A Danwatch investigation

How the global electronics industry came to rely on forced labour and debt bondage

Photos: Amin Kamrani

Editor: Jesper Hyhne

Research: Sara Kaas-Petersen
28. June 2019
Malaysia has become one of the world’s greatest exporters of the basis of all modern electronics: computer chips. But in the process, the country became addicted to the labour of poor migrants working under modern slavery-resembling conditions.
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Construction workers are balancing on scaffoldings applied to the shiny glass facade of a brand-new tower block about one hundred metres above the streets of Kuala Lumpur.

About the investigation

Danwatch has been to Malaysia to meet some of the hundreds of thousands of migrant workers that play a vital part in the country’s electronics industry.

In Malaysia, we interviewed 12 workers from three different factories and have since conducted a number of interviews with workers via video calls.

The investigation was supported by the EU-funded project Make ICT Fair and published in collaboration with Setem.

The Malaysian capital seems to be in a never-ending building boom. Everywhere you look, cranes are working to expand the wide range of gleaming skyscrapers on the city’s already overwhelming skyline – all flashing the country’s long-standing growth rates and billions of dollars, yuan, euros and swiss francs in foreign investments.

Yet typically, it is not Malaysian citizens that are dangling from the stagings to finalise the prestigious towers. More often it is some of the country’s millions of migrant workers.

An estimated 4-6 million migrants from Bangladesh, Nepal, Myanmar and Indonesia are employed as construction workers, security guards, domestic workers and factory workers in Malaysia’s manufacturing sector. A major part of them are playing a vital part in the Malaysia’s main economic driver: its electronics industry.

Virtually every device on the market

Malaysia is one of the world’s leading exporters of information and communication technology (ICT) with electronics accounting for almost 40 percent of the country’s total exports in 2018 according to the Malaysian government.

Malaysia’s electronics exports

In 2018, electrical & electronic parts constituted more than one third of Malaysia’s export earnings.

That same year, the European Union imported electrical & electronic parts for around 8 billion euros from Malaysia.

Almost one third of Malaysia’s exports of electrical & electronic parts went to China in 2018.

The vast majority of Malaysian produced components have been shipped to China, Hong Kong and Singapore over the past years – mostly for use in the assembly line industry.

Sources: UN Comtrade 2019, MATRADE 2019

Most of the internationally best-selling electronic brands are in one way or the other sourcing from Malaysia. The semiconductor, also known as the integrated circuit or the computer chip, is Malaysia’s greatest export commodity. It sits inside pretty much all electronic equipment being produced today, from your mobile phone to burglar alarms. So “virtually every device on the market” can have components that have passed through the country, as the American supply chain watchdog Verité put it in their presentation of a study of the Malaysian industry.

Invited an industry

Malaysia became vital for the global tech industry through a very deliberate government strategy.

Through the 1970’s, the country implemented several economic plans to attract electronic firms from Japan and the US, and from the 1980’s, foreign direct investments in Malaysia grew dramatically. From then on, the country’s electronics industry boomed, and it has continued to grow in the years that followed.

As the investments focused on the low-cost, labour-intensive manufacturing sector, this created a huge demand for cheap labour. The solution was to recruit foreign workers, and ever since, the import of labour proliferated.

In this country we are addicted to cheap labour. We are addicted to migrant workers

Charles Santiago, MP, Democratic Action Party

“In this country we are addicted to cheap labour. We are addicted to migrant workers”, as Charles Santiago, a Malaysian MP and former human and labour rights activist, puts it.

Joseph Paul Maliamauv, director of the Malaysian workers’ rights organization Tenaganita, phrases it more sombrely:

“Our country has grown physically, infrastructure-wise, based on the sweat, the blood and the broken bones of migrant workers”.

The Qatar of South East Asia

A closer look at the statistics reveals that Malaysia is in some ways comparable to the often-told stories about conditions for migrant workers in the Arab states of the Persian Gulf.

Kuala Lumpur skyline.

According to the 2014 Verité study, out of a sample of more than 400 electronics workers in Malaysia, at least 32 percent of migrants were forced to work against their will because of issues such as debt bondage. And that is even a conservative estimate based on a rather strict definition of forced labour.

According to the study, 73 percent of electronics workers demonstrated forced labour features of some kind. 94 percent said their employer or labour agent withheld their passport and 71 percent reported that it was impossible or difficult to get their passports back on request.

Exploitation at every level

Foreign workers generally travel to Malaysia with high hopes. As the workers that Danwatch has interviewed testify, recruitment agents often tell migrants about wages and living conditions that are pipe dreams and quite different from what they come to experience in Malaysia.

Migrants in Malaysia

Last year, there were 2,2 million registered migrants in Malaysia and the number of undocumented migrants was estimated to be between 2 and 4 million according to the International Organization for Migration (IOM).

The top five countries of origin were
Indonesia (1.091.841), Bangladesh (365.600), Myanmar (308.337), Nepal (209.121) and India (135.352).

Source: IOM 2019

“If you analyse the labour supply chain from the worker’s country of origin to Malaysia and when the worker return, there is exploitation at every level”, says Adrian Pereira, Executive Director of the North South Initiative, an organization that provides support for foreign workers in Malaysia and their origin countries.

“Everyone wants to make a quick buck of the migrant workers. So, it is not just during work, it is after work, before work, it is the journey coming to the country, it is the journey returning home. And even the detention centres in Malaysia are making money from this whole labour exploitation”, Pereira says.

According to the Verité study, 92 percent of migrant workers paid recruitment fees to get the job in Malaysia, and these charges can often take months or even years of work to pay off. When coming to Malaysia, additional charges for visas or a work permit may be further added, and as wages are lower than what was originally promised, most workers are happy to take as much overtime as possible.

Mixed signals

For years, it has been a political objective to limit the share of migrants in the Malaysian labour force. The previous government introduced foreign worker levies on employers to discourage them from hiring migrants, but according to the International Labour Organisation, ILO, many employers just deducted these costs from the workers’ wages. This approach continued until the levy charges, officially at least, were shifted back to employers by law in 2018.

Workers’ hostels in industrial areas on the outskirts of Kuala Lumpur. The buildings are in a very different shape than the buildings in Kuala Lumpur downtown.

Malaysia’s new government, which came to power in 2018, overturning a 61-year rule of the same political party, has made promises to improve conditions for foreign workers. The government has been targeting middlemen and recruitment firms and has been striking deals with the migrant workers’ countries of origin in order to recruit workers directly.

If you analyse the labour supply chain from the worker’s country of origin to Malaysia and when the worker return, there is exploitation at every level

Adrian Pereira, Executive Director of the North South Initiative

However, the government has also sent somewhat mixed signals on these issues. Recent investigations by the Guardian and ABC exposed what was described as forced labour, forced overtime and debt bondage at Malaysian glove factories, and still the Human Resources Minister M. Kulasegaran initially denied all allegations, claiming that the glove producers had done nothing wrong.

Should reconsider the economy

Labour advocates criticise Malaysian authorities for rarely penalising employers. Instead, undocumented migrant workers take the fall, the advocates claim. They point to how workers are basically prevented from taking legal action against employers, since the migrants must remain in Malaysia during a trial but at the same time they are banned from working in the country as soon as they press charges and thus cannot have any kind of income while the case proceeds.

What is a semiconductor?

Semiconductors are at the heart of pretty much all electronic devices being produced today, from telephones and computers to burglar alarms and smart cars, since everything that is computerized or use radio waves rely on them. They are the basis of microprocessor chips, diodes and transistors.

Most semiconductor chips today are made with silicon. This is what expressions such as the Silicon Valley and the silicon economy comes from – named after the silicon in the semiconductors that all modern electronics are ultimately based on.

Source: HowStuffWorks 2019, Science ABC, Encyclopædia Britannica

“We do see some positive changes with the new government”, says Sumitha Shaanthinni, a Malaysian lawyer working with migrant cases and director of the organisation Our Journey.

“But when you see the statements from the ministries; they are not really worker-friendly. And so, you seem to feel a déjà vu: that you are somehow dealing with the same type of government”, Shaanthinni adds.

Adrian Pereira of the North South Initiative claims that the government’s reform agenda is expressed in “an anti-migrant manner” that “clearly blames migrant workers for low wages”.

“The main issue is that we are not ready to make a transition away from an overdependence on labour migration, but we are still continuing this harsh exploitation. So I think the whole economy needs to look at its supply chain again. Take another look at its economic model”, Pereira says.

Danwatch has tried to get a comment from Malaysian officials regarding the migrant workers’ conditions and options for remedy. However, the deputy Secretary General of the Ministry of Human Resources, Amir bin Omar only provided this brief statement:

I think the whole economy needs to relook at its supply chain. Relook at its economic model

Adrian Pereira, Executive Director of the North South Initiative

“We are currently taking stern action and are having regular inspections, not only in the electronics sector, but in all sectors of economic activities which hire foreign workers”, the Deputy Secretary General says. He promises that his ministry will very soon present new policies targeting these issues.

Outsourcing causes problems

For many of the electronic workers in Malaysia, that are directly employed at a factory rather than through an outsourcing agent, the situation may have improved over the past years. 

Samsung. for example. has previously been accused of labour abuse in Malaysia, but when Danwatch talked to workers that were directly hired at a Samsung factory, they all said that they had only paid a rather small recruitment fee, could freely access their passports, were satisfied with their accommodation and they were even able to collectively celebrate birthday events with presents provided by the factory. 

A luxury pool in central Kuala Lumpur.

However, a recent investigation by the Guardian revealed that though conditions had improved for the workers directly hired by the factory, the many outsourced contract workers that are working for Samsung tell some very different stories of abusive working and living conditions. 

Are you talking about the labourer? The lowest category of the labourers? You must look at the standard - in manner of education as well. They might not be able to understand and to commit 100 percent to zero costs

Fiona Low, president of the Malaysian labour agency association PIKAP

Similarly, Danwatch identified severe examples of abuse amongst workers that were employed through an outsourcing agent at a factory owned by the German Possehl Group – and those workers said that the directly hired workers enjoyed much better conditions.

Over the years, foreign workers have increasingly signed contracts with labour contractors and not directly with the manufacturers. A study from 2019 by the ILO, OECD and the Asian Development Bank Institute concluded that the tendency pushes workers “into disadvantaged and vulnerable positions characterized by long hours, absence of social protection, and, in many cases, confiscation of their passports and other working papers”.

“The lowest category of labourers”

At the labour agency association PIKAP Malaysia, which represents 150 Malaysian labour agencies, President Fiona Low, emphasizes that Malaysian labour laws “are really, really strict”, and says that foreign workers can always report abuse to the police, the labour ministry or their embassies.

Danwatch presents Low with some of the findings of labour abuse and debt bondage in Malaysia and points out that rights groups and several global brands suggest that an effective way to address the issues would be calling for zero recruitment fees to be paid by the migrants. But PIKAP’s president does not agree that employers should cover all recruitment fees.

Workers’ hostels.

“This is not fair. Because zero costs are unhealthy. Some workers don’t have the commitment and a mindset that says that ‘I have to work better’, compared to zero costs and the costs to pay. So, some workers will take advantage of this and abuse the facilities because they have nothing to lose.”

But in general, people don’t pay to work at a company. You don’t pay anything to come and work for this company – the company offered you the job and you are still coming?

“You have to come in, and I don’t believe that 100 percent of the workers will come in.”

But what is the difference between them and you?

“This is the labourer that we are talking about. Are you talking about the labourer? The lowest category of the labourers? You must look at the standard, in manner of education as well. They might not be able to understand and to commit 100 percent to zero costs”, Low tells Danwatch.

International brands should act

As political improvements are stalling, both civil society and Malaysian politicians are calling on the international buyers to be held accountable for the violations taking place in the country’s electronic industry.

“You need to have an open and accountable process. And there must be an industry-wide regulation. Internally, but externally as well. In order to assure that such slavery process does not occur in production of any modern goods”, Charles Santiago, the Malaysian MP and former human rights activist, tells Danwatch.

He is backed by Sumitha Shaanthinni, the Malaysian lawyer working with migrant cases:

“The international buyers need to check their supply chain. It is not enough that you just go to the first level or the second level. There are people further down the supply chain that are doing more violations than the ones you are dealing with in the first tier”, she says.

A Danwatch Investigation

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