- Indonesia has temporarily stopped sending its citizens to work in Malaysia.
- This is because Malaysia continues to use the MOS system for recruitment.
- This is negative for Malaysia and, in particular, the palm oil industry, which is heavily reliant on Indonesian workers to ease the labour shortage issue.
- Malaysia palm oil output will be below forecast in 2H22F if this issue is not resolved. Negative for Malaysian planters and market due to earnings risks.
Why Indonesia imposed temporary freeze on workers to Malaysia
Indonesia said on 13 Jul that it has temporarily stopped sending its citizens to work in Malaysia, citing a breach in the worker recruitment deal signed between the two countries on 1 Apr 2022. Indonesia’s Ambassador to Malaysia Hermono said the freeze was imposed after Malaysia’s immigration authorities continued using the Maid Online System (MOS) for recruiting domestic workers, instead of the One Channel System (OCS), as agreed upon under the Memorandum of Understanding (MOU) between both countries on the placement and protection of Indonesian maids. Indonesia opposed the use of MOS — which allowed Indonesian workers to enter the country using a tourist visa before applying for a work permit — due to the risk of forced labour. Malaysian companies have submitted around 20,000 applications for workers, about half of which were for jobs in the plantation and manufacturing sectors, according to Hermono.
Different views on the recruitment system for domestic workers
Malaysia’s Human Resources Minister Datuk Seri M Saravanan confirmed receiving a letter from Indonesian authorities informing him of the freeze. He said he would discuss the matter with the Ministry of Home Affairs, which oversees the Immigration Department. Malaysia’s home minister Datuk Hamzah Zainudin has played down Indonesia’s decision to temporarily freeze sending its citizens to work in Malaysia, saying the country can recruit foreign workers from other countries, including Bangladesh. Hamzah said his ministry was serious about making sure that migrant workers entered Malaysia legally. He also said that the usage of the MOS to recruit domestic workers was not only for Indonesia but for 15
other source countries as well. He added that the MOS was used to ensure that migrants who wanted to work and live in Malaysia had proper documents.
Negative as this freeze will delay intake of foreign workers
This is negative for the market as the temporary freeze measure by Indonesia will delay the recruitment of foreign workers to Malaysia. This is likely to worsen the acute labour shortages faced by all sectors in Malaysia and delay the recovery of their operations to pre-pandemic levels. According to the Malaysian Employers Federation president Syed Hussain, Indonesia is an important source country for the supply of foreign workers, contributing 35% of foreign workers and 70% of maids in Malaysia. It was reported that Malaysia currently lacks at least 1.2m workers in the manufacturing (627,000), plantation (120,000) and construction (550,000) industries. We are of the view that the plantation sector will be the worst-affected by the freeze order as it is more reliant on Indonesian workers for harvesting activities in the estates — critical for the upcoming peak production months. The delay could lead to palm oil production for 2H22F falling below the level from a year ago. The worker shortage, combined with rising costs (minimum wage and fertilisers) and falling CPO prices, will be negative for 2H22F earnings — posing downside risks to Malaysian planters’ earnings. On top of this, the Malaysian Anti-Corruption Commission’s probe of Bestinet on 6 Jul (on allegations of irregularities in the selection of 25 Bangladeshi companies as agents to bring in workers) may also cause a “slight delay” in processing applications, according to the Human Resources Minister. Bestinet supplies the Foreign Worker Centralised Management System (FWCMS), used for processing the recruitment of workers from all source countries. Overall, we are negative on this news as it poses downside risks to corporate earnings. Reiterate our KLCI target of 1,506 and top three picks.