The Malaysian Insight

WORKER productivity in Sabah and Sarawak is not comparable to the peninsula, making the minimum wage hike to RM1,200 unjustifiable, Sabah SME Association president Foo Ngee Kee said.

The economic and business environment is different, he said, and increasing the minimum wage by RM100 will have a drastic effect.

Foo said he expects many SMEs to undergo restructuring to cope with the increased costs.

He said worker productivity here is different from workers in the peninsula as skills levels and capabilities were not equal.

“RM1,200 is appropriate for workers on the peninsula but will cause undue burden on employers in the Bornean states,” he told The Malaysian Insight.

Foo compared the difference in productivity with schoolchildren in urban and rural areas. 

He said children from each area had different strengths and advantages, and workers were the same.

Another factor for Sabah SMEs is that poor road connections and deep interiors increased logistic costs, he said.

“Sabah is sparsely populated and transportation costs are high, businesses often have to fork out a lot for logistics.”

The Human Resources Ministry on December 18 announced that from January 1, the minimum wage would be increased to RM1,200 in 57 urban jurisdictions.

In East Malaysia, the areas include Kuching, Miri, Padawan, Sibu, Kota Samarahan, Kota Kinabalu, Sandakan and Tawau.

The ministry said the move was made to gradually increase the minimum wage to RM1,500 by the end of Pakatan Harapan’s current five-year term.

Foo, however, suggested that before implementing a higher minimum wage for Sabah, the government should focus on enhancing training and worker productivity.

“Workers are not yet up to standard and there is only so much companies can do.

“We urge the government to increase productivity and to improve the economy first, and only then look at increasing the minimum wage instead of rushing it,” he said.

“For small and medium businesses, operating costs are already high and this just adds on to it. How are we to survive?”

In addition to SMEs restructuring or closing down, the wage hike would discourage new entrepreneurs from starting their own businesses, he said.

“It’s not that we don’t agree with raising the minimum wage, but the government should consider all aspects before announcing it.”

Foo said most SMEs in Sabah only have several thousand ringgit in reserve, and have to constantly deal with tax and cost adjustments.

He said a Sabah SME with 10 to 20 workers would lose this reserve if it had to pay each worker an additional RM100 a month.

He also said the move could backfire, as workers could lose their jobs if automation costs go down and employers find it more efficient to use machines instead of people.

“The additional cost of each worker will be RM100, which is RM1,200 a year. For 10 workers it’ll be RM12,000 a year. 

“If productivity does not increase, or if it takes one or two years to make back the money, why not just buy a machine to do the work? Employers may take advantage of the situation to reduce costs,” he said.

According to the Entrepreneur Development Ministry’s National Entrepreneurship Policy 2030, SMEs make up 90% of businesses in the country and employs 66.2% of the workforce.

Meanwhile, Sarawak SME Association president Charles Voon said the food and beverages sector in East Malaysia will be the most affected.

He said in most restaurants and coffee shops, meals are provided to employees, while in the plantation sector, companies also provide accommodation.

An increase of the minimum wage to RM1,200 plus EPF and Socso, will mean hundreds of ringgit in additional costs for each worker. 

He also agreed with Foo that productivity levels are lower, and expects East Malaysian employers to streamline manpower.

“Sarawak is not densely populated and both sales and productivity is lower as compared to the peninsula,” he said.

Voon added that some sectors already paid more than RM1,200 to their workers, especially if they were skilled foreign workers.

“RM1,200 is not enough to hire good employees, even an assistant from Philippines can get RM2,000 so I think the impacts will be different according to the sectors,” he said. – December 22, 2019.