Mei Mei Chu, Liz Lee and A. Ananthalakshmi

KUALA LUMPUR, (Reuters) – Malaysian companies and the government must investigate mounting claims of abuse at work by migrant workers who are fueling its economy. Otherwise, there could be serious consequences for export-reliant growth models.

Malaysia relies on migrants to drive its mainstay industries and agricultural production. It has become an important part of the global supply chains for many products, including semiconductors and iPhone parts.

However, as foreign labor has become more important, there have been increased complaints about abusive work conditions and living conditions among workers who are mostly from Indonesia, Bangladesh, and Nepal.

According to 11 analysts and corporate consultants interviewed by Reuters, the third-largest economy in Southeast Asia needs to reform and enforce its labour laws. Companies should also invest to improve conditions.

Seven Malaysian companies, including one of the largest palm oil producers and glove manufacturer in the world, have been subject to U.S. bans on imports for forced labor. Dyson Ltd, the high-tech supplier of home-appliances, cut all ties to its Malaysian largest supplier last month due to labor conditions.

Anthony Dass of AmBank Research Kuala Lumpur stated, “It is an alarming sign.” Malaysia must not be changed, and there is a global emphasis on sustainability, governance and other practices. Businesses may move to different countries if this continues.”

Malaysia’s labor department didn’t respond to queries about changes to its labour laws. The trade ministry also did not answer questions regarding potential losses in investment.

M. Saravanan (Human Resources Minister) acknowledged this month that forced labour issues had “stifled foreign investors’ trust in Malaysia’s supply chain.” He called on companies to safeguard workers’ rights.

Rosey Hurst from Impactt, an ethical trade consulting based in London said Malaysia “has become the poster boy” for forced labour. And that causes economic harm. It is time for real change.”

Hurst stated that global investors have been asking more questions about Malaysia’s labor practices, not only from private equity firms but also asset managers.

Similar labour abuse allegations are being levelled at other Asian manufacturing centers, such as Thailand and China. However, investors took an immediate interest to Malaysian labour abuses, which could have an impact on future supply and foreign direct investment, analysts claim.

INDICATORS FOR FORCED-LABOUR

Malaysian officials admit to working excessive hours, not receiving wages, a lack of rest days, and insufficient hygiene at their dormitories. According to the International Labour Organisation, these conditions constitute forced labor.

Malaysian law is more liberal than what the majority of people accept as the maximum 60 hours per week. It also allows you to work when there are rest days.

Hurst explained that Malaysian law allows for, and often insists on, certain practices, which run counter to the ILO 11 indicators on forced labor.

Malaysia launched last month a National Action Plan on Forced Labour in an effort to end such practices by 2030.

It is second in the world for palm oil exports and has a chip-assembly sector that accounts more than 10% of all global chip trade. The Department of Statistics estimates that Malaysia has 2 million workers from overseas in the second half of 2020. That’s 10% of their workforce, double its 20-year-old figure. According to the government estimates, there are up to 4 million undocumented migrants working in Malaysia.

Many foreign workers have a focus in services, manufacturing and agriculture.

As Malaysians shy away from lower-paid, labour-intensive work, the country’s electronics and palm oil companies especially are relying on migrants, whose treatment is gaining scrutiny https://www.reuters.com/business/dyson-splits-with-malaysia-supplier-stoking-concern-over-migrant-worker-2021-12-05.

Malaysia had the highest number of U.S. Customs and Border Protection bannings than China. Washington listed Malaysia in July on the same list as China and North Korea to make limited progress against labour trafficking. This was its lowest ranking.

Dyson ended its agreement with parts manufacturer ATA IMS Bhd shortly after Malaysian company posted record profits. ATA admitted some violations but made significant improvements to ensure it is now in compliance with all standards and regulations.

ATA said in a statement to Reuters it has increased practices for sustainable, equitable growth amid the scrutiny of Malaysian companies.

The company stated that ATA had to reexamine some practices which have been a standard not only in Malaysia, but also overseas, such as excessive overtime and greater engagement between managers and employees of rank and file.

‘MODERN SLAVERY’

When the United States last year banned Top Glove Corp, the world’s biggest medical glove maker agreed to pay $33 million to workers to reimburse recruitment fees they paid in their home countries – which activists say result in debt bondage.

The ban was lifted by U.S. customs after Top Glove changed.

Top Glove stated to Reuters that exporters should “follow best global practices because customer expectations have changed over time,” and added it wasn’t enough for businesses just to be cost efficient.

They also asked their peers to return the recruitment fees.

Malaysian palm oil exporters, second only to Indonesia, are spending tens of million of dollars on workers’ conditions after similar bans.

Investors might not always be attracted by higher working or living costs.

Nneka Chike-Obi director, sustainable finance at Fitch Solutions, stated, “Companies that operate in Australia, Australia, the UK and certain U.S. States are subjected to regulations which address modern slavery in supply channels.” They may be required to pay higher prices in return for a lower supply-chain risk.

The economic impact on Malaysia’s electronics industry (which accounts for 40% of Malaysia’s exports) could prove to be a significant factor.

Dell Inc. and Samsung Electronics (OTC -) Co Western Digital Corp (NASDAQ) is based in Malaysia and Apple Inc (NASDAQ) works with local suppliers.

Samsung (KS) did not respond to Reuters’ requests for comment. The requests of Reuters for comments on the Malaysian operations or their suppliers were not answered by other tech companies.

AmBank’s Dass stated that “if companies begin scrutinising and pulling back contracts from electronic and electric companies,” it will “have a knock-on impact on the economy.”