Pallavi Gummalam – Indonesia has a large talent pool, but when it comes to a qualified workforce, this is where the country is lacking because of its underdeveloped education system, according to the Boston Consulting Group.
Edwin Utama, a managing director and partner at BCG in Jakarta, says the government needs to create more incentives for a result-driven working environment.
"Funds are currently allocated to schools based on an input basis. For example, the number of registered students. But if government funding becomes more output oriented, concentrating on the percentage of students who graduate, institutions will be inclined to focus on better results," he said in an interview in Jakarta last week.
Indonesia's largely unskilled workforce is one of many aspects contributing to the slowdown in the country's manufacturing sector, BCG said in a May report. With the lack of government incentives for education systems to produce sufficient numbers of employable graduates, and firms' inability to manufacture at a value-added level, Indonesia's manufacturing progress as a whole is being held back, according to the report, adding that there will be a severe shortage of qualified middle managers in the country by 2020.
With more than 1,000 tertiary education institutions in Indonesia, there are no more than 10 producing employable graduates, which amounts to 2 percent of total graduates, Edwin said. As Indonesia's manufacturing sector grows, so will the demand for capable graduates.
"In the short term, specific technical sub-sectors will have to be filled by foreign graduates. In the long term, we must make sure there is a transfer of capabilities to Indonesia," he added.
Edwin said Indonesia's technical and vocational education and training is largely under-supported. "It only covers a few provinces. There must be a way to create a national quality and accreditation body to replace current regional bodies, and extend the reach of the certification body to cover more provinces," he said.
Edwin also mentioned a lack of sustained industry support, that "there is no way technical and vocational education and training can survive only on government funding. We must find ways so that the private sector can be involved. We can create incentives for companies to reflect Indonesian industry demand for skills, and design curricula so that they are more useful to the industry going forward."
Another contributing factor to the under-supported technical and vocational education program, according to Edwin, is the lack of strong student interest.
"Students in Singaporean schools can move from one specialized track to another. This 'horizontal switch' is not possible in Indonesia. Students could realize half-way that they are better suited for a vocational or a technical track," Edwin said.
The lack of incentives can also be seen at the corporate level. "For companies, there is an incentive to stay in the lower value-added stages because it is much more profitable to export raw commodities, like palm oil. Companies have less incentive to move up in the value chain," Edwin said.
"The government must incentivize talent to come to Indonesia. The poor and lacking policies to produce a motivated and qualified workforce are holding back potential manufacturing growth."