The passing of the 2007 law by the House of Representatives guarantees 20 of the state budget towards education, in 2010 this equated to approximately 26 billion USD. However, in practice this funding becomes thinly spread to cover the costs of basic education, teachers salaries as well as research funding. How such funding is distributed is also difficult to monitor under the decentralised system as it is controlled by the local authority. At a basic level, international aid programs have been responsible for the construction and running of thousands of primary schools throughout the country such as the Basic Education Program with the Australian Government providing $500 million USD in aid and the creation of 2000 schools (as of 2010). Education has undoubtedly seen vast improvements in the past decade with the literacy rate at 92% and school enrolment levels rising steadily. Ensuring accessibility to schooling remains an ongoing challenge and one that cannot be solved by education spending alone. Improving the country's infrastructure through roads and public transport in the most remote regions will ensure that the schools that have been built will serve all those that they are intended for.
To improve access to further education and ensure equal opportunities, the leading state universities reserve over half of all places for academically gifted high school students from across the country. Teachers in some of the most remote regions are asked to identify students that have a promising academic record for advanced admission to university. Scholarship programs have also been implemented by the government to give the most promising students from low income families the opportunity to make the most of their talents by providing funding for higher education. The program called 'Bidik Misi' under the National Education Ministry, provided 200 billion RP in scholarship funding for 20,000 students in 2010. Another program gives the opportunity for winners of an international olympiad held every year to study at the world's leading universities fully funded by the state. The effectiveness of these programs has come under scrutiny as put into perspective, these scholarships impact a very small part of the nation's youth considering that 27% of the total 250 million population are under 15 years of age. In addition, the country's most disadvantaged children are often unable to make it to the stage of education where the scholarships are awarded, due to financial pressures.
Vocational schools were set up from the 1970s by the Indonesian government as part of its efforts to reduce unemployment and to build up the capacity of its future human resources. These schools have risen in quality since the 'Vocational Education Strengthening Project' by the World Bank and the Asian Development Bank, initiated in 2006. Today there are 8,399 vocational schools across the country catering to 3.9 million students that will go on to take up jobs in key areas where skilled labour is needed such as automotive manufacture. These schools have become increasingly popular with enrolment up by 11% in 2011 from the previous year, as they meet the needs of families who lack the finances to put their children through higher education but provide reliable employment opportunities.
Despite the ring fenced 20% of state spending on education, only 1.2% of total GDP is actually spent on tertiary education compared to 2.1% in Malaysia (2007). Out of this 1.2%, only 25% is provided by the state with private sector spending making up the remainder. This illustrates that tertiary education coverage still remains low in Indonesia. Improving access and quality in higher education is where the country faces some of its greatest challenges to not only compete in light of the ASEAN one market, but also in the future of its workforce and goal to create a knowledge based economy. Indonesia's higher education system is therefore at a critical stage in the lead up to 2015 that will see it's workforce competing on a regional scale. The National Education Ministry is determined to raise the standards of education through its medium and long terms goals to rid the country of substandard universities and ensure that teachers have at least a 3 year Bachelors qualification or equivalent by 2015. To ensure the country's successful development, universities must be in tune with the needs of the private sector and foreign education providers should not miss out on the huge domestic demand for high quality education from the primary to the tertiary level. With education and lack of qualified human resources often cited as one of the greatest obstacles to doing business in the country, failure to raise the bar on a country wide level will have far reaching effects on the nation as a whole.
There are immense benefits to be found on both sides of a relationship between Indonesian universities and an international institution. Indonesia needs to absorb the best practices of the world's leading institutions but has plenty to offer in terms of its unique cultural diversity and promising economic position. The announcement by President Obama in November 2010 of $165 million in investment over the next 5 years to strengthen Indonesia's education system and promote exchanges is just one example of what will be many more international relationships of mutual benefit. Indonesia has found natural partners in neighbouring Australia as well as its historical relationship with the Netherlands but considering the sheer size and scale of the country, the opportunities to extend ties globally are boundless.
Business education at Indonesia
Indonesia's future economic growth is reliant on the country's businesses being able to innovate and create jobs to absorb its huge population. The past dominance of state owned companies in all industry sectors was reflected in how education was conducted therefore business and entrepreneurial skills were neglected. This has changed rapidly in the past two decades with the opening of business faculties within state universities as well as private business schools to cater to the growing demand for qualified professionals and nurture future entrepreneurs.
The development of business schools and the need for dedicated business education has relatively recent beginnings in Indonesia. Business education was previously seen as going hand in hand with pure economics therefore the government and the state run institutions did not see a need for specialised schools. As Professor Kristamuljana of Prasetiya Mulya Business School explains 'universities were not thinking of offering MBA programs as they felt their economics faculties were enough for a country such as Indonesia'. The booming economy in commodities, property and other areas throughout the 1980s contributed to keeping business leaders within companies as opposed to dedicating time to higher education. The impetus to create specialised business schools came from members of the private sector; Prasetiya Mulya Business School was founded by a group of businessmen and intellectuals as one of the first to set up and start offering MBA and Masters in Management courses in 1982. Subsequent private schools continued to open such as IPMI in 1984 being the first to offer the MBA course in English. Business education institutions were eventually brought under the National Education System as the government introduced formal business education within state universities following successful pilot projects and a gradual shift in attitude towards the discipline.
The sector progressed throughout the 1990s and saw the country's business schools begin to assert themselves on the global stage in terms of partnerships and academic standards. However, the 1998 Asian financial crisis hit the country hard seeing a collapse in funding and a general retraction of Indonesia's international reach. Business schools continued according to local standards with classes being carried in Bahasa Indonesia as opposed to English thus making exchange and sandwich courses with other universities difficult. The cost of sending students to study abroad through exchange programs in Europe and North America became unviable given the collapse of the Rupiah.Â
The number of students enrolled in business and finance management courses was just over 80,000 in 2009 (Ministry of Education of Indonesia, Statistics 2008-9), producing approximately 12,500 graduates every year. Indonesia has around 14 accredited business schools made up of private institutions and faculties within state universities such as Universitas Indonesia and Gadjah Mada University. The quality between schools is varied and can be checked using the accreditation directory that grades from A to C. A selection of the leading business schools are looking to benchmark themselves among international schools by beginning the process for the AACSB accreditation.
Quality business education can be found within the leading business schools, however this is often overlooked due to misconceptions. As Professor Kisworo of Perbanas Institute points out 'outside of Indonesia people may only know about the biggest universities such as the Bandung Institute of Technology but there are some other very good universities that are simply not known about due to lack of communication, especially in English'. The lack of Indonesian business leaders outside of the country also helps contribute to this perception, in contrast to the Chinese and Filipinos that can be found at all levels of management in international companies.
The recognition for the need for entrepreneurial education to develop graduates that will not just fill jobs but be job creators themselves has been recognised from a macro economic perspective as well as an academic one. President Yudhoyono and Vice President Boediono have both been very vocal on the subject as real entrepreneurs make up less than 1% of the population, far lower than countries such as Singapore with 7.2% and Thailand with 4.1% as per 2010. In January 2010, a pilot project was initiated in conjunction with Bank Mandiri, the largest bank in the country by assets, to teach entrepreneurial education modules in 6 universities with the target to progress to 200 universities in the future. The Coordinating Ministry of Economic Affairs creative entrepreneurship promotional arm aims to increase the number of entrepreneurs by 500,000 annually to 2% of the population by 2025.Â
The entrepreneurial flair and drive of the country's current generation is becoming increasingly apparent. Dr Kim of Universitas Pelita Harapan Business School has seen a marked trend in how students are approaching business education noting 'around 50% of students choose entrepreneurship courses over other concentrations... around 60% come from a background of family businesses'. Ciputra University, set up by the real estate magnate Ciputra for training entrepreneurs produced 145 graduates in 2010, each with a fully functioning business on graduation that created 900 jobs for the country. Professor Haryanto, rector of IBII, sees a similar trend in his students 'many of our students already have their own businesses and have to take time off from studying to manage them, sometimes they have to stop classes all together'. On the international stage, Prasetiya Mulya Business School has entered international competitions such as the Global Social Venture Competition at Haas Business School, Berkeley California, and notably came first ahead of MIT and Columbia in 2010.
In the aftermath of the global financial crisis, Indonesia's rectors have acknowledged the responsibility they face in nurturing the next generation of business leaders. Producing business savvy graduates with strong ethical foundations has become a core theme throughout the curriculum with the introduction of new modules focusing on leadership and social responsibility. Dr Parapak of Universitas Pelita Harapan explains 'we want to create students not only of excellent academic abilities, but of the highest ethics and moral character'. Paramadina University's Dr Baswedan puts these ideas into practice through the Indonesia Mengajar Foundation that trains selected university graduates to teach at schools in some of the country's most remote regions for 1 year. This gruelling process promotes leadership and management skills that are highly sought after, according to Dr Baswedan 'participants in the program are approached by multinationals for employment for the valuable skills they develop over the course of the program'. Professor Kristamuljana of Prasetiya Mulya Business School acknowledges the need for not only social but also environmental responsibility to be instilled in students; 'as a school, we very much recognise the global issues of today, the idea of the triple bottom line of 'People, Planet and Profit' is very real in a country like Indonesia.' Prasetiya Mulya's graduate students must incorporate these ideas into their final year business plans which have yielded projects with wide ranging social applications such as converting sea water into drinking water using solar power.
As the largest economy in the ASEAN, Indonesia is securing its position as the regional hub for banking and finance education. The ASEAN Community in 2015 will further open up the ten members' banking sectors and capital markets. To date, for financial professionals to operate in other ASEAN countries they are required to sit an exam set by the governing body of that country such as that of Bank Indonesia. In the lead up to the single market, this is set to change following a decision made at the 18th ASEAN Banking Conference in November 2010. A banking and finance 'Body of Knowledge' that defines the criteria and qualifications necessary for a professional to work in any of the ASEAN member countries will yield a standardised certification. Perbanas Institute of Indonesia, as a dedicated banking and finance school will spearhead this initiative that promises to open up immense possibilities within the region's financial sectors.
Now represents a key time for the country's business schools as universities based around the world seek a partner in Asia to give their graduates an edge over the competition. Asia was previously one of the largest sources of international students to universities around the world, but as regional business schools continue to gain more recognition, this trend is somewhat reversing. Indian and Chinese business schools such as the China Europe International Business School are very much leading the way in forging ties, but Indonesia has a role to play in the new global educational landscape. As the largest economy in the ASEAN and facing very real environmental and social challenges, this presents the chance to capitalise on the country's unique business climate and global relevance. Business schools in the country are eager to assert their position and establish institutional ties in order to build a more international curriculum, in addition to promoting student and faculty member exchange.
A challenge exists in securing such partnerships, as Professor Kristamuljana explains 'our position as the leading business school in Indonesia makes it difficult to find a partner of our level'. The cultural gap can also present difficulties when finding a suitable partner according to Professor Prabowo of Binus University 'we are more focused on China for partnerships as culturally and socially they are more aligned with us for business and entrepreneurship'. In terms of partnerships with Western universities, Indonesian schools have also been continuously overlooked in favour of China when universities seek a partner; however the business and investment opportunities make for an attractive and innovative learning environment.
Corporate partnerships are a further promising area for cooperation with universities. Indonesia holds undoubted economic potential for corporations establishing a presence in Asia. As an existing member of the G20 and the fourth most populous country in the world, Price Waterhouse Coopers has predicted that Indonesia's will be the world's 6th largest economy by 2050. Vice Rector of President University Mr Widjaja espouses Indonesia's clear commercial advantages 'the business climate here is improving, and Indonesia offers less competition compared to China'. Understanding the intricacies of the local market and ensuring qualified human resources are the greatest challenges posed to corporations wishing to enter the country. University partnerships and internship programs provide a mutually beneficial route for foreign corporations looking to enter the market. Such partnerships have already been undertaken by companies such as Microsoft, IBM and ABN Ambro to name a few.
Ensuring Quality Over Quantity in Higher Education
The number of universities, particularly private institutions in Indonesia has grown dramatically in the past decade. The total figure now stands at over 3,000 private and 130 state universities. The main centres for education continue to be in Java, namely Jakarta and Yogjakarta as well as Bandung. State universities are still regarded as the most prestigious so the number of applicants far outstrips places available with less than 20% of those applying being accepted.
As the growing middle class has seen a rise in their purchasing power, competition in the education sector has heated up with parents seeking out the best options for their offspring's education. Despite the opening of new universities all over the country to cater to the increasing number of students, quantity does not mean quality. It is the issue of measuring quality and a non-standardised accreditation system that has held back the education sector. Professor Kisworo of Perbanas Institute explains 'Now we have approximately 3,300 universities in the country and an average of 600,000 candidate students every year so if divided equally this amounts to around 200 new students every year by university so this competition is not healthy. In my opinion the amount of universities is too big, ideally it should be around 1000 universities'. This observation is further enforced considering that China which caters to 20 million students has less than 2000 universities.
The government and the National Education Ministry are taking measures to consolidate the education sector to reduce the amount of under performing universities and thus the amount of ill equipped graduates being produced by them. The Indonesian National Accreditation Agency for Higher Education (Badan Akreditasi Nasional Perguruan Tinggi) was established in 1994 and began its program of disseminating its new accreditation system in 2008 and 2009 for undergraduate programs. The 7 point quality assurance system is modelled on the European Foundation of Quality Management and Malcolm Balridge's Model. Accreditation criteria includes the amount of research work undertaken by lecturers, the quality of publications and the length of time taken for graduates to obtain employment and is measured over 5 year intervals. The aim is to rid the education system of unaccredited courses by 2012 as well as the universities concentrated on profit rather than quality of teaching. It is a very big undertaking by the 1,000 assessors involved to cover the breadth of the country including far flung regions, and to accurately measure the varying levels of maturity of such institutions.
Such a standardised system will also take time to enforce as well as let the market take its effect on sub standard institutions. However the direction of the National Ministry of Education to take the sector to world class standards is clear. The measures are critical in raising the standards of higher education in Indonesia in lieu of the ASEAN Community by 2015. This will remove the borders of not only trade but also movement of people, therefore Indonesian academic facilities will have to measure up to compete with their regional counterparts.
The tools below provide the basis for understanding how institutions in Indonesia are being ranked under the new accreditation system.
Types of Degree and their English equivalents:
D3 Ahli Madya - Associate's Degree
D4 Sarjana - Bachelor's Degree
S1 Sarjana - Bachelor's Degree
S2 Magister - Master's Degree
S3 Doktor - Doctoral Degree
Indonesia's higher education accreditation system award three grades of A,B,C according their scoring on 7 points of best practice. Those that are not accredited do not receive a grade.
- A (Very Good) with a score between 361-400
- B (Good) with a score between 301-360
- C (Fair) with a score between 200-300
- Non Accredited institutions have a score of less than 200.
Determination of the final score is the sum of the assessment results (1) study programs (75%), (2) Evaluation of self-study programs (10%), and (3) Forms Faculty / College (15%). The validity of the accreditation for all undergraduate courses is for 5 years.
Creating World Class Universities
While having a number of excellent universities, Indonesia's institutions still face the challenge of being recognised regionally and globally. Last year, the country failed to count a single university in the top 200 of the world's top institutions. In 2009 Universitas Indonesia in Jakarta reached 201st place but has since fallen back to 236th in 2010. From a regional perspective, the QS University Rankings of the top 200 universities in Asia count some Indonesian schools such as Gadjah Mada in Yogjakarta in 85th place and ITB of Bandung in 113th place. However the few that made the ranking is considerably lower than the numbers from Singapore, China or Malaysia. As the country's economic growth and political stability gain global awareness, the country's centres of higher learning want to enter the ranks of the world class.
Links with foreign universities are often cited as the way to move up the global rankings by absorbing best practices and enhancing the student experience through sandwich programs and joint research. Indonesian universities have been active in signing agreements for international cooperation and partnerships in the forms of MoUs, in fact the majority of the larger universities all have some kind of agreement with an institution abroad. Universitas Indonesia and ITB both have partnerships with around 80 foreign universities with the majority of those being based in Asia such as Japan, Malaysia and South Korea. Australia and the Netherlands are also the source of numerous partnerships and also host the thousands of Indonesian students that choose to study abroad.
The charge against Indonesian universities is the lack of cooperation with those Western universities that are found within the ranks of the top global institutions, and therefore the failure to absorb the best practices of this part of the world. The Asia-centric approach is understandable when one considers the geographical and cultural proximity of such countries to Indonesia. However, the benefits of such partnerships in advancing the academic practices are questionable when the ranking of the institution is not taken into account. Yet, Indonesia's universities face the challenge of finding suitable partners that are compatible with their stage of development and areas of speciality.
In order to raise the profile of Indonesian universities abroad, universities must be global in their outlook and curriculum. The desire to be international has become a fashionable term in Indonesia with numerous universities citing it as part of their vision and some even changing their name to include the term, but being international means more than just partnerships to send students abroad and teaching in English. Universities in Indonesia realise the benefits of foreign partnerships to raise the bar in teaching and research but the immediate focus must be concentrated on the learning environment on campus at home.
The archipelago economy: Unleashing Indonesia's potential
Most international businesses and investors know that modern Indonesia boasts a substantial population and a wealth of natural resources. But far fewer understand how rapidly the nation is growing. Home to the world's 16th-largest economy, Indonesia is booming thanks largely to a combination of domestic consumption and productivity growth. By 2030, the country could have the world's 7th-largest economy, overtaking Germany and the United Kingdom. But to meet its ambitious growth targets and attract international investment, it must do more.
Indonesia has an attractive value proposition. Over the past 20 years, labor productivity improvements, largely from specific sectors rather than a general shift out of agriculture, have accounted for more than 60 percent of the country's economic growth. Productivity and employment have risen in tandem in 35 of the past 51 years. And unlike typical Asian "tiger" economies, Indonesia's has grown as a result of consumption, not exports and manufacturing. The archipelago nation is also urbanizing rapidly, boosting incomes. By 2030, Indonesia will have added 90 million people to its consuming class-more than any other country except China and India.
Nevertheless, to meet the government's goal of 7 percent a year growth by 2030, the economy must grow faster. Given current trends, the McKinsey Global Institute estimates that Indonesia has to boost productivity growth to 4.6 percent a year-60 percent higher than it has been during the past decade. Amid rising concern about inequality, the country must also ensure that growth is inclusive and manage the strains that the rapidly expanding consumer classes will place on its infrastructure and resources.
Of course, Indonesia should tackle well-known problems such as excessive bureaucracy and corruption, access to capital, and infrastructure bottlenecks. But in addition it must address its impending skills gap; the country could, for example, develop a private-education market that might quadruple, to $40 billion, by 2030. If at the same time Indonesia took action in the three key sectors below, it could create a $1.8 trillion private-sector business opportunity by 2030:
Consumer services.Â Indonesia faces a range of challenges to productivity growth-including complex regulation of financial services, poor transportation infrastructure, and barriers to entry for new retail players and expansion limits for existing ones. If Indonesia overcame these problems, consumer spending could rise by 7.7 percent a year, to $1.1 trillion, by 2030.Â
Agriculture and fisheries.Â Indonesia needs to raise productivity per farmer by 60 percent just to meet domestic demand. If the country can boost yields, reduce postharvest waste, and shift to higher-value crops, it could become a net exporter of agricultural products, supplying more than 130 million tons to the international market. Revenue from these sectors, together with the related upstream and downstream revenues, could increase by 6 percent a year, to $450 billion, by 2030.
Energy.Â Demand not only for energy but also for other key resources, such as materials and water, is likely to increase rapidly through 2030. Indonesia could meet up to 20 percent of its energy needs by turning to unconventional sources, such as coal-bed methane, next-generation biofuels, geothermal power, and biomass. This approach could also help boost resource productivity-for example, improving the country's energy efficiency could reduce energy demand by as much as 15 percent. By 2030, Indonesia's energy market could be worth $210 billion.
Services are an important part of Indonesia's global trade and thus have a significant impact on the domestic labour market and employment. This applies especially to employment generated through services exports, which grew at a moderate rate in the 2000s. Amounting to only slightly more than 10 percent of the value of total exports and imports, both exports and imports of services grew close to the same rate as commodity trade.
JAKARTA (ILO News): Services are an important part of Indonesia's global trade and thus have a significant impact on the domestic labour market and employment. This applies especially to employment generated through services exports, which grew at a moderate rate in the 2000s. Amounting to only slightly more than 10 percent of the value of total exports and imports, both exports and imports of services grew close to the same rate as commodity trade.
The 7.1 million jobs involved in services in relation to exports (taking into account both direct and indirect linkages), are more than the total number of jobs created by all manufacturing, a new study of the International Labour Organization (ILO) says. The study titled "Trade in Services and Employment in Indonesia" will be launched and released on Thursday, 12 July 2012, at the Ministry of Manpower and Transmigration premises, Jakarta.
The service sector, largely carrying the Indonesian economy during the recovery years after the Asian Financial Crisis, is now the largest sector of the Indonesian economy - bigger than agriculture and manufacturing combined. In just one decade, the share of services to GDP rose from 44 to over 50 percent, and the employment share rose by a similar magnitude, to slightly less than 50 percent of all employment in 2010.
In terms of employment, the study found that employees in service industries were marked by characteristics rather different from the stereotypes of the sector, which tend to focus on high levels of informality, and on services as an employer of last resort for rural 'surplus' labour. But, "compared with agriculture and manufacturing, service industries employed a higher percentage of white collar, formal sector and educated workers than the main tradable goods sectors," said the study.
Peter van Rooij, Country Director of the ILO in Indonesia, underlined the need for Indonesia to consider removing some of the barriers to both foreign and domestic competition in services as this is likely to contribute to significant gains in output and employment for both domestic and overseas investors. "Reforms would need to be introduced judiciously. Complementary policies, such as those designed to improve the quality of relevant education and training institutions, should be considered. There would also be benefits from developing a regional set of common labour standards and rights for unskilled workers in the main industries of labour migration in ASEAN," he added.
"Foreign direct investment - including in the services sector - does not only support sustainable economic growth in key sectors of interest to Indonesia such as manufacturing, logistics and tourism, it also brings about jobs, disseminates good labour practices and transfers technologies. The timely study underpins these findings. European investment is an integral part of this process and as of today over 1,000 European companies directly employ 1.1 million Indonesians. Still, the potential is much larger. A recent Vision Group of academia, business people and government officials from the archipelago and Europe recommended Indonesia and the European Union (EU) to start negotiating a Comprehensive Economic Partnership Agreement to advance win-win relation," said Andreas Roettger from the EU Delegation.
The study was conducted by the ILO through its Project on "Assessing and Addressing the Effects of Trade on Employment (ETE)", funded by the EU. The Project aims to analyze and support the formulation of effective and coherent trade and labour market policies that address the adjustment challenges that workers and employers face and expand opportunities for the creation of decent employment in developing countries.
The study aims to shed light on the growth of services in Indonesia linkages with other sectors in terms of value added and employment using statistics from the national accounts, trade and labour force data as well as input output data and related Indonesia's Government policies on employment. The study was conducted by the ILO's consultants, Chris Manning and Haryo Aswicahyono.
Indonesia's economy has weathered a global economic downturn twice (1997-98 and 2008). The economy vastly relies on the agriculture, manufacturing and services sectors for growth. Due to several natural disasters, political and social disturbances and terrorist activities, the economy has been through significant changes in the last few decades. These also led to less development employment opportunities, forcing a big chunk of the population to find employment in neighboring nations, especially Malaysia.
The graph below shows the breakup of the 95 million-strong workforce into the three major sectors of Indonesia's economic structure:
The major economic sectors of Indonesia are as follows:
Primary Sector: While being the biggest employment sector of the country, agriculture includes three types of farming. These include smallholder farming, irrigated rice terraces and smallholder cash cropping. Some of the major produce of Indonesia includes rice, tea, coffee, cocoa, spices, rubber, copra, peanuts, eggs, pork, poultry and palm oil. Some crops are cultivated mainly due to the even distribution of rainfall and consistent monsoon climate in Indonesia. The country is the fourth largest producer of rice and coffee in the world. It exported 271,000 tons of coffee in 2007.
Secondary Sector: The manufacturing sector of Indonesia contributes 27.9% to the country's GDP. The industrial production rate in the country stood at 2% as of 2009. Some of the major industries in the country are as follows:
Value (as of 2006) in Million Rupiahs
Petroleum refinery industry
Liquefied natural gas
Textile, leather products and footwear
Wood and wood products
Paper and printing products
Cement and non-metallic quarry
Iron, steel and other basic metals
Transport equipment, machinery and apparatus
Other manufacturing industries