KUALA LUMPUR, July 11 — Malaysia is fast losing its appeal as a destination for migrant workers, economists cautioned, even as key sectors in the country were already struggling with manpower shortages due to regulatory obstacles to foreign recruitment.

They warned that refusal or inability to swiftly address the issue would leave Malaysia vulnerable to falling further behind regional rivals in attracting investment, which would then present “painful” consequences.

In the country’s economic boom of the 1990s, Malaysia had been a preferred destination for workers in poorer neighbouring countries seeking better fortunes. This began changing after the Asian Financial Crisis, however, and worsened as others in the region recovered faster.

The development, along with recent policy changes, have left some sectors that were reliant on migrant labour such as the food and beverage industry to struggle in the wake of the Covid-19 pandemic.

“I see two things here. First of all, as our neighbours (Indonesia, Vietnam, Philippines) are growing too — and with markets of a different scale — skilled workers find more opportunity at home than here in Malaysia, and this was already happening before the great lockdown,” Carmelo Ferlito, the chief executive of the Centre for Market Education (CME) and a senior fellow at the Institute for Democracy and Economic Affairs (Ideas), told Malay Mail, referring to the effects on supply chain.

“Secondly, during the past two years, the Malaysian government has worked hard to make the country less attractive for foreigners, with more difficult conditions for hiring foreigners, also the skilled ones. As you know, you now can hire a foreigner (expatriate) in Malaysia only if the offered salary is above RM15,000 per month. If not, you have to go through a painful selection process under government monitoring, and only if it has been proved that a local worker cannot fit the position you are then free to hire a foreigner.”

Under the gazetted Minimum Wage Order (MWO) 2022, Malaysia officially increased the national minimum wage to RM1,500 for all workers — foreign and local — beginning May 1.

Ferlito said that unless the issue is resolved soon, it would force local businesses into some difficult adaptations that would range from altering their business models or shuttering entirely.

Last month, news agency Reuters reported that Malaysian companies from palm oil plantations to semiconductor makers are refusing orders and forgoing billions in sales, dampened by a shortage of over a million workers.

Citing industry groups, businesses and diplomats, the report said that despite Putrajaya lifting its Covid-19 suspension on recruiting foreign workers in February, Malaysia has yet to see a significant return of the said workers owing to slow government approvals and protracted negotiations with Indonesia and Bangladesh over worker protections.

“In a nutshell, the market will work its own way out, but let’s not forget that this pain has been caused by nonsensical policies,” Ferlito said.

“There was no relationship between foreign workers ban and the spread of Covid-19, it has been just a populistic reaction; in fact, the amount of Malaysian workers that took advantage of the jobs left unfilled by foreign workers remained limited.”

When asked why such vacancies were not being taken up by Malaysians, Ferlito said it was because there were other less physically taxing employment open to them.

He said Malaysia’s economy has developed to an extent that local workers need not get employed for unskilled jobs.

“This was a privilege. So, we have on one side a growing number of graduated people; on the other side the idea that indeed they can get jobs outside of the 3D category,” he said, referring to the term used for so-called “dangerous, dirty and difficult” jobs often taken up by migrant workers.

He said that the emergence of the gig economy has also offered very flexible employment opportunities able to give an income, probably comparable to the one provided by unskilled jobs.

“All these factors contribute to keeping Malaysians away from certain jobs. The Malaysian government needs to understand that businesses are risking collapsing if foreign workers are not allowed back in.

“The populistic slogan ‘Malaysians first’ will become very harmful for Malaysians themselves, for those who will have to face the option to close down for good and Malaysians will lose their job.

“I don’t see why we do not simply go back to the old system of allowing foreign workers in. It worked well for decades and it was an emotional and populistic decision to close doors to both skilled and unskilled workers,” Ferlito added.

According to Universiti Malaya’s (UM) Prof Mohd Nazari Ismail, the best method to address the problem is to simply allow foreign workers in to keep the nation’s economy moving.

“If we don’t allow foreign workers to come in, then the cost of operations will go up and Malaysia will not be an attractive location for manufacturers,” he said.

“Sooner or later, manufacturers will relocate to other low-cost locations such as Indonesia or Vietnam. This is what happened in Europe,” the international business expert said, adding that manufacturers relocated from high-cost locations such as the United Kingdom (UK) to Poland and other east European countries when they found they cannot be competitive if they continued their operations in the UK.

“For Malaysian workers, we should try to ensure their skill levels are high so that they can undertake the jobs that require higher skills,” he added.