Indonesia Seeks to Raise Human Capital

With the end of Joko Widodo’s third year approaching, the Indonesian President has issued a statement saying the government will gear up for what he calls “the massive, massive development of human resources,” a signal that Indonesia must no longer depend solely on resource extraction as an economic model.

However, changing decades-long resource-based development to a knowledge-based economy is not going to be easy. It is a great challenge. With the median age of the population 28 years old and the productive age population reaching 60 percent, at the very least Indonesia is in a demographic sweet spot. (The workforce population normally refers to those above 15 years of age and willing to work until retirement, which varies from country to country. In Indonesia the retirement age is 58.)

But is it really?

Indonesia’s Human Capital Issues

For a country of 265 million population, the issue doesn’t lie on the quantity of its human resources. It lies in their quality. Having an active workforce of 122 million people, with those aged 15 to 29 making up a third, only 7 percent are university graduates. In fact, 42 percent have only completed elementary school, which ends at age 12, with 26 percent of the others having only completed junior high school, which normally ends at age 15.

The low quality of Indonesia’s labor force is reflected in a survey by the World Economic Forum’s 2017 Global Capital Index which ranks the country 65th of 130 surveyed. While it is up from 72nd in 2016, it still ranks far below its ASEAN neighbors. This lag, both academically and in competence, leads to limited opportunities for employment in certain sectors. The agricultural sector still is Indonesia’s largest job provider with 38.3 million in the workforce. Meanwhile, the service sector provides jobs for only 15.9 million workers, or 6 percent of the economy. In the United States, the European Union and Japan, the services sector provides more than 70 percent of jobs.

On the other hand, manufacturing and industry, which are expected to quickly turn the economic wheels and absorb myriad numbers, now only accommodate 16 percent of the workforce. Contrary to government aspirations, the sector is a long way from becoming the key source of employment.

One reason is the lack of a skilled work force. Indonesia has one of the lowest ratios of engineers per one million inhabitants, at only 2,671 people, far behind Vietnam's 9,037 and Thailand's 4,121 – and Thailand’s own educational system is criticized as one of the region’s most backward.

Creating a Skilled Workforce

Ranking lower than the Philippines and Ethiopia, Indonesia scores 77 percent in The Right to Education Index (RTEI) originated by a global human rights organization focusing on the right to education. The index comprises education governance, availability, accessibility, acceptability and adaptability.

Most often than not, “education for all” is a slogan rather than a reality. Barriers and discrimination against access to quality education still hamper marginalized communities, restricting women, those with disabilities, refugees and the poor from the opportunity to gain a proper education. The low level of academic qualification overshadows the future of these minorities, rendering them unable to escape from the informal sectors and low-paid jobs. Generation after generation is trapped in an endless cycle of poverty.

Indonesia’s growing middle class, now estimated by the World Bank to number 52 million, is slight progress towards the fulfillment of secondary or even tertiary education. But this rise is still insignificant compared to the millions of others who are still poorly educated. However, the 12-year compulsory education program, the 20 percent State Budget (APBN) allocation for education, and the ever-increasing education endowment fund of Rp22.5 trillion (US$167.8 million) could be invested in the provision of scholarships and teaching and learning facilities that could ensure quality education for all Indonesian children, without exception.

On the other hand, for those who are already in the labor market, the government faces the task of equipping this massive labor force by retraining workers with the right competencies and skills. As the economy grows and competition in the labor market multiplies, the demand for skilled workers is more crucial than ever, making the upgrading of the competence of Indonesian workers a priority.

Regarding the need of a more fundamental role on behalf of National Vocational and Skill Training Centers (Balai Latihan Kerja), the Manpower Minister, Hanif Dhakiri, expressed concern, saying that of the 279 training centers in the country, only 52 are well-operated and in a position to provide meaningful retraining. Given the limited budget for the centers, he encouraged the private sector to provide meaningful participation to lend a hand. In 2018, with the existing resources, the vocational training system is expected to graduate 40,000 skilled workers with competence certificates. The Minister also expects positive cooperation with the Indonesian Chamber of Commerce and Industry to provide 200,000 internships and apprenticeships programs to roughly 2,000 companies.

Unleashing Indonesia

While a shortage of young who are either about to or have just joined the workforce remains a continuing challenge for many nations, Indonesia’s current steady rate of workforce growth and above-average quota of productive population are deemed to be blessings. China’s workforce population, for instance, peaked in 2016 and has begun to fall. The World Bank has warned that China’s working age population could fall by more than 10 percent by 2040 – 90 million workers. Japan’s is also falling sharply.

But if the transformation of Indonesia’s workforce quality doesn’t begin soon, the country will lose this momentum. There will be a substantial waste of investment if the country’s educated classes do not want to build their own land, to share the weight of the nation’s welfare issues on their shoulders and to bring it out of poverty, poor education, corruption and injustice.

That not only applies to Indonesia. This generation can pave the way to a brilliant future for others who are less-fortunate – so that the country’s most suppressed minorities and the marginalized poor get what they deserve, not only for them but also for their children to have a right to a decent life full of opportunity.

Muhammad Zulfikar Rakhmat is a doctoral candidate at the University of Manchester. Dikanaya Tarahita is an Indonesian freelance writer. They are regular contributors to Asia Sentinel.