaysia may be experiencing ‘premature deindustrialisation’, having transitioned to a service led economy before it has fully reaped the benefits of industrialisation. But unlike many other countries with similar experience, Malaysia’s case appears to be driven more by policy than technological disruption, trade or globalisation. There is growing recognition that many of the country’s problems — including the slump in private investment — are rooted in the distortions resulting from the design and implementation of the NEP and its subsequent incarnations. The government-linked corporations spawned to serve racial economic redistribution now crowd-out private investment in most sectors of the economy, including manufacturing.

If Malaysia is to realise its aspirations and enjoy living standards associated with high-income countries, it must arrest this structural regression and revive private investment in manufacturing. But regenerating manufacturing is unlikely without an overhaul of current policies. And while Malaysia may still reach the technical threshold of high-income status in a few years — assuming an economic crisis can be averted till then — this will still mean little to the welfare of workers in manufacturing if it continues its journey backwards.

Jayant Menon is Lead Economist at the Economic Research and Regional Cooperation Department, Asian Development Bank (ADB), and Adjunct Fellow at the Arndt-Corden Department of Economics, the Australian National University.

Thiam Hee Ng is Senior Economist at the Economic Research and Regional Cooperation Department, ADB.

Conclusion

As developed economies have substituted away from manufacturing towards services, so too have developing countries – to an even greater extent. Such sectoral change may be premature for economies that never fully industrialised in the first place. 

The conventional explanation for employment deindustrialisation is based on differential rates of technological progress (Lawrence and Edwards 2013). Typically, manufacturing experiences more rapid productivity growth than the rest of the economy.

As developing countries opened up to global trade, their manufacturing sectors were hit by a double whammy. Those without a strong comparative advantage in manufacturing became net importers of manufacturing, reversing a long process of import-substitution.

In addition, developing countries ‘imported’ deindustrialisation from the advanced countries, because they became exposed to the relative price trends produced in the advanced economies. 

The decline in the relative price of manufacturing in the advanced countries put a squeeze on manufacturing everywhere, including the countries that may not have experienced much technological progress. This account is consistent with the strong reduction in both employment and output shares in developing countries (especially those that do not specialise in manufactures).

In sum, while technological progress is no doubt a large part of the story behind employment deindustrialisation in the advanced countries, trade and globalisation likely played a comparatively bigger role in developing countries.     

Deindustrialisation has been long been a concern in rich nations, where it is associated with the loss of good jobs, rising inequality, and declining innovation capacity. For all these and many other reasons, it should be a much bigger problem for developing countries. 

Premature deindustrialisation has serious consequences, both economic and political.

On the economic front, it reduces the economic growth potential and the possibilities for convergence with income levels of the advanced economies. Formal manufacturing tends to be technologically the most dynamic sector, exhibiting unconditional convergence (Rodrik 2013). Deindustrialisation removes the main channel through which rapid growth has taken place in the past.

The political consequences of premature deindustrialisation are more subtle, but could be even more significant. Mass political parties have traditionally been a by-product of industrialisation. Politics looks very different when urban production is organised largely around informality, a diffuse set of small enterprises and petty services. Common interests among the non-elite are harder to define, political organisation faces greater obstacles, and personalistic or ethnic identities dominate over class solidarity. Elites do not face political actors that can claim to represent the non-elites and make binding commitments on their behalf. Moreover, elites may prefer – and have the ability – to divide and rule, pursuing populism and patronage politics, and playing one set of non-elites against another. Without the discipline and coordination that an organised labour force provides, the bargains between the elite and non-elite needed for democratic transitions and consolidation are less likely to take place. So premature deindustrialisation may make democratisation less likely and more fragile.