Malaysia faces human resource challenges

This year the Malaysian economy is again capable of exceeding the government's and analysts's expectations. Early this year government officials predicted that the economy would grow by around 8.2 percent in 1994, while most analysts projected an 8.1 percent rate of growth.

Approaching the end of this year, however, all indicators point to a higher rate of growth, supported by the strength of its exports and buoyant domestic demand. The most recent Pacific Economic Cooperation Council (PECC) report forecasts an 8.6 percent real growth rate for Malaysia's GDP/GNP, to be followed by a bit slower growth of 8.3 percent next year.

As one of the strongest economies in Southeast Asia, and second only to China as the fastest growing economy of the APEC countries, Malaysia now faces the challenging job of meeting the new qualitative demands imposed on its human resources. According to the PECC report, these are the results of its transformation from a commodity to a manufacturing-based economy and the competition from neighboring countries with lower labor costs.

The agriculture and mining sectors' share of total employment dropped from almost 60 percent in 1960 to 26 percent in 1992, while the share of manufacturing rose from 6.4 percent to 20 percent in the same period. With a relatively small population of around 19.4 million, the high economic growth and rapid industrialization impose strains on its labor force.

Malaysia's labor force is forecasted to be around 7.8 million this year, with 2.8 percent unemployed and 7.6 million in employment. The labor force is projected to grow by 2.9 percent annually and will reach 9.4 million by the year 2000.

Between 1982 and 1990, the wage bill per employee rose an annual average rate of 5.1 percent in manufacturing, 4.7 percent in construction and 11.0 percent in mining.

High economic growth rates, averaging 9 percent annually in the 1988 to 1992 period, 8.5 percent in 1993 and a forecasted 8.6 percent this year, have increased labor demand and reduced unemployment to full employment levels. This development is reflected in the inflow of foreign workers, as well as labor and skill shortages, and wage pressures.

Foreign workers fill the vacuum in the low wage plantation and construction sectors as Malaysians take better jobs in manufacturing. In mid-1992, a total of 444,000 foreign workers were registered in Peninsular Malaysia. The East Malaysia state of Sabah is reported to have another 300,000 to 400,000, bringing the total figure for the country as a whole to at least 750,000 foreign workers.

The labor shortages, which first emerged in the plantations in the late 1970s, have become more pervasive. Foreign labor has eased the shortage of unskilled workers, however, shortages of skilled personnel, particularly engineers and technicians, remains a serious problem. This is especially so in manufacturing, which is leading in employment growth.

While the temporary use of foreigners can help overcome labor shortages in labor-intensive industries and keep labor costs low to maintain Malaysia's international competitiveness, in the long run, its presence may impede economic restructuring from lower- skilled, labor-intensive to higher-skilled, higher value-added operations.

The government has come to realize that Malaysia cannot compete for foreign investment on the basis of labor costs alone. The quality of human resources must be upgraded to maintain the country's competitiveness.

In this respect, there are two major challenges. One is the need for wider and better quality mass education to reduce "educational wastage" and to optimize manpower. The other is the need for more relevant and responsive vocational education and training, both full-time within institutions and on-the-job.

The recently established Human Resource Development Fund, to which all firms with more than 50 workers are obliged to contribute, will be a major force encouraging training and skill upgrading in the years ahead.

At the same time, the outflow of Malaysians abroad is also large. An estimated 100,000 Malaysians are working in Singapore, with a further 24,000 crossing the causeway daily. Some 4,500 Malaysians worked in Japan in 1990 and 5,000 in Chinese Taipei in 1991. Published statistics indicate that a total of at least 40,000 Malaysians or an average of 5,000 per year migrated to Australia, New Zealand, Canada and the United States between 1983 and 1990. In 1991, over 56,000 Malaysians were studying abroad; up to 10 percent of them may stay on.

There are, however, more Malaysians returning from abroad now as the country experiences another economic boom in the 1990s. Several hundred semi-skilled Malaysians returned from Singapore when the foreign worker levy was raised in August 1990. And about 11,000 Malaysian were deported from Chinese Taipei in the 1990- 1991 period. Although no figures have reported, Malaysians also appear to be returning from many Western industrialized economies, which are in the economic doldrums in contrast to the more dynamic conditions in Malaysia and the Asia-Pacific region. (rlt)