Malaysia to Reject New Manufacturing Licences Built on Heavy Reliance on Foreign Labour

New factory approvals face a tougher employment test

Malaysia will reject applications for new manufacturing licences that depend heavily on low skilled foreign workers, Investment, Trade and Industry Minister Datuk Seri Johari Abdul Ghani told the Dewan Rakyat on November 2, 2026. The government wants incoming investment to create better paid jobs for Malaysians and put more money into machinery, automation and digital technology.

Johari set out several measures behind that direction: a requirement for Malaysians to make up at least 80% of a company's full time workforce, subject to implementation of the Multi-Tier Levy Mechanism, and a minimum capital investment of RM140,000 per employee when manufacturing licences are assessed. Tax incentives will also be judged against the results investments deliver.

The minister said Malaysia already had about 2.6 million foreign workers, excluding those without valid documentation, while its pool of graduates from technical and vocational education and training, known as TVET, exceeded 400,000. He challenged manufacturers that continued to seek foreign labour after operating in Malaysia for 10 to 20 years.

For existing factories, the government described a different approach: progressive modernisation, supported by funding and technology assistance. Johari rejected a blanket policy of moving manufacturing with lower levels of technology overseas. Together, the measures put pressure on new investors to propose a different employment model while giving established businesses support to change how they produce goods.

What will change for licence applicants?

The Ministry of Investment, Trade and Industry, known as MITI, and the Malaysian Investment Development Authority, or MIDA, will explain the employment conditions to companies seeking approval. Johari said applications that would reproduce existing operations dependent on foreign workers would be turned down.

Foreign recruitment would remain permitted for work described as dirty, dangerous and difficult, commonly called 3D jobs. For other roles, the minister said employers should offer wages that make taking the job worthwhile for Malaysians.

The manufacturing licence condition calls for at least 80% of a company's full time workers to be Malaysian citizens, subject to the Multi-Tier Levy Mechanism. Expressed simply, an 80:20 workforce would have at least 80 Malaysians for every 100 employees, with no more than 20 foreign workers.

Johari linked that direction to the New Industrial Master Plan 2030, or NIMP 2030, and the 13th Malaysia Plan, known as RMK13. The government did not give a detailed implementation timetable for the licence restrictions and levy changes, or explain how individual applications, exceptions and transitions would be handled.

Higher capital investment and a changing tax test

Manufacturing licence assessments also set a minimum Capital Investment Per Employee, or CIPE, of RM140,000. This measure divides a company's capital investment by its number of employees, giving officials a way to assess how much investment supports each job.

At that threshold, an operation with 100 employees would need RM14 million in capital investment. The calculation helps explain the government's preferred direction: factories with more investment behind their workforce, alongside fewer jobs dependent mainly on low skilled manual labour.

The New Incentive Framework, or NIF, adds another part of the policy. Johari said tax incentives were moving fully towards an approach based on achieved results, using a scorecard guided by the National Investment Aspirations and NIMP 2030. Businesses seeking tax advantages will therefore face an assessment tied to the government's industrial priorities.

Companies that continue relying on low skilled foreign labour will also face rising costs under the phased policy described by Johari. The levy mechanism is intended to make workforce choices part of the financial calculation facing employers. Taken together, licence conditions, capital requirements, levies and tax incentives apply pressure at different points in a company's investment decisions.

The wage gap behind the recruitment debate

Manufacturing's median wage currently stands at RM2,775, Johari said, compared with the NIMP 2030 target of RM4,510. The median is the middle wage when workers are arranged from the lowest paid to the highest paid, making it useful for describing what a typical worker earns.

The difference is RM1,735 a month. Reaching RM4,510 from RM2,775 would require an increase of about 62.5%. That gap gives a concrete measure of the government's ambition: industrial transformation is supposed to change pay as well as factory equipment.

Johari criticised companies earning hundreds of millions of ringgit in profits while remaining reluctant to pay local workers RM2,000 a month. He said some continued to start workers at RM1,700 and offered TVET graduates wages comparable to those paid for low skilled foreign labour.

The difference between those two starting salaries is RM300 a month, or RM3,600 over a year before deductions. For someone paying for accommodation and daily living expenses, that amount can affect whether accepting a factory job makes financial sense. Johari specifically raised living costs, including accommodation, when discussing employers' difficulty attracting Malaysians.

Malaysians commuting to Singapore or choosing gig work showed that people would work when the earnings justified it, he argued. His response placed pay and the value of technical skills at the centre of recruitment, alongside the number of workers available.

Manufacturers raise the limits of automation

Bakri MP Tan Hong Pin raised a practical concern during oral questions: different industries have different needs, and some manufacturers believe they have automated as much as is commercially feasible while still requiring manual workers. He asked whether foreign recruitment could be made more flexible to reflect those differences.

Commercial feasibility means whether a business can justify the cost of a machine or production system through the savings or extra output it expects. Tan's question focused on factories where management says that calculation still leaves a need for people to perform manual tasks.

Tan also warned that telling businesses seeking cheaper labour to move to Indonesia or Vietnam could encourage manufacturers to leave Malaysia. He asked about the criteria and timetable for moving industries with lower levels of technology, and about protecting the country's production networks.

Johari's answer put the government's focus on upgrading existing businesses. The exchange leaves companies facing two connected demands: make a stronger case for any continuing need for foreign workers and show how investment, technology and better wages can change their operations.

Existing industries will be upgraded, not pushed out

Johari said the government did not consider a wholesale relocation of manufacturing with lower levels of technology an appropriate approach. Its plan is to introduce technology, automation and digital systems progressively while strengthening domestic supply chains.

MITI identified three features of manufacturing activities it wants to transform:

• Heavy reliance on manual processes and physical labour.
• Low productivity and low value added.
• Operating models dependent on large numbers of workers with limited skills.

Productivity describes how much a business produces from the resources it uses. Value added describes the extra value created through its production activity. The government's aim is for factories to produce more valuable output through better processes and skills, rather than expand mainly by hiring more low paid workers.

Domestic supply chains matter because one manufacturer's output can be another company's essential input. Tan asked how the government would avoid weakening those connections. Johari said the transformation would be planned around stronger local production networks, more advanced technology and more sustainable production, rather than relocation based solely on a factory's level of technology.

Support for smaller businesses and local participation

MITI plans to provide grants, funds and tax incentives to encourage smart technology and automation. Johari said financial and technological support would help local businesses, including micro, small and medium enterprises, adopt Industry 4.0 technology.

Industry 4.0 refers to the use of connected machines, digital information and automated systems in production. For a manufacturer, that can mean a different way of monitoring and organising factory work, alongside investment in equipment.

NIMP 2030's Mission 4 places economic security and inclusion within the industrial programme. Johari said modernisation should benefit smaller businesses and Bumiputera interests through government allocations, grants and technology development.

The support addresses a concrete concern raised by the proposed change: smaller manufacturers must finance new equipment and systems while keeping their businesses running. The government has paired its demand for less dependence on foreign labour with assistance intended to help existing firms modernise without breaking the local business networks they serve.

Measuring progress towards 2030

MITI is working with the Department of Statistics Malaysia to refine the collection of manufacturing data, Johari said in response to a question from Kubang Pasu MP Datuk Dr Ku Abd Rahman Ku Ismail about NIMP 2030's progress.

The work covers electrical and electronics manufacturing, chemicals, advanced materials, aerospace and healthcare. Johari said more detailed data would help measure changes in the structure of industry and guide strategies so that new investments complement domestic economic activity.

The figures discussed in Parliament give readers several measures to follow: the share of Malaysian employees, capital investment per worker and the manufacturing median wage. Each tracks a different part of the proposed change. A factory can invest in machinery, for example, while its employment mix and wages remain separate questions for assessment.

The dated milestones set out in the policy discussion are:

• November 2, 2026: Johari outlined the licence restrictions, workforce conditions and modernisation approach during questions in the Dewan Rakyat.
• 2030: NIMP 2030 targets a more advanced manufacturing sector with higher technology, greater value added and a median wage of RM4,510.

For workers, the promised change is access to manufacturing jobs that make better use of technical training and pay enough to justify taking them. For manufacturers, the immediate message is that investment proposals will face closer attention to how production is organised, who gets hired and what those jobs pay.

Key Points

• Malaysia will reject new manufacturing licence applications that rely heavily on low skilled foreign labour.
• Manufacturing licence conditions require at least 80% Malaysian full time employees, subject to the Multi-Tier Levy Mechanism.
• Licence assessments include minimum capital investment of RM140,000 per employee.
• Johari put manufacturing's median wage at RM2,775, against the NIMP 2030 target of RM4,510.
• Foreign recruitment remains permitted for dirty, dangerous and difficult jobs.
• The government plans to modernise existing industries through technology and financial support rather than pursue blanket relocation overseas.