Monday, August 31, 2009

Malaysia’s New Labor Rules Hurt Business

KUALA LUMPUR — It is lunchtime at the Wangsa Ukay restaurant in suburban Kuala Lumpur, and regulars are coming in for local favorites like roti canai, chicken curry and tea tarik, the sweet, milky drink that is ubiquitous across Malaysia.

The owner, Muneandy Nalepan, has time to stop and talk for now, but when peak times hit on weekends, he and his wife must pitch in to help clear tables.

He used to have a staff of 120 — almost all foreigners — working in his five restaurants across the city. But after the government made it more difficult for businesses to hire workers from abroad, he is down to 80 because he has been unable to replace the 40 employees who had to return home after the maximum work period of five years.

Unable to find Malaysians willing to work as cooks, waiters or dishwashers, he is awaiting approval to employ more foreigners. But if he cannot get more workers soon, he says, he may close one of his outlets. Mr. Muneandy, an 18-year veteran of the industry, is even considering other business ventures.

“To run a restaurant, it’s becoming impossible,” he said.

It is not just restaurateurs complaining. Many business owners, from furniture producers to rubber glove manufacturers, say a labor shortage is harming productivity.

In January, Malaysia banned the hiring of new foreign workers in the manufacturing and service sectors after a government report predicted that 45,000 people could be laid off during the Lunar New Year at the end of that month, the New Straits Times reported.

“There is no valid reason to bring in foreign workers at this time,” Home Minister Syed Hamid Albar told the paper.

The ban was backed by labor groups. The Malaysian Trades Union Congress proposed a freeze on the recruitment of foreign workers last October.

“Because of the global economic downturn, we were worried about the impact on jobs for Malaysians as well as foreigners,” said Raja Sekaran Govindasamy, the group’s secretary general. “We don’t want workers to be brought in and abandoned, because that then causes hardship.”

In 2008, there were an estimated 2.2 million foreigners — mostly from Indonesia, Bangladesh, Nepal, India, Myanmar and Vietnam — working legally in Malaysia, a nation of 28 million. Some reports suggest the country was home to another one million illegal workers. By March this year, the number of foreigners with work permits had fallen to 1.9 million, according to Shamsuddin Bardan, executive director of the Malaysian Federation of Employers.

“About 300,000 permits were not renewed, and people were sent back,” he said.

Malaysia recorded 31,392 layoffs from January through July, and the country’s unemployment rate rose to 4 percent in the first quarter of this year, the latest period for which figures are available. That was up from 3.1 percent in the fourth quarter of last year.

Closing the doors to foreign workers is hardly a uniquely Malaysian response to the global economic downturn. Taiwan, South Korea and Australia also announced plans this year to reduce the number of new foreign worker visas, according to the International Labor Organization.

But in Malaysia, the cutbacks are not simply a result of the economic crisis. The government has said it wants to reduce the number of foreign workers to 1.5 million by 2015. Some believe weaning the country off its dependency on foreign workers is crucial to increasing local wages.

The average monthly wage in the manufacturing sector has risen to between 650 and 700 ringgit, or $185 to $200, in the past three months, up from 450 ringgit, the national news agency Bernama reported in August.

Mr. Raja said foreign workers often accepted lower wages than Malaysians. The country has no minimum wage. Typically, foreigners are brought in by a business offering a job, he said, or by an outsourcing company that promises them work.

Mr. Shamsuddin said that companies could still apply to recruit foreigners but that the process had become more difficult.

For example, he said that since April 1, employers have had to advertise vacancies locally for two months, up from one month, before they could apply to recruit foreigners. And employers must now pay an annual levy — as much as 1,800 ringgit — for any new foreigners they employ, he said; the fee used to be paid by workers. Mr. Shamsuddin said the government had abandoned plans to double the levy after the federation complained.

Dominant Semiconductor, a light bulb manufacturer with factories in Malaysia and China, is struggling to fill about 1,000 vacancies. Its chairman, Goh Nan Kioh, said the company was allowed to employ one foreigner for every local worker but could not find enough Malaysians to help increase its total work force. If the labor shortage continued, he said, the company might consider moving more of its labor-intensive operations to China.

The rubber glove industry is also struggling to find enough workers to fill orders, which have surged with the spread of swine flu.

“It’s a pity that right now when we are facing a big jump in demand, we are not getting enough workers,” said K.M. Lee, managing director of Top Glove and president of the Malaysian Rubber Glove Manufacturers’ Association.

The employers interviewed said they were trying to reduce their dependency on foreign workers by exploring ways to automate and to increase pay to attract locals. However, they say that foreign workers remain crucial for now because they cannot find enough locals willing to take what some call the “three D jobs” — dangerous, difficult and dirty.

“If you are going to get a Malaysian to come to work, it’s very difficult,” said Mr. Muneandy, the restaurant owner. “They feel that by working in a restaurant, their pride is in question. They feel that Malaysians have already come to a stage where they are above certain other Asian countries.”

Mohamed Ariff, executive director of the Malaysian Institute of Economic Research, blames the country’s dependence on foreign labor on the decision to “open the flood gates” to migrant workers in the late 1980s, first in the plantation sector, then in manufacturing.

Mr. Ariff said that in the early 1990s, when wages in the manufacturing sector were rising, factories had considered introducing labor-saving technology but that many had shelved those plans when the government let them employ more foreign workers.

“The technology transfer suffered enormously,” he said. “Malaysia was trapped into an unskilled, labor-intensive economy.”

Malaysia should give up its labor-intensive operations to countries with lower wages, like China, he said, and concentrate on more highly skilled work like research and development, financial and health care services.

Some workers’ rights groups, though, are concerned that new restrictions on foreign laborers may result in more people migrating to countries before they obtain a valid work permit. That can leave them more vulnerable to exploitation, the International Labor Organization said.

Figures released by the government last week showed that the economy had emerged from recession in the second quarter. Mr. Raja, the labor leader, said that although job losses were easing, the unions believed the freeze on foreign workers should continue. If there is a need for more workers in the coming months, he said, companies should be able to extend the visas of foreign workers already in the country.

Sunil Nemdang, a 21-year-old Nepalese man, came to Malaysia in May on the belief that an agent had a job for him. He was given a work permit and told that he would work as a security guard. However, when he arrived, there was no job.

With the agent still holding his passport, Mr. Sunil is sleeping on the floor of a Nepalese restaurant alongside his three cousins, who made the trip with him, while he tries to get his documents back.

Despite the harsh introduction to life in Malaysia, he has not given up on his dream of earning money to send home to his parents, poor farmers living in a village in eastern Nepal. “If I get a good job, I want to work here for two or three years,” he said.

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