[PEN-L:30042] labor economics

["Ian Murray" <seamus2001@xxxxxxxxx>]

http://www.feer.com
Wanted: More Workers
By S. Jayasankaran/KUALA LUMPUR

TONY NATHAN used to produce 130,000 bricks a day in his factory on the outskirts
of Kuala Lumpur. Now output is down by more than half and the Malaysian
businessman is anxious on two counts. "I don't have enough staff for one thing,"
he says glumly. "But my orders come from construction sites anyway, and a lot of
that's stalled for lack of labour."

Thirty kilometres south of Kuala Lumpur is Putrajaya, site of the
multibillion-ringgit new federal capital emerging amid secondary forest and
verdant plantations. But, according to several engineers working on the site,
40% of workers have vanished and progress has slowed to a crawl despite Kuala
Lumpur deeming it a priority, "fast-track" project.

More than 400,000 migrants, mostly Indonesians, were deported voluntarily from
Malaysia ahead of tough new immigration laws that took effect on August 1. After
that deadline, the law prescribes caning and jail for illegal immigrants.

The law has severely affected Malaysia's construction industry, and no wonder:
According to government estimates, Indonesian workers--80% of whom are
illegal--represent 70% of the sector's workforce. Kuala Lumpur relaxed its
restrictions on August 14 to allow hiring of new Indonesian workers for
construction and manufacturing. That is cold comfort to contractors like the
ethnic-Chinese builder of a transit-system tunnel in Putrajaya. "I used to have
150 workers, and now it's down to 30," he says. "My project will surely be
delayed. But who's going to absorb the costs?"

The vacuum left by departing foreign workers and the subsequent outcry of
suddenly short-staffed contractors illustrate the Malaysian economy's massive
dependence on illegal labour. The impact was especially great given the fact
that Kuala Lumpur had centred its pump-priming efforts to stimulate the economy
this year on the construction sector.

The government may not have anticipated the impact, and it also may not have
factored in diplomatic tensions with both Indonesia and the Philippines over
Kuala Lumpur's alleged mistreatment of deportees.

Malaysia's geographic sources of foreign help broadly encompass many of the
region's most-troubled economies, from Bangladesh and Vietnam to Burma and the
Philippines. Indeed, the country is second only to Singapore in terms of
reliance on foreign labour from the region.

In Singapore, one resident in every four is foreign while the likely figure in
Malaysia is one in every 11. But there are crucial differences. Singapore's
labour market is tightly regulated and more than 50% of foreign help is highly
skilled. Malaysia's system, meanwhile, is porous and stories abound of
corruption at various levels of government, impeding effective regulation of
imported labour.

The unskilled nature of Malaysia's foreign workers contributes to the problem
because employers are less likely to muddle through a bureaucratic morass to
register low-paid employees. According to the Malaysian Institute of Economic
Research, an independent think-tank, only 750,000 out of an estimated 2 million
foreigners working in the country are legally registered.

The crackdown revealed the extent of illegal migrant involvement in Malaysia's
economy. From stalled construction sites to whole plantations falling idle in
Malaysia's eastern Sabah state, the foreigners were missed.

Construction has contributed about 4%, or at least 7.5 billion ringgit (almost
$2 billion), to annual GDP over the past two years. This year, with government
spending hitting full throttle, it was expected to contribute more. Now ABN Amro
says that a month-long slowdown could slice as much as half a percentage point
off third-quarter GDP growth, which it has forecast to be 6%. Given that local
contractors think it will take at least three months before their businesses are
back on track, the impact could be worse.

In addition, a foreign-labour shortage has knock-on effects on materials supply
(witness businessman Nathan's brick-production woes) and domestic consumer
consumption (hawker stalls and cheap night markets are frequented by imported
labourers). Cliff Tan, director of Asian economics at Citigroup in Singapore
says, "I fail to understand the economic rationale of the crackdown." He does,
however, believe that the restrictions may resonate with ordinary Malaysians.

Prime Minister Mahathir Mohamad, for one, has never liked the business sector's
fondness for cheap labour. Once during a 1996 closed-door seminar with segments
of Kuala Lumpur's business elite, an ethnic-Chinese entrepreneur asked if the
government would relax its requirements on imported help. Kuala Lumpur's economy
was booming then, but Mahathir said no.

The Asian financial crisis of 1997 saw scores of construction projects halted
and thousands of foreign workers laid off. Most simply went underground and
became "illegal."

Meanwhile, the economic carnage in Indonesia saw a renewed flood of migrants
crossing over to Malaysia--in boats and at great risk to themselves. The surge
in numbers provoked xenophobia among many Malaysians who began blaming violent
crimes on "foreigners." (Statistically, it isn't clear if the number of crimes
committed by non-Malaysians is significant.)

In any case, the migrant flood grew so great that in 1999 the government
proposed harsh new laws--including canings and jail--for both illegal workers
and their employers. Singapore provides for similar penalities, but the
Malaysian government didn't follow through to see that the harsh penalities were
pushed through the legislature.

After the September 11 attacks in the United States, Malaysia seemed to ramp up
its efforts to flush out illegals in the wake of new economic problems and fears
of terrorism from neighbouring countries. But what seemed to finally harden
Kuala Lumpur was an incident in January when 500 Indonesian workers ran amok
after police tried to detain 16 of their co-workers for suspected drug abuse.

In June, parliament passed the new immigration laws and in July, Kuala Lumpur
declared a one-month amnesty for illegals to voluntarily surrender for
deportation. Given the potential consequences, thousands did. Indonesia
co-operated by sending three warships to bring its citizens home.

The current crackdown has police and immigration officials arresting anyone
without the necessary papers. More than 400 migrants have been charged and could
be flogged. In Indonesia, lawmaker Amien Rais calls the penalities "inhumane." A
mob broke down the gates of the Malaysian embassy in Jakarta during a protest on
August 26. Angry over allegations that some Filipino migrants may have died in
Malaysian custody, Philippine lawmakers have raised the spectre of re-invoking
Manila's old claim to Malaysia's Sabah state--a claim the Philippines put on
indefinite hold a decade ago.

Malaysian diplomats say privately, however, that the spats will ultimately be
defused. But how will Malaysia's labour policy affect the economy going forward?
Kuala Lumpur's businessmen always liked foreign labour because it was relatively
cheap.

Now the Master Builders Association has proposed the setting-up of an employment
exchange where foreign labour can be hired for short spells. The government has
agreed to the proposal in principle. And in the longer term, the proposal,
coupled with stricter immigration laws, would mean the "evolution of a more
orderly labour market," says Cheang Yee Lim, an analyst with ABN Amro in
Singapore.

So far the new, harsher laws seem to be carrying the day. Malaysia said that
only 11 illegal immigrants had been caught trying to enter Malaysia from
Indonesia during August. Normally, said officials, the number is in the
hundreds. That might make ordinary Malaysians happy. Now, if only more them
wanted to work for the construction industry.