Where should President Jokowi focus his administration’s human capital development efforts?
30 Jan 2020
President Joko Widodo, known colloquially as Jokowi, placed human capital development at the forefront of his re-election campaign in 2019, mindful that Indonesia will not reach his target of being among the world’s top-five economies by 2045 if it cannot fully harness the power of its large population.
Currently the world’s fourth-most populous nation and 16th-largest economy, Indonesia has the raw ingredients to become an economic superpower if it can successfully navigate the various obstacles in its path. While considerable progress was made in hard infrastructure development during President Jokowi’s first term, major structural reform is required for Indonesia to develop a workforce that can meet the demands of high-value industries.
The figures are stark: only 16% of Indonesians have attained a tertiary education, compared to the G20 average of 38%. A 2018 Bloomberg article indicated that just 17% of the workforce had finished high school. Among current high school students, 15-year-old Indonesians were some of the worst performers in the 2018 edition of the OECD Programme for International Student Assessment, which measures proficiency in maths, science and literacy in 79 markets. Put bluntly, these statistics are not indicative of a country with a future-ready workforce equipped to accelerate the transition towards upper-income status.
Business leaders who took part in OBG’s latest Indonesia CEO Survey agree that human capital development should be the most important policy focus of the new administration, with 49% choosing this option, compared to 23% who cite infrastructure development and 13% for industrial acceleration. When asked which sector requires the most attention in macroeconomic planning on human capital development, there was a wide dispersion of responses from CEOs, indicating skills gaps across the economy. The most popular response was industry (29%), followed by financial services, and transport and logistics (both 14%). Agriculture and tourism were tied on 13%.
There are encouraging signs that the government is taking heed of calls for human capital development in the industrial sector. Under its flagship Making Indonesia 4.0 strategy published in 2018, the government is seeking to catalyse investments in productivity-boosting technologies that can accelerate growth in high-value manufacturing sectors, creating 7m-19m new jobs by 2030 in the process. Underpinning the strategy are 10 national priorities, including establishing an innovation ecosystem focused on research and development, and upgrading human capital through a redesigned academic curriculum adjusted to Industry 4.0.
Nevertheless, it will take more than buzzwords and blue-sky rhetoric to prepare Indonesia’s aspirational population for the jobs of the future. Alongside rapid and effective curricula reform, heavy public and private investment in educational facilities and practitioners at all levels – including tertiary and vocational – will be required if Indonesia is to thrive in an increasingly competitive global marketplace.
One area where low-hanging fruit can be found is in inviting foreign universities to establish a presence in Indonesia, simultaneously raising standards, expanding choice and stimulating competitiveness in the market. The government issued regulations in 2018 that stipulated the conditions under which foreign universities could operate, including the need for them to offer at least two science, technology, engineering and maths (STEM) programmes, and to collaborate with Indonesian universities in education, research and innovation. Although these regulations offer clarity for investors eyeing the nascent market, no top-ranking international university has announced a move into Indonesia to date.
Interestingly, when CEOs who participated in OBG’s latest survey were asked to identify which skills were most required in the Indonesian labour market, the most popular choice was leadership (40%), followed by computer technology (29%) and engineering (13%). The proportion choosing leadership was up sharply from our 2018 survey, when 32% chose this option.
Leadership can be an abstract concept in the labour market, and its perceived absence offers something of a paradox in a country that has spawned the most “unicorn” start-ups in the region – firms valued at $1bn or more – thanks to the vision of young technopreneurs such as Nadiem Makarim, who was recently appointed minister of education and culture. It is hoped that trailblazers like Makarim can accelerate the modernisation of the education system and align it with the needs of an innovation-led economy, nurturing a much larger wave of creative business leaders and successful entrepreneurs in the process.
While the human capital development agenda should pay dividends for Indonesia over the long term, executives are hopeful that President Jokowi – free from electoral constraints – will push through reforms that can improve the business and investment climate within a much shorter timeframe. Improving Indonesia’s ranking in the World Bank’s ease of doing business index was something of a fixation for the president in his first term, yet the country remained rooted in 73rd position in the 2019 table, far from the aspiration of a top-40 ranking.
Rigid employment laws and minimum wage requirements were cited by the World Bank among the reasons for Indonesia’s stagnant position in the index, and the Jokowi administration’s stated intention to introduce sweeping changes to labour laws have already been met with protests from vested interests.
When we specifically asked about the business environment, it was noticeable that sentiment towards transparency among CEOs had deteriorated since our previous survey in 2018. The percentage of executives describing transparency for conducting business compared to the region as very high or high fell from 45% in 2018 to 32% in 2019, and the proportion of neutral respondents increased from 21% to 34%.
Similarly, confidence in the quality of local suppliers and service providers has fallen considerably, with the share of respondents describing this as high down from 47% to 27%.
Clearly then, the administration helmed by the second-term president has plenty of work to do to improve confidence in the operating environment and create the conditions conducive to productivity and efficiency, including through the removal of needless red tape and bureaucracy – a common complaint from local and international investors.
Nevertheless, South-East Asia’s largest economy still holds plenty of promise as it targets a place among the global economic superpowers, as evidenced by the 68% of CEOs whose firms plan to make a significant capital investment in the year ahead.