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KUALA LUMPUR (Reuters) - Indonesian plumber Yadi has been plying his trade in Malaysia since 2003, part of a two million-strong migrant labour force that forms the backbone of Kuala Lumpur's plantations and construction industries.
But now, the 30-year old wants to go home as wages rise and job opportunities open up in Jakarta, a growing trend among Indonesian workers that analysts say could produce a labour crunch and slower economic growth for Malaysia.
"I have heard a lot from friends and relatives about jobs opening up in my home country, and if I can as easily earn just slightly less in a city like Jakarta compared to what I make now, I will go back," said Yadi, who earns 90 ringgit (18 pounds) a day as a plumber's assistant.
From minding babies to erecting skyscrapers, Malaysia's economy has been supported over the last three decades by a foreign workforce drawn mainly from Indonesia, the Philippines, Bangladesh and Nepal as an industrialisation drive created a wealth of low-paying jobs shunned by locals.
But as more employment opportunities open up in other Asian economies, Malaysia's appeal as a destination for manual jobs is waning.
This, combined with a six-month government programme beginning in July to send home illegal workers, could result in an acute labour shortage.
Under the plan announced on Wednesday, the government will ship home some foreign workers to reduce the number of illegals, although it has yet to determine the number.
"If the government gets it wrong on the labour policy, Malaysia will lose competitiveness in these economic sectors," said Credit Suisse economist Kun Lung Wu.
"If you don't get domestic workers to move into these jobs and create higher value, you lose out on the lower cost production segment. Investors won't want come to Malaysia and the pace of economic growth will become slower."
Boosting competitiveness and transforming Malaysia's economy into a high-end manufacturing and services hub is a key plank of Prime Minister Najib Razak's reform agenda.
Najib, who took office two years ago, is betting on a series of structural economic reforms to help Malaysia secure a new niche that can woo back foreign investments which have left for other Asian countries.
Migrant workers, up to two million strong, account for 21 percent of Malaysia's workforce. In particular, the palm oil sector, second only to neighbouring Indonesia in terms of production, relies heavily on foreign labourers.
Eight out of every 10 workers in the plantations sector is a non-Malaysian, according to the Malaysian Employers' Federation and a drop in foreign worker arrivals could further worsen a labour shortage and lower output growth.
As more Malaysian palm oil firms expand in Indonesia to overcome a shortage of land, Indonesians have fewer reasons to seek employment outside their home country.
"Malaysia will soon begin to lose foreign workers from Indonesia as the pace of economic growth in Indonesia will allow an increasing number of Indonesians to find jobs in their own country," said Indonesian embassy spokesman Suryana Satradireja.
Indonesia's economy is forecast by the government and analysts to expand 6.4 percent in 2011, the third-highest in Asia after China and India.
In the construction sector, where two-thirds of the workforce is foreign, a labour crunch could disrupt large government infrastructure projects with a significant multiplier effect, such as a $11.5 billion (7.12 billion pound) rail line.
Many Indonesians also work as domestic helpers. One in every 16 residents in the capital Kuala Lumpur hires an Indonesian helper, according to data from the Indonesian embassy.
Jakarta banned its citizens from working as maids in Malaysia in 2009 following allegations of abuse, but a deal reached in April will pave the way for hiring to begin again.
An Indonesian working as a housemaid in cities like Jakarta can now earn up to 1,000,000 rupiah, equivalent to about $116. That is only slightly less than the salary in Malaysia, without considering other expenses incurred by foreigners, Suryana said.
Analysts say Malaysia can plug any gap in labour needs by sourcing from other countries.
But such a solution would only be temporary and efforts must be directed at avoiding the "middle income trap" -- under which Malaysia finds itself unable to move beyond its low-end manufacturing niche to become a developed economy.
"It is vital that Malaysia overcome its reliance on cheap foreign workers so as to avoid the middle income trap," said Manu Bhaskaran, chief executive of Centennial Asia Advisors in Singapore, which advises on economics and policy.
Additional reporting by Niluksi Koswanage; editing by Liau Y-Sing and Ron Popeski