Plantations Sector Worst Hit By Freeze On Workers From Indonesia

The plantation sector will be the worst affected by Indonesia’s temporary freeze on workers to Malaysia as it is more reliant on Indonesian workers for harvesting activities in the estates — critical for the upcoming peak production months, CGS CIMB said in a note

It said that 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.

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.

The stockbroking firm said that 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.

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.

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