Navigating Policy Challenges in Malaysia’s Construction Sector: The Governmental Dilemma on the Issue of Foreign Labour Shortage in Malaysia

Navigating Policy Challenges in Malaysia’s Construction Sector: The Governmental Dilemma on the Issue of Foreign Labour Shortage in Malaysia

Mohd Nasir Saari^1*, Dr. Md Shukri Shuib², Dr. Mohd Na’eim bin Ajis²

¹Centre of Excellence for Engineering and Technology (CREaTE), Public Works Department Malaysia (PWD), MALAYSIA.ORCID

²College of Law, Government and International Studies, Universiti Utara Malaysia, MALAYSIA

*Corresponding Author

DOI: https://dx.doi.org/10.47772/IJRISS.2024.8100213

Received: 03 October 2024; Accepted: 14 October 2024; Published: 16 November 2024

ABSTRACT

Malaysian economic development has attracted numerous foreign labourers due to insufficient labour in various sectors, including construction, manufacturing, and plantation. The inflow of more foreign workers into Malaysia has caused a fluctuation in governmental policies towards the decision to employ foreigners. The current study investigated the issues emerging in governmental decisions and policies regarding the foreign labour shortage in Malaysia using qualitative methodology. The government allowed foreign workers to switch employers to fulfil labour needs following local workers’ disinterest in specific jobs and labour shortages. The issues persist, as the construction sector is required to compete with the agricultural and plantation sectors for foreign workers. Resultantly, inter-ministry cooperation between the Ministry of Home Affairs (KDN) and the Ministry of Human Resources (KESUMA) was proposed to benefit national development while controlling the negative impact on the country. The findings contributed to understanding the current issues of foreign labour shortage in Malaysia.

Keywords: construction sector; strategic management; foreign labour; governmental policies; Malaysia.

INTRODUCTION

The success of Malaysia in adopting an open economy has led the country to attract more foreign investors, which allows the national economy to grow with a higher workforce demand in terms of professionals, semi-professionals, skilled workers, semi-skilled workers, and general labourers. Multiple issues also emerge from the rapid development of the country, especially the inadequate labour force in the construction sector (Sukimi & Sarifin, 2014). Hence, the inadequacy provides job opportunities for foreign labourers to emigrate to Malaysia (Zaki & Ajis, 2022) and fill vacancies legally or illegally (Jordaan, 2018). Most foreign workforce is from neighbouring countries, including Indonesia, Thailand, Myanmar, the Philippines, and Bangladesh (Abidin, 2021).

Current Scenario

The construction sector is an industry that could significantly enhance the national economic progress, although relevant construction activities are highly dependent on a sufficient workforce. The lack of local labour also influences the situation, resulting in the need to rely more on the foreign workforce (Hamzah & David, 2018), which becomes contractors’ primary choice. Employers’ preference to employ foreign workers also increases the unemployment percentage among citizens and the outflow rate of the national currency owing to the repatriation of salaries by foreign workers (Anderson, 2020).

Furthermore, the influx of foreign workers generates a negative multilingual impact, wherein employers need help to effectively deliver work instructions and encounter challenges in implementing security due to language barriers (Keling et al., 2010). Communication barriers engender incredible difficulty for foreign workers to thoroughly comprehend safe work instructions and safety regulations while interpreting safety signal signs until an accident occurs (Saleha et al., 2015).

The foreign labour concept is defined as the weekly number of individuals aged 16 and above who are not institutionalised and either currently employed or unemployed (Bellante & Jackson, 1989). Mohd Isa et al. (1999) elucidated several selection criteria when employers recruit foreign workers:

1. Low salary or wages (Othman & Idris, 2015)
2. Competency and skill (Ang et al., 2018)
3. Hardworking and diligent
4. Sufficient discipline
5. Available to work overtime
6. Effectively follow instructions
7. Possess legal citizenship
8. Able to communicate
9. Lack of social issues
10. Age and gender factors (Isa et al., 1999)

Despite negative perceptions regarding the impact of foreign workers’ arrival and influx and the emergence of various social issues, Faizah Zainal Abidin (2021) explained that the governmental decision to allow more foreign labour could reduce project issues caused by the decline of local workers. Foreign workers are essential to overall economic growth. Full employment is also not achieved following the definitions of labour and labour consumption in the Malaysian construction sector despite the annual increase in the labour force, which results in Malaysia requiring more labourers for national development. While foreign workers contribute to the development of the construction industry and other sectors (Abidin, 2021), the influx of foreign workers engenders a fluctuation in governmental policies regarding the foreign labour force.

Foreign Labour Issues

The number of foreign workers in Malaysia was 1,149,608 when the government restricted the recruitment of foreign workers in 2022. The Ministry of Human Resources (KESUMA) manages foreign energy participation across formal and informal sectors and provides a breakdown of the total participation in different economic sectors:

Manufacturing Sector              – 408,037 foreign workers (36.01%)

Construction Sector                – 257,672 foreign workers (22.74%)

Plantation Sector                     – 131,135 foreign workers (11.57%)

Servicing Sector                     – 160,920 foreign workers (14.20%)

Agricultural Sector                 – 95,531 foreign workers (8.43%)

Mining and Quarrying Sector       – 92 foreign workers (0.01%)

The breakdown demonstrates a total of 400,000 foreign workers recruited to the country to fill job vacancies in the five main sectors, namely construction, manufacturing, services, plantation, and agriculture, which require a constant influx of foreign workers. The KESUMA approved a quota of 1.136 million workers for all sectors in June 2023. The Rekalibrasi 2.0 program implemented by the Ministry of Home Affairs (KDN) involved 680,000 employees, which accounted for a total of 1.8 million employees in Malaysia (Ismail, 2023).

The maximum number of foreign workers should be at most 2.4 million by 2025, which is the governmental target for the number of foreign workers in the country. The projected number was 301,000 workers and an influx of 220,230 for the construction sector, whereas the agricultural sector was projected at 90,000 workers with 53,638 admissions. The plantation sector was projected at 57,000 foreign workers and an influx of 52,123 foreigners, while the servicing sector was projected at 20,000 individuals with 142,204 admissions (Amri, 2023). Three major sectors, namely manufacturing, construction, and plantation, would be significantly and negatively impacted by labour restrictions. The effortless recruitment of foreign workers before the coronavirus disease (COVID-19) pandemic is also a challenge for employers in the manufacturing sector to adopt extensive automation. Malaysia risks becoming incapable of producing low-cost products compared to Indonesia and Vietnam, which have larger populations.

The construction and plantation sectors are expected to recruit many foreign workers, apart from the manufacturing sector, which requires 600,000 foreign workers. The construction sector remains experiencing workforce shortage, negatively impacting the project completion timeline. The government requires foreign workers to mobilise the economic sector and develop the country. Nevertheless, the massive influx of foreign workers creates apprehension of more social issues in the future, which indicates a state of divisiveness in the government regarding foreign labour policies. The KESUMA acknowledged the high inflow of foreign workers on October 19, 2023, with the number increasing to 2.7 million individuals and exceeding the forecasted number. In October 2023, Deputy KESUMA, Mustapha Sakmud, and the projections of the Ministry of Economy (MoE) stated that only 2.4 million foreign workers were allowed in the country:

“Our projection is 2.4 million, but with the Foreign Workers’ Employment Relaxation Plan, 2.7 million foreign workers are physically in Malaysia. This exceeds the set projections, so we will make sure that only 15% of foreign workers are in the country compared to the entire workforce (Arifin, 2023).”

The construction sector struggles to recover from the negative impact of the COVID-19 pandemic, namely the shortage of approximately 500,000 labourers when foreign workers who left Malaysia during the pandemic did not return. The situation was exacerbated by the actions of certain foreign workers in Malaysia switching to the oil palm plantation sector for higher wages. The scenario was also explicated by the Senior Minister of Works, Datuk Seri Fadillah Yusof, on the price increase in fresh fruit bunches (FFB), which negatively impacted the workforce in the construction sector (Manzor, 2022):

“There are currently no additional foreign workers for the construction sector. We are short of about 40% of the workforce at the moment. Foreign workers in Malaysia are ‘demanding’ wages. They get more (payment) in the oil palm plantation sector. The payment in the construction sector is about RM120 per day, while the oil palm plantation sector may be RM150 per day. The construction sector is facing rising construction costs and the issue of workers. Any construction site suffers from it. Tomorrow, palm prices are down. They are ‘jumping’ into other sectors. This situation is very disruptive to the industry (Manzor, 2022).”

Inconsistent Governmental Decisions

The government endeavours to balance developmental needs and internal pressure to resolve the negative impacts of the influx of foreign workers into Malaysia. However, as observed through the current policies, the government hesitates to continue or halt recruitment.

The Decision to Allow Foreign Workers to Switch Employers

On 16 January 2024, the government allowed foreign workers to switch employers to fulfil the labour needs of the plantation and agricultural sectors with labour shortages. The decision was made after the KDN Joint Committee and the KESUMA meeting on managing foreign workers. Employment sector exchanges allowed workers to work in other industries when a specific sector comprised an adequate workforce. The decision was challenging for the construction sector due to labour shortage. Nonetheless, the decision could protect the national image from being associated with the issue of forced labour when the government decided to repatriate foreign workers to their respective home countries. The decision was made to resolve the issue of specific companies and agencies recruiting foreign workers to Malaysia but not providing actual employment or sufficient jobs. The KDN Minister, Datuk Seri Saifuddin Nasution Ismail, stated as follows:

“That is the method we will use since the option for repatriation can’t because it goes into the category of forced labour. That is going to affect our ratings. The employer has brought in, and frankly, he cannot provide a job, so we allow the change of employer to involve the employee (Noor, 2024).”

Heng Choon, who was the President of the Property and Housing Developers Association of Malaysia (REHDA), delineated on 25 October 2021 that the labour vacancies experienced by the construction sector might negatively impact project completion within the stipulated timeline:

“There are projects that should be completed in five months, for example, but now have to take up to seven months due to a lack of workers, so there is no efficiency, and costs are also going up (Fadhlullah, 2021).”

The foreign worker policies implemented by the Malaysian government are dynamic but fluctuating. Foreign workers could be employed in the manufacturing, construction, plantation, agricultural, servicing, and domestic assistance sectors.

Current Foreign Labour Employment Policies

1. Employment is prioritised for local citizens. Employers must inform the Department of Labour (JTK) and the KESUMA of job vacancies in advance to enable local job seekers registered with Jobs Malaysia to fill the vacancies before recruiting foreign labourers.
2. Only six employment sectors, namely construction, manufacturing, servicing, plantation, agricultural, mining, and quarrying, are allowed to hire foreign workers.
3. A total of 15 source countries, including Indonesia, Nepal, Myanmar, India, Vietnam, the Philippines (males only), Pakistan, Thailand, Cambodia, Sri Lanka, Lao PDR, Turkmenistan, Uzbekistan, and Kazakhstan, are allowed to supply foreign workers to Malaysia.
4. The allowable age limit for foreign workers is between 18 (minimum) and 45 (maximum) years old, which refers to the age at which they first enter Malaysia.
5. The allowable employment period is ten years, with an additional three for the six formal sectors.
6. A complete foreign hiring application should be submitted to the KESUMA for consideration based on the conditions and criteria stipulated by the Regulatory Agency. Nevertheless, the employment priority remains for local citizens. The current employment policy is a temporary measure to fulfil industrial workforce requirements. ( https://jtksm.mohr.gov.my/en/services/foreign-workers-employment )

The government has stipulated that not all foreign citizens can be employed in Malaysia. Only citizens from the following countries are allowed to work in selected sectors:

Table 1: Approved Sector by the Department of Labour Peninsular Malaysia

“The government has also determined that each approval is based on the merits of each case and subject to the conditions to be set from time to time. Applications to employ foreign workers will only be considered when efforts to find local citizens and qualified permanent residents have failed. All applications for foreign workers must be submitted to the One Stop Centre, Ministry of Home Affairs, except for applications for foreign maids who must be submitted to the Immigration Department of Malaysia (https://www.mida.gov.my/setting-up-content/employment-of-workers)”

The government stipulates the annual levy payment rate on foreign workers as follows:

Table 2: An annual levy on foreign workers

According to the Construction Development Board (CIDB) construction personnel registration statistics, 93% of foreign workers in the construction sector are unskilled, while local workers account for 16%. The 2016 statistics demonstrated seven million foreign workers in Malaysia (https://www.mida.gov.my/setting-up-content/employment-of-workers). The construction sector in Malaysia is growing, and there is a workforce shortage due to an insufficient local workforce (The unskilled foreign workforce fills the burgeoning construction industry, Bernama 2022). One million six hundred six thousand seven hundred twenty-four foreign worker quota applications were received in 2022, with 676,070 approved applications that included 635,234 paid levies. The number applying for a visa with reference (VDR) was 463,255, and the approved number was 452,963 among the quotas with completed levy payments (Ismail, 2023). The shortage level of foreign workers is significant. The government was urged to allow the entry of more foreign workers in the construction and agriculture sectors on 25 October 2021, owing to the high dependence on foreign workers at 70% (Fadhlullah, 2021). The issue arose from the COVID-19 pandemic. The government formed a Special Committee on the COVID-19 pandemic management, which stipulated standard operating procedures (SOPs) to enter foreign workers to fulfil the needs of the plantation and construction sectors presented by the KESUMA.

The impact of the COVID-19 Pandemic Special Management SOP led to significant alterations in the construction sector, which influenced relevant firms and the government to attract more foreign workers for the construction sector. The government also justified the action with the former Prime Minister, Datuk Seri Ismail Sabri Yaakob, who announced that the enforcement of the COVID-19 Pandemic Special Management SOP on all designated and approved foreign labourers on a case-by-case basis by the Foreign Workers Committee chaired by the KDN Minister, Datuk Seri Hamzah Zainudin and the KESUMA Minister Datuk Seri M. Saravanan (Adnan, 2021). The major sectors, particularly construction, plantation, and agriculture, continued experiencing labour shortages despite the large influx of foreign workers:

“The problem of labour shortages needs to be resolved immediately, as it is feared that the economy is not able to grow properly when more than 700,000 foreign workers have returned to their respective countries during the COVID-19 pandemic (The influx of 500,0000 foreign workers for the sector is not of interest to the locals, Bernama 2023.).”

The Agricultural or Farming Sector’s Competition with the Construction Sector

According to Datuk Mazlan Aliman (2021), the Chairman of the Johor State Farmers’ Organisation, the need for foreign workers in the farming sector is highly challenging following the impact on the agricultural sector. The dependence of foreign workers in the agricultural sector, especially traditional agriculture, is at approximately 70%. The influx of foreign workers over the years has also contributed to agricultural activities, especially crops utilising manual methods (Aziz & Saad, 2022):

“We must admit that it is not easy to get local workers, so leeway to the agricultural sector for foreign workers is needed. For the manually made agricultural sector, such as vegetables, many places still use traditional methods that foreign workers strongly dominate compared to locals, especially young people (Fadlullah, 2021).”

The Reasons for Not Employing Local Workers in the Construction and Agricultural Sectors

The government encounters a dilemma with many foreign workers, which negatively influences local workers’ job opportunities. The government has been urged to develop proper foreign labour recruitment plans at the optimum level without being detrimental to local opportunities. The construction sector requires more foreign workers and experiences a shortage of workers. The projected need for foreign workers in the construction sector by the Regulatory Agency is 301,000 individuals during the implementation of the Foreign Workers Employment Relaxation Plan. Comparatively, the number recruited in October 2023 was only 222,230 individuals, demonstrating a shortage of 78,770 foreign workers to fulfil the needs of the construction sector while competing with the agricultural and plantation sectors (Arifin, 2023).

Local workers are less involved in the Malaysian construction and agricultural sectors. Various factors encompass local workers’ disinterest in the unhygienic, hazardous, and challenging aspects of the sectors, which leads to both sectors being dominated by foreign workers at 70%. Datuk Soam Heng Choon, who is the President of the Property and Housing Developers Association of Malaysia (REHDA), stated on 25 October 2021 that the construction sector requires foreign labourers, as local workers were not interested in job vacancies:

“The REHDA is open to local workers, but no one wants to work anymore. If there is any, it only lasted a week or two before escaping (Adnan, 2021).”

The government allowed for the switching to other sectors from the construction sector before the announcement in January 2024. The switching reduced the construction workforce by 40%, with most vacancies originating from previously employed foreign workers. The REHDA President Datuk Soam Heng Choon stated on 25 October, 2021:

“We disagree that foreign workers replace the job vacancies that the locals can create, but the jobs categorised as 3D (dirty, dangerous, and complex) are not allowed to do so. Some say that due to the low salary, but the daily salary in construction is at least RM50 to RM80 per day, it is possible to get RM1,500 up to RM2,000 more per month (Adnan, 2021).

The governmental decision to recruit 500,000 foreign workers to Malaysia in 2024 would not impact local citizens’ employment opportunities. The KESUMA Minister V. Sivakumar explained that foreign workers from 15 Asian source countries are based on the demand of each sector and owing to local workers’ disinterest, especially in the construction, plantation, and agricultural sectors:

“We find it difficult to get local workers to work in these sectors. Our reliance on foreign workers in this sector is very high, and not being able to ‘supply’ adequate supply will optimally disrupt the operation of these sectors and result in significant losses to the agencies (The influx of 500,0000 foreign workers for the sector is not of interest to the locals, Bernama,2023).”.

CONCLUSION

The foreign labour shortage is an issue of internal needs and insistence on the Malaysian government (Mohamad, 2023), which leads to the proposed inter-ministry cooperation with the KDN as the primary realignment operator for the management functions of foreign workers. The KESUMA remains instrumental in complying with the existing labour policies, determining quota eligibility, and finalising cooperation with the source countries. It also manages the process of identifying the source countries. Subsequently, the KESUMA agrees with the source country to recruit foreign workers. The required quota in each industry is determined and decided by the Cabinet (Ismail, 2023). The approach could effectively fulfil national developmental requirements while mitigating the negative impact of recruiting foreign labourers.

ACKNOWLEDGEMENT

We thank all entities for contributing to this paper’s writing and publication. Special thanks to the Centre of Excellent for Engineering and Technology (CREaTE), Public Works Department Malaysia, and Universiti Utara Malaysia (UUM) for their idea generation and documentation input.

Conflict of Interest

On behalf of all authors, the corresponding author states that there is no conflict of interest.

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