Minimum wage: Sabah timber industries call for moratorium

KOTA KINABALU (Oct 23): The Sabah Timber Industries Association (STIA) has also expressed objection to the new minimum wage.

It calls on the government to consider a moratorium of at least 12 months to be followed by lower progressive implementation of minimum wage for Sabah.

STIA views that the minimum wage hike taking effect Feb 1, 2025 will lead to more than 22% cost increases across the board for Sabah’s overall manufacturing economy.

From the timber industry’s perspective, this increase will put many into more difficult position to continue with the business.

When tabling the 2025 Budget last Friday, Prime Minister Datuk Seri Anwar Ibrahim announced that the minimum wage would be increased to RM1,700 from RM1,500 per month effective Feb 1. It was also announced that employers with fewer than five employees would have until August 1 to implement the new minimum wage.

On Sunday, Sabah United Chinese Chambers of Commerce (SUCCC) president Datuk Michael Lui said while the overall Budget 2025 is in line with the Madani economic framework, the raising of the minimum wage next year was a hasty move.

This statement was followed by a release from Sabah Employers Association (SEA) president Yap Cheen Boon who specifically mentioned that the salary hike will further strain Sabah businesses already reeling from the Sabah Labour Ordinance (SLO) amendments passed in the current Parliament session.

STIA president Tan Peng Juan informed that three panel products companies have closed down over the period of eight months and retrenchment in an ongoing process in several timber related processing mills to reduce losses due to the weak market.

Tan believed the increase in minimum wage will add to the hardship of the industry and increase the unemployment rate particularly amongst the unskilled local workers in Sabah.

He anticipated a high possibility of short to medium term retrenchment of up to 10% over the next several months. Best case scenario of stagnation in growth and investment for timber industry, and higher if the minimum wage is implemented as scheduled.

The association also voiced the industry’s disappointment that the increase of minimum wage for Sabah did not take into consideration the country’s inflation rate which is between 2.5 to 3.5%.

From the minimum wage rate of RM900 in 2013 to RM1700 in 2025, the rate of increase is at a compounded rate of 8.3% per annum.

STIA questions the basis of this increase as it does not appear to be based on genuine inflationary benchmarks.

The president further elaborated that Sabahan businesses are operating in a business environment that is not as conducive as other states in Malaysia. Lack of infrastructure support from roads to water and electricity supply is a constant challenge for Sabah.

“In some areas such in the case of provision of electricity we are at least 20-25 years behind states like Penang and Johor but we still pay a higher rate per kwh,” said Tan in a statement on Wednesday.

STIA strongly appeals for the government to take this into consideration.

“Industry in Sabah is not provided the same infrastructure standards by the federal government, how are we expected to sustain the same cost in minimum wage?” he added.

STIA echoed the statement made by SEA president on Monday stating that the minimum wage will place additional strain on businesses which are already grappling with the effects of amendments to the Sabah Labour Ordinance (SLO).

SEA is an association acting as tri-partite for labour issues in Sabah, a voice for employers and it is a disadvantage that the association which housed organizations and companies in all sectors including chambers and associations was not consulted in the whole process of setting the minimum wage as well as the revision of SLO.

STIA is of the opinion that consultation process is crucial to ascertain comprehensive understanding by agencies or ministries in charge of setting policies and regulations to ensure full understanding of the current situation faced by industry in Sabah.

Sabah timber is basically an upstream based industry with a larger base in midstream processing. Majority of which consist of log trading, sawmill, plywood and veneer processing factories that are mainly low skill jobs. This is in stark comparison to peninsular wood-based industries which focused mainly on finished products such as furniture, joinery for domestic housing market.

The ‘knee jerk’ and spontaneous increment of minimum wage for Sabah is putting on brakes on Sabah’s medium to long term targets to add value and to catch up to Peninsular Malaysia’s level of development.

Overall the implementation will hamper the industrial tree planting development plan for Sabah which is already facing many challenges. This will have dire consequences on one of the state’s key resource sectors.

Therefore, the Sabah Timber Industries Association called on the government to consider a moratorium of at least 12 months to be followed by lower progressive implementation of minimum wage for Sabah. Any increase should be pegged to realistically link to actual inflation.

The association also hopes the government will consult the stakeholders on the plan to introduce compulsory EPF contributions for foreign workers which will result in lower bring home pay for the workers and extra financial burden to the timber industry players in Sabah.

Tan further specified an example that in Singapore, Central Provident Fund (CPF) contribution does not cover foreign employees as the government viewed that foreigners would choose to retire in their country of birth. The association opined that the proposal for EPF for foreign workers should be scrapped entirety.

The Federation of Sabah Industries (FSI) has called on the federal and state governments to reconsider the implementation timeline of the minimum wage increase in Sabah.

Its president, Richard Lim, said the increased wage burden could threaten the viability of businesses still recovering from the pandemic.