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The Indonesian education sector offers significant opportunities given the major pool of customers, many of which are leaving for education overseas due to a lack of quality supply (See Indonesia’s Brain Drain Pains). With nearly 43% of the country’s population being below 25 years old and underpinned by its growing middle-class consumers which are expected to double to 140 million by 2030, the demand for high-quality educational services in Southeast Asia’s largest economy (See Indonesia’s Economic Outlook in 2017: Remain Cautiously Optimistic) will continue to grow in-line with the middle-class’ aspirations for their children’s future.
Education will play a vital role in increasing or reducing Indonesia’s chance to evolve from its emerging market status (See Second Class: Indonesia’s Higher Education Sector In Need of Reform). An educated and skilled workforce has been shown to be the most vital component for sustainable economic growth (See Labour Pains in Indonesia). Conversely, a large youthful population devoid of professional aspirations can be a social and political tinderbox.
South Korea, Singapore, and Thailand have successfully used their demographic dividends to boost their economic growth by investing heavily in the education sector. Programmes of particular note include funding studies overseas on the provision that students return to work in the country after they return.
Under President Joko Widodo, the Indonesian government has pledged to put a greater emphasis on the education sector. To maximise the potential of its new generation, the Indonesian government needs to drastically improve the quality and access to formal and non-formal education (See Vocational and Non-Formal Education Opportunities in Indonesia).
The role of the private sector is crucial in this respect because the Indonesian government, despite the locked down portion of 20% of the state budget towards education, does not have the capacity to answer all of Indonesia’s educational needs. According to a report by the BPS (2015), around 62% and 96% of senior secondary schools and kindergartens in Indonesia are owned by private institutions. Public schools outnumber private schools only in primary and junior secondary school categories which is mainly due to the 9-year compulsory education programme that the government is obliged to provide as mandated by Law No. 20/2003 on National Education System.
The public awareness of the importance of early childhood education including nursery schools, playgroups and kindergarten has heightened in recent years. This is evidenced by the increase in the number of Indonesian children enrolled in kindergarten which rose from 4.17 million in 2013 to 4.95 million in 2015. A similar increase occurred in the number of kindergartens from 74,492 in 2013 to 85,499 in 2015. Overall, the number of preschools (PAUD) has soared from 174,367 in 2013 to 190,368 in 2015 with 13.39 million preschoolers.
Many Indonesian parents now are willing to pay higher tuition fees to enroll their children in reputable preschools. In addition, as more women enter the workforce, the demand for playgroup and day care services are also growing which creates tremendous business opportunities for private institutions engaged in pre-primary education.
The Indonesian government has made primary and secondary education compulsory since 1984. Initially, the compulsory education programme was limited to six years. Later in 1994, the government raised its bar to nine years and is currently planning to further increase it to 12 years.
The number of primary schools in Indonesia in 2015 reached 147,536 schools with nearly 26 million students. The majority or 89% of these schools are public schools, while the rest are private schools. Meanwhile, the number of junior and secondary schools in the country in 2015 were 30,023 schools with around 10 million students and 25,348 schools with 8.6 million students.
Despite its huge number, many of these schools are lacking in quality and facilities which is a concern for the country’s growing middle-class families. The demand has been quickly filled by the booming of ‘elite’ primary and secondary schools; both general and Islamic (See Islamic Finance Education in Indonesia).
These ‘elite’ schools were specifically established to cater to the demands of urban, middle-class families. They offer longer school days and even a boarding programme which suits the needs of modern families where both parents are usually working. In addition, these schools also provided more qualified teachers and complete facilities to their students which results in higher tuition fees.
Many of these campuses have teamed up with foreign universities through teacher and student exchanges, grants and scholarships, dual degree, joint research, training, and publication, and many others.
To improve the quality of local universities, the government has technically allowed foreign universities to open branches in the country starting from 2016. The Ministry of Research, Technology, and Higher Education has prepared a regulation to regulate the sector based on Law No. 12/2012 on Higher Education (See After the 2012 Higher Education Act; Where are the Foreign Universities?).
Unfortunately, the new regulation still imposes a myriad of restrictions which limit the commercialisation of higher education by foreign institutions such as the obligation to adjust the programmes to local rules, culture and conditions including using Indonesian names, the language and being an Indonesian legal entity, restricting the proportion of foreign faculty to 40%, and the need to operate on a not-for-profit basis.
These restrictions have reduced the attractiveness of the Indonesian higher education sector despite its huge economic potential. Many predict that bigger universities will not invest in Indonesia until the APEC’s free trade programme is implemented in 2020.
The growing number of internet and smartphone users in Indonesia, which are the fourth and third largest in the world at 78 million and 65.2 million respectively (See Indonesian Telecommunications – An Increasingly Mobile Market), where nearly half of them are school-age children has come to the attention of foreign and domestic investors; including those in the education sector.
At least four Indonesian startups in the education sector have received funding from investors. For example, Wikasa, an online educational video platform, received a funding from Systec Group. HarukaEdu, another online education startup, received a series of A-round funding from Cyber Agent Ventures, a reputable Japanese investor.
Kelase, an online class provider, received funding from local incubator, PT Insights Investments and Ruang Guru, a teacher marketplace, has successfully acquired seed funding from East Ventures.
Meanwhile, foreign startups in the education sector are also eyeing Indonesia’s tech-savvy students and teachers (See Indonesia and the Internet; Online & On the Move). Some of them, such as Brainly, Duolingo, Quipper School, and Edmodo have aggresively expanded their businesses to Indonesia.
Going forward, e-education and e-learning, whether in the form of a website service or mobile app platform, are expected to continue to grow along with the growth of online and digital businesses (See Mobile Apps in Indonesia Clicking into Gear). Ambient Insight predicts that Indonesia will become the third largest buyer of mobile learning services in 2017. This offers huge business opportunities for the private sector especially those engaged in the education sector.
Global Business Guide Indonesia - 2017
Number of Tertiary Education Institutions: 4,445 (2016)
Type: 91.5% Private, 8.5% Public
Students in Higher Education: 4,941,574 (2016)
Net Enrolment Rate in Tertiary Education: 22% (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.
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