Indonesian Haze Costs Malaysian Manufacturers RM8 Billion, Hitting Supply Chains and Health

Transboundary haze has long been a significant environmental and economic challenge for Malaysia, particularly during Indonesia’s annual dry season when peatlands and agricultural residue are burned. The resulting thick smoke drifts across Southeast Asia with the wind, severely degrading air quality in Malaysia. In recent years, the government and civil society groups have repeatedly called on Indonesia to strengthen the enforcement of environmental regulations. However, with each dry season, heavy smoke continues to engulf cities such as Kuala Lumpur and Penang, causing direct and indirect damage to industrial equipment, supply chains, and worker health.

The Malaysian Manufacturers Association (MMA) commissioned a third-party research firm this month to assess the economic losses resulting from the transboundary haze incident between July and October 2023. The study found that the social welfare losses attributable to the smoke during this period amounted to approximately 8 billion Malaysian ringgit, equivalent to roughly 64 billion New Taiwan dollars. This figure encompasses the economic burden arising from decreased work efficiency, increased medical expenses, costs for factory shutdowns and repairs, and health issues among workers caused by deteriorating air quality.

Further insights from a survey of association members revealed that more than two-thirds of the manufacturing companies surveyed reported that their operations were affected by the smoke, with 26% of firms assessing the impact as moderate to severe. Affected enterprises primarily faced equipment malfunctions, delays in raw material supply, rising worker absenteeism, and declining product quality due to air pollution. Some high-tech manufacturing plants even had to temporarily shut down high-precision machinery due to electromagnetic interference caused by the thick smoke, resulting in higher downtime costs.

Malaysia’s manufacturing industry is a critical pillar of the national economy, accounting for approximately 20 percent of the gross domestic product and providing employment for more than one million people. The social welfare losses caused by the haze not only affect corporate revenues in the short term but also potentially undermine the country’s competitiveness in global supply chains. If such incidents persist over the long term, they could erode investor confidence in Malaysia’s business environment, further hindering foreign direct investment and technology transfer.

In response to these cross-border environmental risks, the Malaysian government and the industry have begun to strengthen multi-level response measures. The government is collaborating with Indonesia to implement stricter burning management and monitoring systems and is exploring the development of a regional air quality information-sharing platform. At the corporate level, businesses are encouraged to invest in high-efficiency air filtration equipment, factory protective facilities, and flexible supply chain management to mitigate the operational impact of future haze events. Simultaneously advancing the energy transition and green manufacturing could, in the long run, not only alleviate the economic burden of environmental disasters but also enhance the nation’s leadership in global sustainable development initiatives.