Global Business Guide Indonesia

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Education | Indonesia; Investing in Education

Rapid economic development in Indonesia has created a shortage of skills in most industries. The state is hard-pressed to expand public education in the world’s fourth most-populous country, where around one in three people is below the age of 18. This opens up the chance for private-sector actors to step into the breach by offering high quality education, particularly at the secondary and tertiary level as well as in vocational training. Experts lament a lack of academic research in Indonesia, which puts in jeopardy the country's advancement to a high-income economy and reveals serious shortcomings in domestic university education. While the government encourages foreign universities to take part in twinning and dual degree programmes, current rules limit the scope of foreign institutions to set up shop in Indonesia on a commercial basis. They still leave room, however, for some interesting business opportunities, particularly in professional training.

Indonesia; Investing in Education

Given the urgent need for capitalization and internationalization of Indonesia's tertiary sector and the failure of Law No. 12/2012 to do anything about it, the government should be inclined to soften its restrictive stance on commercial foreign investment

 

Moreover, regulations are slowly being liberalized, and the urgent need to simultaneously improve the quantity and quality of education may see rules altered further to invite in more foreign capital. Continued socio-economic development hinges critically on better education at every level. A greater exchange of knowledge with the rest of the world is also crucial for improving the ratings of Indonesian universities. Accommodating the educational demands of tens of millions of Indonesians approaching university age over the coming years is a formidable challenge – and one the government is struggling to tackle on its own. This should eventually bring about greater opportunities for reputable foreign education providers to tap into the positive image that foreign education still enjoys in Indonesia.

Equipping graduates for global success

The Education and Culture Ministry must balance the goals of guaranteeing free basic education to all citizens as well as raising the quality of its schools to qualify students for top-class universities and empower them to compete on the global stage. Over the past decade, the Indonesian state has focused – for good reasons – on increasing access to affordable primary school services across the archipelago. Remaining deficiencies are being tackled in cooperation with international organizations, leaving little need for private investment. The story is a different one with regards to secondary education, where parents are more inclined to pay for a private school if this improves their children's odds of entering a notable university upon graduation.

Chapter XVIII of Law No. 20/2003 on National Education allows foreign entities to invest in Indonesian education, albeit in conjunction with local institutions.

LAW OF THE REPUBLIC OF INDONESIA NUMBER 20 YEAR 2003 ON THE NATIONAL EDUCATION SYSTEM

Chapter XVIII: PROVISION OF EDUCATION BY AN INSTITUTION OF A FOREIGN COUNTRY

ARTICLE 65

  1. An accredited or recognized foreign educational unit shall organize educational activities in the territory of the Republic of Indonesia in compliance with regulations.
  2. Foreign institutions of basic and secondary education shall provide religious and civil education to Indonesian learners.
  3. The provision of foreign education programmes shall be carried out together with Indonesian educational institutions and involve Indonesian organizers and educators.
  4. Educational activities using the educational system of a foreign country, carried out in the territory of the Republic of Indonesia, shall comply with regulations.
  5. The implementation of the provisions for education by an institution of a foreign country, set forth in paragraph (1), paragraph (2), paragraph (3), and paragraph (4), shall be further stipulated by the Government Regulation.

Indonesia's so-called Negative Investment List was revised in 2010 to allow foreign entities to hold 100% ownership in institutions of formal education, which includes kindergartens, primary and secondary schools as well as universities, scrapping the former 49% cap. A special license is however required in each case.

Regulations hamper establishment of foreign universities

As the government concerned itself primarily with improving enrolment and graduation in basic and secondary education, tertiary education has received less attention and funding. The Times Higher Education World University Rankings 2013-2014 lists not one Indonesian university among the top 400. In the QS World University Rankings, the highest ranked Indonesian institution is the University of Indonesia, holding place 309. Indonesia's academic underachievement has been blamed on a shortage of funding, maladministration and a lack of internationalisation.

Despite the aforementioned revision of the Negative Investment List, Indonesian regulations strictly limit the options for foreign investment in tertiary education. Chapter VI of Law No. 12/2012 on Higher Education, which provides the legal framework for foreign universities to operate in Indonesia (See Indonesia’s Higher Education Act), comes with strings attached. The foreign universities must collaborate with local institutions and prioritise the employment of local faculty and staff. Such cooperation has to support national interests and is subject to ministerial approval on a case-by-case basis. Most importantly, however, foreign universities have to operate in Indonesia on a non-profit basis, which renders the propositions of the law uninteresting to most private-sector actors. It is hardly surprising, therefore, that foreign universities have been reluctant to enter the country, despite the declared goal of the Higher Education Law to further liberalize tertiary education and promote the global exchange of students, staff and science.

LAW OF THE REPUBLIC OF INDONESIA NUMBER 12 YEAR 2012 ON HIGHER EDUCATION

CHAPTER VI: HIGHER EDUCATION PROVIDED BY FOREIGN INSTITUTIONS

ARTICLE 90

  1. Foreign Tertiary Education Institutions may provide Higher Education in the Unitary State of the Republic of Indonesia under the laws and regulations.
  2. Such foreign Tertiary Education Institutions as referred to in paragraph (1) must have been accredited and/or recognized in their countries.
  3. The Government shall determine regions, and types of Study Programs to be provided by such foreign Tertiary Education Institutions as referred to in paragraph (1).
  4. Such foreign Tertiary Education Institutions as referred to in paragraph (1) must:
    1. Obtain a license from the Government;
    2. Be based on non-profit principle;
    3. Cooperate with Indonesian Tertiary Education Institutions with the approval of the Government; and
    4. Give priority to engaging Indonesian lecturers and teaching personnel.
  5. Such foreign Tertiary Education Institutions as referred to in paragraph (1) must support the national interest.
  6. Further provisions on foreign Tertiary Education Institutions as referred to in paragraph (2) to paragraph (5) shall be set out in a Ministerial Regulation.

Government under pressure to open academic education further

In October 2013, more than fourteen months after the law had been adopted, the Director General of Higher Education at the Ministry of Education and Culture, Djoko Santoso, conceded that no foreign university had begun operating in Indonesia. “Not even a single proposal” had been received by the ministry, the official told University World News, hinting that the non-profit condition was likely to blame. Given the urgent need for capitalization and internationalization of Indonesia's tertiary sector and the failure of Law No. 12/2012 to do anything about it, the government should be inclined to soften its restrictive stance on commercial foreign investment. The country can ill afford an isolationist stance on education, nor for well-heeled students to spend their education budget abroad rather than in Indonesia.

The controversial debates that accompanied the passage of the law reflected significant resistance to allowing profit-seeking foreign capital into Indonesian academia, apparently for fears that commercialisation could crowd out students from poorer families. Also, private local colleges may fear heightened competition over students and teachers. Due to the political sensitivities surrounding the issue, any further opening will unlikely take place until well after president elections in July 2014. It is likely that eventually a solution will be found whereby the government continues to focus on affordable education for all, while privately funded institutions, including foreign ones, will be able to set up commercially-run campuses across the country. After all, as long as Indonesian students need to go abroad for prestigious degrees, even fewer can afford it than if the same were offered in their home country.

The lack of research in Indonesia makes this a particularly interesting field for foreign investors, who could set up research institutions with a focus on building commercially useful regional knowledge, software or tools, for example on renewable energy potential or the medical benefits of indigenous plants.

Opportunities in vocational training

While foreign investors will keep a keen eye on laws and regulations affecting basic and university-level education, vocational training already offers enticing opportunities, even though investments in institutions of non-formal education are still capped at 49% foreign ownership. Language courses are in high demand as students or young professionals are eager to equip themselves for an increasingly global national economy. Skills in a wide array of fields, such as IT and hospitality, can vastly improve a fresh graduate's employability, as secondary schools are often criticized for not properly preparing students for the job market. This in itself possibly makes for one of the most appealing investment opportunities: Teacher training academies.

Global Business Guide Indonesia - 2014

icone share

Indonesia Education Snapshot

Number of Tertiary Education Institutions: 4,384 (2015)
Type: 91.5% Private, 8.5% Public
Students in Higher Education: 6,959,622 (2015)
Net Enrolment Rate in Tertiary Education: 20.18% (2014)
Relevant Law: Higher Education Law No. 12 of 2012 provides universities with the autonomy to set their own tuition fees and authorising the set up of foreign universities in partnership with Indonesian institutions.