WILL BAN ON INDIANS IMPACT MALAYSIA’S ELECTRONICS INDUSTRY?

As COVID-19 cases soared in India and its neighbouring countries, Malaysia last Wednesday (May 5) announced a temporary entry ban on citizens of Sri Lanka, Bangladesh, Pakistan and Nepal. It had earlier on April 28 stopped flights to and from India in an attempt to prevent a new COVID-19 variant from entering the country. The coastal state of Penang, which is the Electrical and Electronics (E&E) manufacturing hub of Malaysia, has expressed concerns that this will impact the state’s manufacturers as it is dependent on skilled Indian software and information technology (IT) professionals.

Penang State Executive Councillor for International Trade, Domestic Trade, Consumer Affairs and Entrepreneur Development, Datuk Abdul Halim Hussain expressed concerns that the ban will impact the state’s industrial sector. Datuk is a Malaysian title usually conferred by the King and Datuk Abdul holds the position equivalent to a state minister.

Penang state consists of Penang island which has a land area of 293 square kilometres and the city of Seberang Perai (751 square km) on the mainland of Peninsular Malaysia. The island is connected to the mainland by two road bridges.

Not too long ago, Penang was known to some as the “Silicon Valley of the East”. It has a 48-year-old E&E industry and began attracting international manufacturers back in the 1970s with well-known US firms like Intel, Broadcom, Motorola and Dell setting up international manufacturing plants on the island. However, from around 2005, manufacturing companies gradually left its shores for China which offered plentiful skilled labour at lower cost.

Recent years saw the tide turning. Some manufacturers have returned to Malaysia because of rising costs in China as well as higher tariff – the consequence of the “trade war” started by the previous US administration. Interestingly, some Chinese companies who see setting up overseas plants as a way of getting around US tariffs, are doing so in Malaysia. In fact, Malaysia has specifically targeted Chinese manufacturers and has made it attractive for them to set-up factories in Malaysia by way of tax exemptions and investment tax allowances.

Penang to a certain degree competes with Singapore, which is 700 kilometres further south, for electronics manufacturing investments. Its largest advantage is that it has a significantly lower cost of labour when compared to the island nation.