Indonesia’s Grand Agenda: Developing 58 Million Skilled Workers in the Next Decade

After staking his presidency on infrastructure development, President Joko Widodo will now shift his focus to human capital development to add 58 million skilled workers to make Indonesia the world’s seventh largest economy by 2030.

The success of its ambition – in building hundreds of new ports and airports, developing 10 new Bali, or in growing its digital economy to USD 130 billion by 2020 – depends entirely on the skills of the workforce that build, maintain, and scale these ventures.

Human capital, therefore, is Indonesia’s largest, untapped potential. By 2040, Indonesia’s working age population is projected to reach 195 million people. “If we can effectively manage and maximise this potential, Indonesia can win,” said the President.

As the Succeeding Together report by The Australia-Indonesia Centre shows, Indonesia cannot cascade up value chains and avoid the middle-income trap without skills development.

In a potentially game-changing move to respond to this grand challenge, President Jokowi has tasked his government to revise the Law of Education to allow foreign universities and polytechnics to establish campuses in Indonesia.

While it would be wise to welcome this move with a grain of salt considering the substantial challenges to implementing this, the President’s message is clear: Indonesia intends to participate in the global market to develop its workforce.

Opportunities for Australia

With its expertise in developing human capital, Australia is well positioned to capture opportunities through innovative ways to urgently develop industry-relevant skills of Indonesia’s fast-growing workforce in strategic sectors.

Logistics

Logistics remains one of the key stumbling blocks to Indonesia’s economic growth. Logistics costs in Indonesia account for 25% manufacturing sales, compared to 15% in Thailand and 13% in Malaysia.

While the President has thus far defined his presidency through the development of ports, railways, and airports, there remains an urgent need to upskill the logistics workforce that operate them.

A joint Australia-Indonesia survey of over 400 member firms of the Association of Logistics Indonesia has found that logistics and supply chain managers as well as operators are not adequately skilled to meet the demand of the industry across the critical skillset of thinking and learning skills, interpersonal skills, business skills, ICT skills, and logistics specialist skills.

Australian firms can work with Indonesian firms to develop these industry-relevant skills, particularly in road and rail transport. For example, Australian firms can train Indonesian workers in using advanced manufacturing or processing equipment.

The partnership between Monash University’s Institute of Railway Technology and MRT Jakarta showcases the opportunities that lie ahead for Australia to transfer its expertise in logistics and supply chain management.

Tourism

Tom Lembong, Chair of Indonesia’s Investment Coordinating Board, is most enthusiastic about potential bilateral cooperation in developing Indonesia’s coastal tourism, as it’s aligned to President Jokowi’s agenda to develop “10 New Bali” and Australian expertise in tourism design and management.

Some of the most promising opportunities for coastal tourism development are located in Eastern Indonesia: Komodo Islands and Labuan Bajo in Flores, Mandalika region in Lombok, and remote diving resorts of Wakatobi and Morotai.

Raja Ampat in Papua, while not officially part of the 10 New Bali agenda, is famous for its pristine diving resort. The President often spends his holidays in the area – he even recorded a video blog to promote the region.

This is why Australia’s Consul General in Makassar, Richard Mathews, made tourism a key priority sector. He also argues that without adequate planning, management, and community consultation, tourism development risks aggravating the challenges already faced local communities.

Australia is well positioned to contribute to the sustainable development of Indonesia’s 10 New Bali by sharing best practices in not only hospitality and tourism management but also sustainable waste management and provision of sustainable energy.

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Digital economy

Indonesia has aspirations to grow its digital economy to US$130b by 2020, yet its talent pool is too small to support this growth target.

In the global workforce, Indonesia is well behind its regional competitors. The Startup Muster survey shows that 3 out of 10 Australian start-ups have outsourced work overseas in the past year, mainly to contractors in India, Philippines, and Vietnam.

It is also common practice for Indonesian start-ups to hire IT talent from India. Go-Jek, the country’s largest start-up, even acquired two Indian tech firms and established a tech centre in Bangalore to cope with its skyrocketing growth.

While few Australian firms will have the experience of scaling in the pace seen by the likes of Go-Jek, Tokopedia, or Traveloka, Australia has the governance, risk, and business management expertise to support Indonesia’s digital economy growth.

It is encouraging to see greater collaboration between Indonesia and Australia in this sector happening already. Late last year, the peak fintech industry bodies from both nations, Indonesia Fintech Association and Fintech Australia, signed an MoU to collaborate in talent exchange, technology exchange, and capital exchange.

Australian fintech firms can grant internship opportunities to Indonesian developers, and Indonesian firms can benefit from the experience of Indonesians currently studying or working in Australia.

Considering Australia is one of the top destinations for Indonesian students, it is entirely possible that future founders of the next Go-Jek will have studied or worked in Melbourne or Sydney.

If Australian universities succeed in cultivating the entrepreneurial skills of Indonesian students, they can compete with the likes of Stanford, Harvard, and UC Berkeley to attract aspiring Indonesian entrepreneurs.

Leapfrog moment

The world is changing so fast that Indonesia needs to constantly leapfrog just to compete.

The President recognises Indonesia’s need to leapfrog in the age of the fourth industrial revolution. He has shared Elon Musk’s grand vision – Tesla, SpaceX, and even Hyperloop – in his public remarks at least 17 times in the last 9 months as examples of grand thinking that Indonesia needs to cultivate.

Stories of Indonesian firms who successfully leapfrog can easily be found in its tech stars. There are few more impressive than leading education tech start-up Ruangguru.

It was established in 2014 as a marketplace to connect prospective students with private tutors. Today, it not only has over 25,000 tutors on its platform, but it also develops its own online educational content that is used by over 150,000 teachers, accessed by over 7 million K-12 students, and delivered in partnership with over 300 municipal governments. It also recently won US$1 million grant from MIT Solve’s challenge.

Ruangguru CEO & Co-Founder Belva Devara cited a research finding to President Jokowi that shows it would take 128 years for the young people of Jakarta to reach the test scores of the average young people of OECD nations under its current rate of progress. And this is just to match the current scores.

Indonesia cannot afford to rest on its laurels until the year 2146. The business as usual approach of building brick-and-mortar schools and training centres alone won’t reach 7 million students in 3 years. Yet, this is the pace of growth that is needed if Indonesia is to add 58 million skilled workers by 2030.

Australia needs to embrace this type of new thinking to benefit from not only in developing Indonesia’s workforce, but also in its relationship with Indonesia.