Malaysia will maintain its cap on foreign workers at 13 per cent of the total workforce and aims to reduce the country’s reliance on foreign labour to 10 per cent by 2030, as the government pushes businesses to invest in automation, technology and higher-value activities.
Deputy Investment, Trade and Industry Minister Sim Tze Tzin said the government would not raise the foreign worker threshold despite continued demand from businesses, describing the policy as “set in stone”.
“So it is a policy set in stone. We want businesses to understand the importance of automation, the importance of moving up the value chain, and improving their processes; they must make their company more efficient,” Sim told reporters at the 7th Asia KLEMS Conference 2026 in Kuala Lumpur.
Malaysia has already reduced its reliance on foreign labour from 15 per cent to the current 13 per cent, with the government targeting a further reduction over the next four years.
Sim warned that heavy reliance on cheaper foreign labour could discourage companies from investing in technology, improving processes and achieving productivity gains.
The government is therefore encouraging businesses to adopt automation, increase research and development, move up the value chain and become more export-oriented. It is also providing incentives for automation and process improvements, alongside grants, soft loans and support from government agencies to raise productivity.
Malaysia’s labour productivity reached RM104,556 per employee in 2025, while productivity per employee increased by 4.3 per cent in the latest quarter of 2026. Productivity per hour stood at about RM45.50 per employee.
Sim said these productivity gains would be critical to Malaysia’s ambition of escaping the middle-income trap and becoming a high-income economy.
“We continue the trajectory, and we continue to do the right policies; we will achieve high income nation in a few years. This is what we (the government) are working very hard on in terms of policies,” he said.
“We want to encourage and reduce reliance on foreign labour, while encouraging businesses to invest in the right technology, upgrade the value chain, conduct more research and development, and become export-driven so that they can meet high international standards for their products.”
The minister also pointed to the strength of Malaysia’s economy, which expanded 6.0 per cent year-on-year in the second quarter of 2026. The electrical and electronics sector, in particular, recorded strong profits, with multinational companies benefiting from robust exports linked to artificial intelligence and technology.
The comments came as employer groups cautioned that automation cannot be treated as an immediate or universal replacement for foreign workers.
Malaysian Employers Federation president Datuk Syed Hussain Syed Husman said employers supported the government’s objective of reducing structural dependence on foreign workers through automation, digitalisation and productivity improvements, but stressed that the transition would need to be gradual.
“We support the government’s objective of reducing Malaysia’s structural dependence on foreign workers through greater automation, digitalisation and productivity,” he said.
“Automation should be viewed as a gradual transition rather than an immediate substitute for foreign workers.”
Syed Hussain said large companies and capital-intensive industries were better placed to automate repetitive, hazardous and predictable tasks, while micro, small and medium enterprises (MSMEs) often faced significant upfront costs for machinery, robotics, software integration, maintenance and employee training.
Automation also remained commercially and technically unsuitable for many roles in sectors such as construction, plantations, food services, cleaning, security, hospitality, maintenance and logistics, he said.
Rather than framing the issue as a choice between foreign workers and machines, Syed Hussain called for a combination of better wages and working conditions, job redesign, technology adoption and skills development to attract more Malaysian workers.
“Malaysia should not approach the issue as ‘foreign workers versus automation’. The more sustainable approach is productivity, technology and Malaysian workers working together,” he said.
He added that while government grants and tax incentives were useful, MSMEs continued to face challenges in accessing affordable and suitable technology.
“The issue is whether the investment provides an acceptable return. An MSME cannot justify a RM500,000 or RM1mil outlay if production volume is small or demand is uncertain,” he said.
Syed Hussain proposed longer-tenure financing, a one-stop mechanism for incentives and technical advisory support to help smaller businesses identify technologies that are commercially viable.
SME Association of Malaysia president Chin Chee Seong similarly said automation could gradually reduce SMEs’ reliance on foreign workers but warned against expecting machines to replace migrant labour across all sectors in the short term.
For smaller businesses, the cost of automation extends beyond machinery to software, systems integration, maintenance and workforce training. Many SMEs are also dealing with higher wages, rents, utilities and compliance costs, making large capital investments difficult.
Chin said some SMEs, particularly in manufacturing, were already adopting automated production lines, robotics, self-service technology and AI-enabled software, although adoption varied depending on company size and resources.
“The objective should not simply be to replace foreign workers with machines. It should be to raise productivity per worker,” he said.
Automation, he added, should allow individual workers to produce more while gradually shifting employees from repetitive, low-value tasks into higher-skilled and higher-value roles.
Chin called for easier access to automation grants, low-interest financing and tax incentives, and suggested that a portion of foreign-worker levy collections could be used to support automation and workforce reskilling.
He also proposed that restrictions on foreign workers be introduced progressively and according to the needs of individual sectors.