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Indonesia looks to education to help drive growth

“Indonesia is at a development crossroads,” says a recent World Bank report. It is now one of the 20 largest economies in the world and aims to break into the top ten by 2030. However, a number of major trends and developments – notably a growing middle class, rapid urbanisation, and an opening up of regional markets in Southeast Asia – are leading to new challenges as well as new opportunities for the years ahead, and especially so for the country’s education system.

The key to competitiveness

“A skilled labour force is crucial to leveraging these opportunities,” adds the World Bank. “Without the right skills, opening up to ASEAN may pose a problem more than an opportunity. Without the right skills of urban migrants, urbanisation will not bring about the benefits of scale. Without the right skills of youth, the growing demand for higher quality products and services may be met by importing them rather than increasing the value added of Indonesian firms.”

The fairly direct point that is being made here is that education – both improved access to all levels of education and better alignment of graduate skills to labour market requirements – will be key to Indonesia’s future prosperity.

There are indications of high levels of unemployment among recent higher education graduates. Indeed, youth unemployment levels, as reflected in the table below, are considerably higher than the national rate (which has ranged between 6-9% over the past several years and was 5.9% in 2014).

Unemployment rates for Indonesians aged 15 to 24, 2006 to 2011. Source: World Bank

Further, a 2014 employer survey highlights the difficulty that employers have in recruiting management and professional staff. In part, this is a function of the education system not producing the types of skilled graduates that the economy requires. But it also reflects the challenge of keeping up with Indonesia’s hot economy. The country graduates about 30,000 engineers each year, for example, but needs as many as 50,000 annually by some estimates. Without a dramatic expansion of the graduating class, that 40% gap between supply and demand is expected to grow wider over the next decade.

For the moment, most higher education graduates in the country – close to two-thirds of the total – are employed in the public sector (three quarters of those are in the education sector, mainly as teachers). Another third of graduates find work in the private sector, again largely in services such as tourism and finance.

In some respects, the current demand for tertiary education reflects this employment pattern with roughly one in five higher education students enrolled in economics, law, and social science programmes, and a majority of students in public universities enrolled in teacher training. “The high enrolment in teacher training can be attributed to the increased attractiveness of the teaching profession after the enactment of the Teacher Law in 2005, providing certified teachers a professional allowance amounting to 100% of the basic monthly salary,” reports the World Bank. “There was a growth of five times in the number of student enrolled in teacher training programmes between 2005 and 2010 – from 200,000 in 2005 to over one million students in 2010.”

Follow the money

It is widely acknowledged that education has been historically underfunded in Indonesia. The World Economic Forum’s Human Capital Report 2015 ranks the country 69th out of 124 in terms of human capital development. The index reflects the extent to which each economy is developing and using its potential human resources, and, notably, Indonesia’s placement in the 2015 ranking falls below that of its ASEAN neighbours: Singapore (24th), the Philippines (46th), Malaysia (52nd), Thailand (57th), and Vietnam (59th).

Other recent international competitiveness indices also reliably rank Indonesia below other Southeast Asian markets, a consideration that bears heavily on expectations for how the country will compete in a more open regional market when the ASEAN Economic Community comes into being at the end of this year.

However, as the expansion of teacher training enrolment reflects, the government has taken steps towards education reforms and greater investment in education in recent years. Significant increases in government spending have led to real gains in terms of secondary enrolment, and the number of higher education students has doubled over five years. By 2010, the gross enrolment ratio (GER) had also doubled to 30% (compared to 2001). It dipped again, to 25%, between 2010 and 2012, but is expected to recover in the wake of expanded education budgets in the years since.

“Overall spending for higher education has tripled in real terms to over 30 trillion rupiah [US$2.67 billion],” reports the World Bank. “Plans for further expansion are aggressive – to triple the number of students in technical programmes and increase the number of doctoral students fivefold by 2025, to establish a community college in every district, and, through higher secondary school enrolments and more scholarships, increase the pool of entrants to higher education institutions.”

Aside from the increasing education budgets, there are some notable trends here:

  • a growing population of prospective higher education students;
  • an increasing awareness of the links between education and better employment opportunities;
  • a greater emphasis on vocational education and training, including:
    • an expansion of vocational colleges;
    • increased funding for vocational studies;
    • greater participation by universities in delivering vocational programmes;
    • the introduction of a national certification scheme for vocational skills.

Taken together, these factors open the door to a range of opportunities for foreign education providers and education marketers, including an expanded recruitment of Indonesian students to language and academic programmes abroad, partnering with Indonesian institutions, and, under an emerging regulatory regime, the potential for foreign providers to deliver education programmes in Indonesia.

New ministry a focal point

Most recently, the country’s allocation to higher education and research spending for 2015 amounts to 42 trillion rupiah, or roughly US$3.2 billion. This budget line has been assigned to a newly created national department, the Ministry of Research, Technology and Higher Education, which was created late last year and operationalised via a presidential decree in January 2015.

The new ministry combines the higher education units of the previous Ministry of Education and Culture with the previously separate Ministry of Research and Technology to create a focal point for policy and investment in advanced education and research. As University World News  reported recently, the new ministry aims to “improve the country’s higher education system, increase the employment prospects of graduates and improve innovation in the country.”

The department’s inaugural minister, Muhammad Nasir, will also oversee a new model for university governance. Minister Nasir announced earlier this year that a new National Higher Learning Institutions Coordinating Body will be set up to administer both private and public universities in Indonesia. Whereas previously the country’s 3,000 private institutions were overseen by a separate administrative agency, the minister has said that going forward there would be “no differences between public universities and private universities.”

The Indonesian government clearly intends that the new ministry will be a vehicle for further reforms and for a more coordinated national response to persistent issues of linking graduate skills to labour market requirements, driving innovation, and creating links between academic research and industry. Needless to say, given the scale of challenge and opportunity facing the country, the stakes are high. As the minister said in a recent interview, “Higher education in Indonesia must produce qualified workers.”

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