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Higher education could contribute even more to Indonesia's development

October 13, 2011

JAKARTA, October 13, 2011 – Indonesia is making progress in its effort to build infrastructure and improve its manufacturing industry, says a new report from the World Bank, but more can still be done to boost the capacity to innovate. To this end, “Putting Higher Education to Work: Skills and Research for Growth in East Asia” highlights the critical role to be played by higher education institutions in Indonesia, and across the region. According to the report, higher education institutions in developing East Asia do not sufficiently provide their graduates with the skills that firms need.

“Employers in both manufacturing and services are looking for problem-solving, communications, management and other skills that will support higher productivity. Yet employer perceptions and wage skill premiums point to gaps in these skills in newly hired professionals” says World Bank Lead Economist Emanuela di Gropello, lead author of the report. 

In Indonesia, employers acknowledge that the institutions providing technical and vocational training can still do more to provide workers with skills demanded by the labor market. Universities and research institutions are also in a position to collaborate more on research that will help develop and apply new technologies to drive growth.

“Higher education institutions that provide the right skills and research can help countries like Indonesia become more productive, more innovative, and more capable of sustaining growth in a competitive global environment,” says World Bank Country Director for Indonesia, Stefan Koeberle. “The World Bank is committed to supporting the Indonesian government’s long term plan for higher education which seeks to help public universities become more autonomous and more accountable, while also increasing the quality, relevance, efficiency and access of education.”

The report suggests three priority areas where public policy in developing East Asia can play a constructive role in improving higher education outcomes:  

More efficient and effective financing

  • Adequately finance and create incentives for  research
  • Prioritize underfunded fields such as science and engineering
  • Provide sufficient scholarships and loans for the poor and disadvantaged

Better management of public institutions

  • Improve the management of public higher education institutions, where 70 percent of all East Asian students are enrolled, by encouraging greater autonomy and accountability
  • Greater decision making autonomy in areas such as academic curricula, staffing and budgeting should be encouraged
  • Accountability can be enhanced by delegating more power and responsibilities to institutions and governing boards and by providing students with information to choose and move across institutions

Stewardship of the higher education system

  • Put in place adequate incentives for private institutions so that they can further help governments increase enrollment and strengthen skills
  • Ensure stronger links between industry and universities
  • Take advantage of opportunities provided by international higher education markets

“With aging populations, developing economies in the region face the challenge of achieving growth led by gains in productivity. The significance of higher education will increase as countries work to escape the middle income trap” said James W. Adams, World Bank East Asia and Pacific Regional Vice President.

Country Summary: INDONESIA

Despite some gains, higher education could contribute even more to the Indonesia’s development agenda

As part of the middle income and lower middle technology cluster, Indonesia has begun climbing the technology ladder, and has facilitated technology assimilation by becoming more open, promoting industrialization, developing infrastructure, and improving their manufacturing industry. However, capacity for innovation still remains very weak. Given this context, higher education can play a critical role in supporting competitiveness and growth because it provides the high-level skills and research to apply current technologies and to assimilate, adapt, and develop new technologies, two drivers of productivity.

While emphasis has been put on access to higher education, higher education graduates still do not have the skills demanded by many employers

Demand for tertiary graduates continues to be sustained. More than focusing on access, however, in order to achieve higher technology status and productivity, Indonesia will need to focus on addressing the several skills gaps shown by its higher education graduates (quality challenge).

Employers expect workers—particularly those with higher education—to possess the technical, behavioral, and thinking skills to increase their productivity and growth. They need science, technology, engineering, and math skills (STEM). They also need problem solving and creative skills to support a higher value added manufacturing sector and the business, thinking, and behavioral skills for a higher productivity service sector. Many firms face the challenge of hiring higher education graduates who simply do not have the right skills. Skill gaps are particularly large in the service industry, export sector, and technologically intensive sector representing a very serious bottleneck for innovation and productivity in Indonesia. Employers and employees find gaps to be particularly severe in creativity, leadership, and problem solving skills. But English and technical skills (in particular practical knowledge of one’s job) are also commonly mentioned as important weaknesses. And, with less than 30 percent of graduates in science and engineering Indonesia is below the regional average. Importantly, access is still unequal across populations groups, with rural populations significantly less likely to complete higher education than urban groups, constraining the talent pool for higher education. 

And much more remains to be done in research

It is also important for Indonesia to shift investments towards building their research capacity, particularly in their higher education institutions. Quality research enables universities to produce ideas for the business community and contribute to technology upgrading in firms, generating knowledge and technological innovation.  Low spending in research and development (R&D), low number of licenses, and low number of patents all indicate a low capacity for research and innovation. This is also illustrated by a low share of faculty with PhD (less than 20 percent).  Furthermore, firms make very limited use of university research to support their technological improvements.

The disconnects of higher education

Across the region, higher education does not produce the expected results because higher education institutions are “disconnected” from the other actors at the core of the higher education system. In Indonesia disconnects are present between higher education institutions and companies in skill and research provision; higher education institutions and research institutions; among higher education institutions themselves; and higher education institutions and earlier education institutions. For example, while firms acknowledge technical and vocational education and training (TVET)’s relevance and adaptability to the labor market, the quality of TVET institutions remains insufficient according to employers. Teaching and research are also often kept separate: universities and colleges have traditionally focused on teaching, while other avenues (separate research institutions) pursued research.  And there is also limited collaboration between universities and these research institutions. The weak math and science performance in earlier education, as measured by Trends in International Mathematics and Science Study (TIMSS) results constrains Indonesia’s ability to achieve better science, technology, engineering, math (STEM) and innovation outcomes in tertiary education. And, along a similar line, rural/urban inequities in secondary education continue into tertiary education. In order to improve the higher education system and address these disconnects, Indonesia will need to improve the financing, management, and stewardship of their higher education.

Policy Priorities

For Indonesia to grow faster and achieve continued technological deepening, two main priorities are evident for higher education:

  • Address skill gaps by maintaining coverage, improving the quality of higher education graduate and increasing inclusiveness
  • Increase  research relevant to economic needs in a few universities or departments

Given its challenges and constraints, the policy levers the Indonesian government can use to address these priorities include:

  • Improve the use and allocation of public resources (more focus on STEM fields and equity -need to expand needs-based scholarships; scale-up performance based allocation)
  • Complete the process of granting autonomy to universities (with particular focus on staffing and finance) and strengthen the role and functions of  university boards
  • Improve the quality of the large private higher education sector through better regulation and information
  • Encourage selected university-industry linkages to improve curriculum relevance, support entrepreneurship, and help with technological upgrading
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