Addressing Indonesia's skills gap

Ranking fourth globally in size after China, India and the US – and the third largest in Asia – Indonesia’s education system is both large and varied, a complex interweaving of public and private systems all governed to some extent by centralised and decentralised governmental oversight.

Economic Lever

By 2030 Indonesia is expected be the world’s seventh-largest economy, according to the McKinsey Global Institute. Its huge source of youthful human capital has the potential to be one of the country’s most powerful economic levers.

A succession of governments has perceived this potential advantage and formulated plans to exploit it by attempting to provide road maps for excellence in education, both public and private. However, despite sizeable allocations of public funding for the sector, educational attainment has lagged far behind other South-east Asian countries, and a stubborn gap remains between the skills graduates have as they leave schooling and those that industry leaders say they need. Indeed, the Boston Consulting Group has predicted that within five years, Indonesia’s largest firms will struggle to source qualified candidates for fully half of their entry-level positions. How to resolve the numerous systemic impediments to success in the country’s education system is thus a matter of concern at the highest levels of government.

When President Joko Widodo came to office in 2014, he organised a shake-up of the education system in an effort to reform it and to make it better serve the country’s economic and cultural goals. He split the education system into two separate entities: the Ministry of Primary and Secondary Education and Culture, and the Ministry of Research, Technology and Higher Education (see analysis).

An Exam-Based System

In Indonesia’s more than 250,000 schools, 2.6m educators teach and train over 50m students with a literacy rate of 92.8%. The Indonesia public (national) basic education system provides non-mandatory preschool or early childhood education (ECE) formally in kindergartens, both religious and non-sectarian, and informally in day-care centres. At age seven, students enter primary school, which lasts for one-half of the soon-to-be-compulsory 12 years of schooling (until June 2015, only nine years of schooling were compulsory). At the end of grade 6, students take a national examination, the results of which determine where they attend lower secondary school for the next three years. At the end of grade 9, students take another national exam and go on to upper secondary education, choosing either a general area of study, a technical and vocational education (TVE), or a religious course of study for three years. At the end of upper secondary education, students who pass another national exam are awarded a certificate allowing them to continue on to higher education, after sitting an entrance exam for a place in a state university. With the exception of the first three years of primary school, the language of instruction is Bahasa Indonesia.

At this juncture, students have a variety of options regarding where and what to study next. Indonesia’s higher education system encompasses all areas of study at all levels. Its institutions include colleges and universities where students can study liberal arts and science to attain an S1, S2 or S3 degree, which are equivalent to the bachelor’s, master’s and doctoral degrees. There are also campuses for polytechnics and academies, where students may pursue applied scientific or technical studies in preparation for a professional education, earning degrees ranging from the D1 to the D4. The “D” degrees follow a spectrum of associate (D1-D3) degrees, with the D4 equivalent to a four-year bachelor’s degree.

Complementary Alternatives

Working in conjunction with – and complementing – the national system are Islamic religious schools (pesantren and madrasah) and TVE schools, which can be both Islamic and national. Although it is difficult to determine the exact number of Islamic schools due to double counting, educational specialists estimate that Indonesia is home to around 50,000 madrasahs, with about 13% of all students enrolled in the formal educational system studying in them.

Teaching a curriculum sanctioned by the government that comprises 70% general subjects and 30% religious subjects, these schools operate in parallel to the national school system, with their own set of primary (Madrasah Ibtidaiyah), lower (Madrasah Tsanawiyah) and upper secondary schools (Madrasah Aliyah), as well as TVE (Madrasah Aliyah Kejuruan, MAK) at the upper secondary level.

Skills Gap

To bridge the technical and vocational skills gap that is currently threatening to constrain the growth of the country’s economy as a whole, the Indonesian government has been actively encouraging students to enrol in TVE schools. It has set a goal of reaching 50% upper secondary enrolment in TVE schools by 2015. So far, the drive to encourage TVE schooling seems to have been highly successful: by 2012 around 4m upper secondary students (43% of the total) were enrolled in TVE schools, up from 2m (34%) in 2005, according to UNESCO statistics.

Although TVE schools are required to adhere to the national curriculum, the government encourages their administrators to make modifications and enhancements to the curriculum that will enable the future workforce to meet the needs of industry. With this in mind, TVE schools are allowed to widen their focus to include a variety of specialisations, from information and communication technology to agribusiness, engineering, tourism and management. In line with President Widodo’s vision of turning Indonesia into a “major maritime axis”, entailing port infrastructure upgrades to boost inter-island connectivity (see Transport chapter), plans are under way to include maritime training on the curriculum. “If Indonesia is to become a maritime power, it is fundamental to improve the education system in order to develop our human capital with the right set of maritime skills,” Victor Hartono, CEO of the Djarum Foundation, told OBG. “The Minister of Education certainly has a very big task ahead.”

Budgeting for Learning

The 12-year compulsory education programme obliges the government to cover all costs of education as well as to provide all the required facilities for it. Indeed, a set allocation to education is enshrined in the constitution.

In 2002 lawmakers added an amendment to the constitution requiring central and regional governments to set aside 20% of their annual budgets for education. The country’s education sector has since then seen funds increase exponentially, from Rp154.2trn ($12.7bn) in 2008 to a planned Rp404trn ($33.4bn) in 2015. The budget for education therefore comprises a significant portion of both central and regional governments’ annual budgets.

Another source of funding is the School Operational Assistance (BOS). Established in 2005, the BOS programme allocates block grants to schools in order to pay for the free schooling mandated by law. BOS funds replace the fees poor children would otherwise have to pay to attend public and private schools. The central government apportioned Rp4.8trn ($396.8m) for the BOS programme at its launch in 2005. In 2012 the amount had increased to Rp23.6trn ($2bn), according to the International Labour Organisation. The augmented allocation over the years has meant more students have benefitted from the programme. In 2005 BOS funded the fees of 34.5m students; in 2008, 41.9m students; and in 2012, 44.7m students were assisted by BOS.

Attainment

Despite mandated allocations and reshufflings of the education system to enhance its functionality, educational attainment remains low. The results of recent standardised tests sketch a gloomy picture: the OECD’s Programme for International Student Assessment (PISA) ranked Indonesia second to last of the 65 countries that participated in the 2012 survey; of 40 countries that participated in the Learning Curve Pearson 2014 report Indonesia ranked last in educational attainment; and only three of Indonesia’s universities are listed in the global 400, while none rank in the global top 100. Although standardised tests are fallible and do not always tell the whole story, it seems that there is clearly room for improvement in the country’s educational system and institutions. Administrators are engaged in enacting the necessary improvements, but how to make improvements that are truly effective in the long run can be a hard problem to solve.

Enhancing the quality of teachers by mandating teacher training and offering financial incentives is a good example of this conundrum. The 2005 Teacher Law saw the implementation of a strict certification system for teachers under which they were required to have either an S1 diploma or a D4 degree.

In addition, the National Standards Board set new certification standards for educators and supervisors, and the universities’ teacher training institutes were obligated to provide four-year courses to prepare teachers for service. The 2005 law also required that, by 2015, 3m elementary and secondary school teachers be certified under these new standards. In return for achieving the new standards, teachers became eligible to receive funds in excess of their salary, which in turn attracted more students to take up teaching as a career. Unfortunately, the consensus among those in the education system seems to be that the additional funds have not made much difference in the quality of teaching, and there is now a surplus of teachers who cannot find positions.

Joining the Club

Raising the standards of such a huge and multifaceted education system is clearly a monumental and ongoing undertaking. Adding to the complexity of the task is that it is happening in tandem with Indonesia taking the final steps toward full integration into the ASEAN Economic Community (AEC) at the end of 2015.

Membership in the AEC will raise the bar for education in Indonesia even higher, as Indonesian graduates and labourers will for the first time be competing directly with the workforces in other ASEAN countries. In 2012 almost 47% of the Indonesian workforce was categorised as low-skilled labour, according to World Bank data. This is a troubling figure, especially as Indonesia’s labour force prepares to enter the ring with the likes of those in Singapore and Malaysia. More worrying figures were included in a 2014 policy brief issued by the World Bank on the responsiveness of Indonesia’s higher education system to the labour market. On a somewhat positive note, it found that between 2000 and 2010, the number of workers with some tertiary education had doubled from around 5m to more than 10m. However, the brief also found that in order for the country’s labour supply to meet its economic demand, the percentage of workers with tertiary degrees would need to almost triple to 21% from only 8% in 2014. It is possible to compare this level of educational attainment to that in Malaysia and Singapore, where 80% of the workforces have graduated high school and college, and it seems likely that Indonesia will struggle, at least in the beginning, to compete in all sectors of the ASEAN free labour market.

International & Intercultural

There has historically been a thriving international school sector in Indonesia. Private schools have been popular and well attended at all levels. In 2012 almost 42% of all students in secondary education were enrolled in private institutions. The McKinsey Global Institute estimates that by 2030, demand for private education could reach $40bn and the number of students in private schools could almost double to 27m. These schools are a popular choice for education among both expat and wealthy Indonesian communities. Now referred to as intercultural or embassy schools, these institutions are widely considered to provide a higher standard of education to that available within the public sector. Indeed, some of the country’s best known institutions include the Australian Independent School (formerly the Australian International School), Jakarta Intercultural School (JIS) and British School Jakarta, among many others.

Beyond providing an international education taught in English, these schools also play a key role for business and industry in the country. Many foreign-owned or -operated companies use the offer of paid tuition at one of these schools as an incentive to attract employees with families to relocate to Indonesia. Even if paid tuition is not in the offer, the mere availability of such schools can be a make-or-break issue for a family considering moving overseas.

International schools hold value for many Indonesian families, too. Until recently, these schools have been open to all comers, depending on availability. According to UNESCO data for 2012, the percentage of local students enrolled in private primary schools in Indonesia was 17%; lower secondary, 36%; and upper secondary, 50%. And, in 2014, local students filled 47% of all international school places, according to the International School Consultancy Group.

English Language

Indeed, the trend for affluent and, more recently, middle-class Indonesian families has been towards sending their children to these schools, not only for their perceived high standards of quality, but also for the availability of classes conducted in English rather than in Bahasa Indonesian. In addition, gaining entrance to a university place is thought to be easier for graduates of international schools, who will have earned an International Baccalaureate or other internationally recognised degree.

In 2014, the ministry of education issued a directive – which was part of an overall effort by the ministry to include more morality, civics and Islamic study in the national education system – requiring that these schools drop the word “international” from their names. Furthermore, the schools were instructed to change to their curricula for both foreign and domestic students to include subjects such as Indonesian culture and language (in addition to religion for Indonesian students). In addition, Indonesian students attending international schools are now required to sit both the exam for the diploma or degree they are pursuing at school and the national exam that all public school students take.

The result of the directive for international schools has been chaotic. They have been divided into two different types of institution: joint cooperation schools (SPK) and foreign education institutions (LPA). SPK schools are those that are locally owned but internationally accredited; they may also teach an international curriculum. SPK schools must be affiliated with an overseas school or educational authority, while LPA schools are schools affiliated with a foreign entity, such as an embassy. In addition to changing the curricula of both SPK and LPA schools, the new regulations exclude Indonesian students from attending LPA schools, which are now open only to citizens of the foreign entity or embassy affiliated with the school. Meanwhile, foreign students attending SPK schools must study Indonesian culture and language.

In the aftermath of these changes, some commentators have questioned whether the polished and cultured reputation of the country’s international schools has been tarnished, and how this might affect foreign investment. “It’s vital to foreign direct investment here to have a vibrant world-class school that will take care of the needs of this mobile population,” Timothy Carr, the head of the JIS, told the Wall Street Journal in December 2014. But some educators have discerned the reasoning behind the changes.

“It’s part of a country and its development, wishing to regulate and control education in its own country,” Simon Dennis, principal at the British International School, told Forbes in October 2014. Both points of view are unquestionably valid. However, it may be a long time before all the ripple effects arising from the country taking more ownership of its education sector, including the reputation of the private education sector, can be discerned. The risk for international schools is that, in the interim, some expatriates may decide to send their children to Malaysian or Singaporean international schools.

Higher Education

As with international schools, higher educational institutions (HEIs) are also feeling the effects of the government’s recent reforms to the system. Indonesia has a large number – approximately 3000 – of private HEIs operating at varying degrees of excellence. In 2012 more than 66% of students in Indonesia were enrolled in private tertiary education, according to UNESCO data.

However, complaints are common about the uneven quality of education offered by some of these HEIs, despite the high tuition fees they demand. Until recently, the government has redressed these criticisms by instituting quality control via the Private Universities Coordinating Body, whose function has been to manage and accredit private HEIs and state universities. However, Muhammad Nasir, the new minister of research, technology and higher education, has announced plans to alter this arrangement with the creation of a new National Higher Learning Institutions Coordinating Body (called LP2 PTN). Set up with the aim of taking both private and public HEIs under its wing, LP2 PTN’s eventual goal will be to successfully harmonise the educational experience and outcomes of both varieties of institution.

Intense Competition

Students are therefore faced with an increasingly competitive environment as they try to gain entrance to one of Indonesia’s 30 public universities. Admission to what are considered the country’s top state universities – most notably, the University of Indonesia, the Bandung Institute of Technology and Gadjah Mada University – is considered to be very difficult indeed.

The number of students vying for seats, for example, often overwhelms the availability of places. For instance, the 447,000 students who took the national university entrance examination in 2010 were competing for only 80,000 open places.

Indeed, the decidedly competitive situation in 2010 was not out of the ordinary. Places at public universities are prized for the higher quality of education they deliver and the lower tuition fees they demand – about a tenth of what some private HEIs charge.

For these reasons, places in public universities are much more scarce than those in private HEIs, a situation that is the opposite of what is found in most countries’ HEI sectors. Why this should be the case is a bit of a puzzle. Some observers have pointed to corrupt practices by officials and educators alike. Some say globalisation is to blame for flooding the country with below-par private HEIs.

Others bemoan a lack of governmental oversight brought on by scarce human resources as well as a lack of funding. That said, wherever the truth may lie, private HEIs’ reputation for poor quality is so widespread that, in 2013, that it has been estimated that the vast majority of the country’s more than 3000 private universities would not be able to compete with international universities when the country joins the ASEAN Economic Community in 2015.

Indonesia’s higher education system therefore has a mismatch of supply and demand – and quality – that could potentially represent a valuable opportunity for foreign investors. Indeed, the British Council’s 2012 Going Global report, “The Shape of Things to Come”, predicted that by 2020, Indonesia would become home to the world’s fifth-largest education system – after China, India, the US and Brazil – and that the number of Indonesians in higher education would grow by 2.3m, for a total of 7.7m students.

Yet the country’s public universities currently cannot meet this demand, and many private HEIs are not performing as well as they should be. It is hard to escape the conclusion that students, especially those in the country’s growing middle class, will soon start to look overseas if they cannot find adequate domestic sources of higher education. In its Going Global report, the British Council reckoned that the growing number of internationally mobile Indonesian students will make the country one of the world’s major international education markets in the next few years. Whether that market will operate within Indonesia or abroad is a matter many will be watching.

Outlook

Although the education system faces challenges all along the line – from the allocation of adequate resources to stabilising institutional frameworks and stamping out corruption and bad actors – the reasons to continue to strive for academic excellence are many. Perhaps the most significant motivating factor is that the country’s future, economic and otherwise, depends on its ability to educate and properly train its huge cadre of students to compete in a global economy.

This means introducing and promoting entrepreneurship, championing excellence in teacher training, changing the national exams system where necessary, encouraging vocational training to close the skills gap and ramping up innovation to compete in a knowledge-based economy within the AEC. The rewards may not come easily, but they will be both enormous and long-lasting when they do arrive.

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The Report: Indonesia 2015

Education chapter from The Report: Indonesia 2015