Indonesia's government encourages private investment in education


Projected to have a workforce of 65m young adults by 2035, the country is turning its focus to education to better ensure its citizens will be prepared to perform in an increasingly competitive economy. Indonesia is the world’s fourth-most-populated country and guaranteeing that everyone has access to quality education is no easy feat, especially considering the many, not least, infrastructural challenges posed by its archipelagic terrain. While the construction of new school facilities continues to receive investment, authorities are simultaneously prioritising improvements to curriculum and teacher performance to boost the overall quality of public education.

Meanwhile, the sector has seen increasing private participation since it was removed from the negative investment list in 2010, allowing foreign investment in the education sphere. Education will see continued growth in the years to come as it remains a priority in the fight against poverty. Furthermore, as Indonesia works to develop a competitive edge within the ASEAN Economic Community (AEC), making certain its workforce has the skills and training to propel the country forward is a priority.

FRAMEWORK: Indonesia has 3m teachers and 50m students studying at more than 300,000 schools nationwide. Schooling is compulsory for children aged seven to 16 and there are three levels to the system: primary, junior secondary and senior secondary. Until 2014 both mandatory and tertiary education were under the remit of the former Ministry of Education and Culture. However, this body has since been restructured and changes also made to the former Ministry of Research and Technology, with the aim of improving the quality and commercial viability of tertiary education across the board.

The reformed Ministry of Primary and Secondary Education and Culture (Kemdikbud) oversees mandatory education, while the revamped Ministry of Research, Technology and Higher Education (Ristekdikti) now manages colleges and universities. Meanwhile, the Ministry of Religious Affairs ( Kemenag) is responsible for all religious institutions.

BUDGET: Through a constitutional amendment in 2002 the government decreed that a minimum 20% of annual budgets – both estimated and revised – is to be allocated to education. After a thorough consultation period on how to implement this decree, the target was first met by the government in 2009 and has been maintained ever since. However, the recent reorganisation of Kemdikbud and Ristekdikti has had a significant impact on the apportionment of capital between the two ministries. The budget for Kemdikbud dropped from 4.3% of GDP, or Rp80.7trn ($6.1bn) in FY 2014 to 2.7% of the budget, or Rp53.3trn ($4.0bn) in FY 2015. This declined further to 2.3% of GDP, or Rp49.2trn ($3.7bn) in FY 2016. However, during the same period, Ristekdikti funding rose sharply from 0.03% of GDP, or Rp600bn ($45.2m) in FY 2014 to 2.2% of the budget, or Rp43.6trn ($3.2bn) in FY 2015. Allocation for this ministry then declined slightly to 1.9% of GDP, or Rp40.6trn ($3.1bn) in FY 2016. Funding for Kemenag stood at 3% of the total budget in FY 2015, or Rp60.3trn ($4.5bn), and 2.7% of GDP, or Rp57.1trn ($4.3bn) for FY 2016.

STRUCTURAL REFORM: Until 2016 management of schools was decentralised, meaning the education ministry gave authority to districts. Management for the senior secondary school level has since shifted up to the provincial level. For the next two to three years, the provincial education authorities are expected to monitor and assess the conditions of senior secondary schools, complete the transition in management from districts to provinces and determine which areas need the most support.

While Indonesia has made great improvements to its education system in recent years, it still faces challenges on a structural level. “As education ministers are replaced every five years, there is often little follow-through on development plans,” Juli Adrian, president director of Provisi Education, told OBG. “Rather than continuing the work of the predecessor, new ministers typically scrap old plans and set new targets, as such the education system ultimately remains vulnerable to inconsistency.”

DEVELOPING EDUCATORS: Officials in education authorities often do not have teaching backgrounds, and this can prevent them from being able to identify shortfalls and thus raise overall standards within the system. Bringing high-performing educators into supervisory positions could create a trickle-down effect on curricula and teacher quality, both of which have been identified as priority areas in need of improvement within the public school system.

Indonesia regularly hosts a high number of foreign teachers, but is falling behind with regional integration, as it does not send many of its own educators abroad, either to work or for training. While the exposure to foreign teaching practices could benefit Indonesian teachers, a transfer of knowledge in the sector is ultimately lacking, according to Adrian and Jaspal Sidhu, founder and CEO of the SIS Group of Schools, an international school group offering the Singaporean curriculum.

To address this issue the group recommends that increased resources be directed toward teacher training institutions. While this would boost the quality of education available to students around the country, it would also enable Indonesia to become more competitive within the AEC single market from a human resource perspective.

PISA PERFORMANCE: Every three years the OECD releases its Programme for International Student Assessment (PISA) report. The latest survey took place in 2015 and its findings were published in December 2016. The 2015 programme surveyed 540,000, 15-year-olds from 72 countries, focusing on mathematics, science, reading and problem solving, to judge how well the students could apply their knowledge rather than rely on memorisation. The survey assesses students from both public and private institutions. The 2015 report showed that Indonesia ranked below the OECD average in the categories of science, mathematics and reading, behind many of its neighbours, including Malaysia, Thailand and Vietnam. Results from the past 10 years of PISA surveys have remained consistent; Indonesia has yet to meet the OECD average for these categories during that time.

In addition to testing for comprehension, PISA also examines parental involvement in their children’s schooling. Parental involvement, as well as teacher training, is considered one of the priority areas for improvement in Indonesia’s education system. Approximately 40% of Indonesian parents have never met their children’s teachers and around 90% have never volunteered to help with a classroom activity or have only done so once.

Although its overall rankings remain low, Indonesia has shown improvement in some areas. In the PISA study of the cohort’s performance in science between 2012 and 2015. Indonesia had the fifth-fastest rate of improvement among the 72 countries surveyed, with results showing a 21-point increase over the three-year period.

Other 2015 PISA reviews found that students’ performance in mathematics and reading has improved considerably since 2012. As the focus turns to refining curriculum and teaching quality, Indonesia looks likely to continue on this trajectory and see better results in future assessments.

ACCESS ISSUES: School enrolment for students aged 13-15 increased from 88% in 2011 to 95% in 2015. However, the country still faces a challenge in retention and there is a significant urban-rural divide when it comes to access to education and quality provision. Kemdikbud has also acknowledged the role which gender inequality continues to play in education access. Indonesia lags behind many of its ASEAN neighbours in this regard, ranked 88th in the world out of 144 countries, according to the World Economic Forum’s “Global Gender Gap Report 2016”. While Indonesia has made improvements in this area at a rate faster than the OECD average, more can be done to improve girls’ inclusion in education, particularly across the full range science fields.

As is the case with trends globally, science, technology, engineering and mathematics careers are currently seeing sustained growth in the country. A PISA survey of 15-year-olds found that nine out of 10 girls hoping to pursue a career in science expected to work in a health-related profession. While health care workers are in high demand throughout Indonesia, so too are engineers, IT technicians and other high-skilled professionals. Exposing girls to more areas of science – via the classroom or extracurricular activities at a younger age – is something that could boost interest in these fields and ultimately help fill human resource gaps currently being experienced across a number of these sectors of the domestic economy.

PRIVATE EDUCATION: As Indonesia’s middle class expands and disposable income increases, more parents are opting to pay for private education for their children. Private schools accounted for 36.17% of the total student body in the 2015/16 school year, up from 29.17% in 1999/2000. While public schools have been underperforming, private schools continue to offer higher-quality education and access to stronger teaching. These schools are also leading the way with the integration of classroom technology, with tablets, smartphone applications and other devices connecting students to innovative and interactive lessons.

However, most private schools are expensive and often out of reach for much of the population. Furthermore, most are concentrated in major urban centres, leaving a gap in access in smaller cities and rural regions. Joni Hermana, rector of the Institut Teknologi Sepuluh Nopember, told OBG, “It is a challenge outside Jakarta to find quality teaching staff. Most graduates want to work and live in Jakarta and the other schools have to compete for the ones left behind.” These areas could benefit from private investment in new institutions and from a sponsorship model that would decrease tuition costs for lower-income students, thus widening access.

GLOBAL DEMANDS: Across all levels of schooling, curricula that offer foreign-language education is in high demand, with many students aiming to attain jobs in multinational companies. This has triggered growth in bilingual schools as well as greater interest in opportunities to study abroad, where students can build their skills in foreign languages that are widely spoken in international business. Currently, over 50,000 Indonesians are studying abroad and this number is expected to increase, making it the second-most-important student market in Southeast Asia for US education providers.

There is also significant demand from expatriates who wish to send their children to private schools while living and working in the country. These institutions were formerly known as international schools, but have recently changed their titles in line with new regulations. For example, since December 2014, there has been a ban on the use of the word “international” in the names of all educational institutions. The ban does not affect other areas of practice within educational establishments; many have since altered their names to “intercultural” or other variations that still suggest a blend of language, teaching methods and international practices is offered in the curriculum. These institutions remain desirable choices for the children of local families and expatriates alike.

Demand for private education in the mainstream system is arguably most prevalent at the tertiary level. Of approximately 4000 colleges and universities in Indonesia, 70% are private. To further improve the quality of these institutions, higher education authorities are focusing on meeting requirements, improving university management and quality, and diversifying research opportunities available to students. With significant work ahead, private partners are expected to help fill gaps in funding and access. By end-2017 the government is due to issue clear new regulations, in compliance with the Higher Education Act 2012, with the aims of attracting foreign institutions to set up on a non-profit basis and collaborate with local universities.

Other potential initiatives include appointing experienced foreign rectors at state universities and making the English-language curriculum compulsory. Areas likely to attract investors’ attention are those that offer favourable conditions for prospective students, including an affordable cost of living and other relevant factors that could incentivise enrolment in new and expanding universities.

RELIGIOUS SCHOOLS: Indonesia is seeing growing interest in religious-based education throughout the archipelago. The country has the world’s largest Muslim population, who comprise approximately 90% of the country’s total. Public school curricula have seen an increased emphasis on religious education in recent years, while both public and private religious schools are seeing higher enrolment. To meet rising demand, authorities have issued more building permits for Islamic schools in 2017; Yogyakarta alone will see an additional 18 schools constructed by the end of that year. While more students are entering Indonesia’s public Islamic schools each year, there is a significantly higher number of students enrolling in private schools that offer religious-based education.

According to Kemdikbud statistics, enrolment in public Islamic primary schools increased from 434,700 for the 2013/14 academic year to 474,400 registered students in 2015/16. There were 2.8m students enrolled in private Islamic primary schools during the 2013/14 school year; this number rose to 3.09m during the 2015/16 period. Meanwhile, at the senior secondary school level, 415,100 students enrolled in public Islamic schools for the 2015/16 academic year, compared to 362,800 in the 2013/14 period. Private Islamic schools continued to host the majority of students at this level, up from 736,600 in 2013/14 to 879,700 registered in 2015/16, a 19% increase in the student body over this period.

Kemenag oversees these institutions. However, now that the country has undergone a process of decentralisation, individual provinces are able to set their own regulations regarding the level of religious presence in school activities, curricula and dress codes. There are many factors leading to increased enrolment in these institutions, among which is the understanding among parents that they provide a level of structure that public schools lack. Furthermore, when public schools are deemed to be failing to offer quality education, religious schools are able to step in to fill the void. Despite rises, the segment continues to make up a very small part of the overall student population. At the primary level, 6.11% of pupils attended a religious school in 2015/16. The figure for secondary school stood at 5.42% for junior-level students and 2.22% at the senior level.

HIGHER ISLAMIC EDUCATION: Islamic universities are also experiencing a period of growth. The Islamic Development Bank, for example, allocated $238m to fund the construction of new buildings at the State Islamic University of Sunan Ampel Surabaya, an institution that collaborates with a number of universities in Australia and Europe.

Other investment areas covered by the Islamic Development Bank funding are training courses, grants and scholarships aimed at improving the quality of the workforce. Islamic universities expect enrolment to remain on an upward trajectory in the coming years and plan to expand their international student recruitment efforts into new markets.

However, building a workforce to keep pace with this growth may not be easy. “One of the biggest challenges is to find quality staff,” Abd A’la, rector of Sunan Ampel State Islamic University, told OBG. “For us it is also an extra challenge to find staff who fit in with the university’s philosophy.”

Further investment in research facilities would help bridge these human resource gaps. Additionally, it would better prepare graduates for an increasingly competitive workforce, both domestically and abroad. Abd A’la told OBG, “The problem with ASEAN cooperation is the fact that Indonesia is not really competitive. We have a lot of facilities, students and budget, but you have to connect skills and knowledge to the needs of the market. This is the only way to become more competitive in a fast-growing region like ours. Both government and institutions should focus less on quantity and more on quality.”

VOCATIONAL: The quality of vocational education has been low, with only 22.3% of teachers having sufficient qualifications, according to the education ministry. This contributes to low employability among graduates from many institutions.

In early 2017 the government announced plans for reforms to the vocational training curriculum, indicating that this area of the education system will be one of its priorities for the year. Changes include shifting vocational training management from the district to the provincial level.

The education ministry also implemented a teacher training programme to enhance the skills of educators according to individual trades. Of its 13,000 vocational institutions roughly 400 schools were included in a pilot programme implementing new teaching methods that include more practical elements. The project will now be rolled out in more vocation classrooms around the country.

Victor Hartono, president director of Djarum Foundation, told OBG, “It is important to keep investing in vocational education, as this will solve unemployment issues and reduce inequality gaps faster than many other methods.” Reforms, such as a one-year programme to train multi-skilled teachers, are coming at a time when the country’s leaders are looking to vocational education as a solution to many of the economic challenges it faces.

WORKFORCE NEEDS: Whereas infrastructure projects often progress slowly, vocational education can offer direct and more sustainable results, and the government has begun to realise its benefits. Increased investment in vocational education could help Indonesia meet its need for skilled workers, the shortage of which has become a bigger concern under AEC integration. However, the stigma attached to vocational trades will also need to be addressed in order to encourage more young adults to enrol in these institutions. Engineering, culinary arts, graphic design, hotel management and maritime science are among the professions likely to have sustained demand over the coming years. Private investment in institutions, particularly those which help boost research and training capacity, will be a vital component of the sector’s growth.

STAFFING SCHOOLS: Until the early 2000s Indonesia suffered from a lack of human resources in its education sector. Public teacher salaries were so low that many employees had to work second jobs and there was little incentive for people to choose the profession or remain in the field. To rectify this, in the mid-2000s the government doubled the salary of individuals with teaching certifications through the Teacher and Lecturer Law 2005.

As a result, some 1m people applied to become teachers in 2010 alone. However, while the shortfall in human resource supply has largely been addressed, the World Bank’s “Teacher Reform in Indonesia 2014” report concluded there had been little improvement in student scores despite the reforms.

As such, the focus has shifted towards improving the quality of educators in the country.

TEACHER TRAINING: Teacher training efforts in Indonesia are frequently conducted by NGOs, private companies and other organisations. Indeed, education has long been a popular destination for corporate social responsibility (CSR) funds and many multinational companies with local operations, such as Cargill, Chevron and General Electric, were engaged in school construction and the provision of education fundamentals like books, until about 10 years ago. This decade has seen a shift in CSR activity in the education sector; improving capacity of schools and their teachers is now considered a bigger priority for interventions.

However, CSR efforts are typically short-term in nature and companies tend to focus CSR activities in areas related to their business or geographic locations near to their operations to meet their staffing needs. This leaves gaps in subjects and places that do not see significant business activity. A more organised, long-term and wide-reaching programme is necessary to engender the systemic and sustainable changes to teachers’ skills needed to improve outcomes for students. The development of such a system is likely to require state support, though the use of public-private partnerships (PPPs) has been touted as a way to ensure labour market needs are accounted for and quality is enhanced.

“Teacher training is an ideal area for PPPs,” Sidhu told OBG. “The country would benefit significantly from such partnerships, which provide a great opportunity for its educators to be exposed to best practices on an international level.”

EDUCATION TECHNOLOGY: While e-learning is starting to gather pace in Indonesia, growth is being held back by some legislative barriers. Already adopted across much of South-east Asia, e-learning is seen as an innovative solution to the need for higher-quality teachers and greater access in outlying regions. A 2016 report from EdTechXGlobal and IBIS Capital forecasts the education technology services market will reach a value of $252bn by 2020, with the Asia-Pacific region expected to account for 54% of the value. Local start-ups are the primary growth drivers in South-east Asia, but foreign investors from countries like the UK have begun to eye Indonesia, in addition to other markets.

In November 2016 Pearson, a UK-based global education platform, announced plans to invest $2.2m in HarukaEdu, an Indonesian platform that offers online degrees, through the Pearson affordable learning fund, a $65m fund focused on education technology. HarukaEdu estimates Indonesians with college degrees can earn up to three times more after 10 years in the workforce than those with only high school diplomas. An OECD report found that in OECD countries, graduates of tertiary programmes earn on average 55% more than workers with high school diplomas only. Broadening online access to higher education would enable a greater number of students to attain more competitive qualifications and ultimately higher salaries. However, policy will need to evolve for this segment to fully take hold. “Several multinational companies are interested in investing in e-learning, but still don’t know what the national strategy is regarding the use of technology for supporting education,” Adrian told OBG. “This needs to be addressed by the government to better take advantage of these opportunities.

OUTLOOK: Significant work lies ahead for Indonesia as it moves to meet the fourth of the UN’s 17 Sustainable Development Goals 2030, which is “to ensure inclusive and quality education for all, as well as promote lifelong learning”. Private investment is likely to be key in ensuring the education system benefits the growing population coming of age in an increasingly competitive global environment.

High on the agenda will be improving public school quality, increasing retention rates and broadening access to advanced research opportunities, particularly at the university level. In addition, schools are also expected to look to the private sector to help supply internet connections, tablets and other devices, as more institutions throughout the country integrate technology into the classroom. In the years to come, quality and not quantity will be the priority; rather than focusing on basic infrastructure, boosting the calibre of educators and advancing the curriculum will ensure better outcomes for the sector as a whole. Although it has fallen behind many of its neighbours, Indonesia’s education sector has significant potential. Given the government’s prioritisation of education as a growth driver, increasing private sector involvement and high existing demand from a young population, evidence suggests the sector is poised for significant improvements and investment.

You have reached the limit of premium articles you can view for free. 

Choose from the options below to purchase print or digital editions of our Reports. You can also purchase a website subscription giving you unlimited access to all of our Reports online for 12 months.

If you have already purchased this Report or have a website subscription, please login to continue.

The Report: Indonesia 2018

Education chapter from The Report: Indonesia 2018

Articles from this chapter

This chapter includes the following articles.
Cover of The Report: Indonesia 2018

The Report

This article is from the Education chapter of The Report: Indonesia 2018. Explore other chapters from this report.

Covid-19 Economic Impact Assessments

Stay updated on how some of the world’s most promising markets are being affected by the Covid-19 pandemic, and what actions governments and private businesses are taking to mitigate challenges and ensure their long-term growth story continues.

Register now and also receive a complimentary 2-month licence to the OBG Research Terminal.

Register Here×

Product successfully added to shopping cart