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Addressing The Critical Skill Gaps In Indonesia

7 mins read

10 January 2023

Digital literacy is essential for in the 21st century and although many ASEAN countries are nearing the peak of digital transformation, Indonesia is still lagging behind due to critical skill gaps in their workforce.

Lack of skills and inadequate infrastructure have been named as the primary causes of Indonesia’s lower labor productivity compared to other ASEAN nations. It was highlighted that Indonesia is known for having an excess of semi-skilled employees, and that the country’s education and training systems were failing to give students and job searchers the necessary skills to carry out the tasks that were available.

Digital literacy is clearly essential for Indonesia’s development in the twenty-first century. The nation’s yearly GDP growth rates have mostly stuck at 5% over the previous five years, despite having many of the characteristics thought to be favorable to rapid economic growth, such as a strong natural resource base, a young population, and an expanding services sector.

In recent years, Indonesia has started initiatives to accelerate digital skills among workers. On that note, let us take a look at the overall skilling rates of the country and the initiatives carried out by the government to upskill their workers digitally. 

At Current Skilling Rates, Digitally Skilled Workers Will Contribute US$134.5 Billion To The Country’s GDP In 2030

The economic contribution of Indonesian workers with digital skills is expected to increase based on current trends in the country’s adoption of technology. Workers in the technology industry and digital workers in non-technology sectors are anticipated to be the main drivers of this increase. Between 2019 and 2030, it is predicted that both types of workers will contribute more to the GDP. The corresponding GDP contributions of non-digital workers with digital skills in non-technology sectors, on the other hand, are predicted to increase by a relatively smaller but still sizable amount.

There are three key drivers behind these trends:

  1. Over the past five years, Indonesia’s technology sector has grown rapidly, and this trend is anticipated to continue. According to a recent study, Indonesia has the largest and fastest-growing Internet economy in Southeast Asia, with its Gross Merchandise Value (GMV) quadrupling between 2015 and 2019 at an average growth rate of 49% annually. An increase in employment in the technology sector has coincided with this sector’s expansion. According to this data, the number of workers in this industry increased by about 10% year between 2012 and 2017, which is nearly six times the average growth rate of 1.6 percent seen in non-technology sectors during the same time period.
  2. The number of digital professionals hired into non-technology sectors has increased in tandem with the rising adoption of digital technologies by these businesses. Similar to this, a 2019 research on Indonesia’s labor market shows a growth in the need for digital talent by businesses in these industries. Fintech professionals in financial services companies and e-commerce managers in retail businesses are two examples of “in-demand” digital occupations.
  3. Non-digital workers with digital abilities have also seen an increase in employment, albeit at somewhat slower rates than digital workers in non-technology areas. This is in line with more extensive research, which demonstrates that the nation has less capacity than other developed nations to cultivate and retain workers with digital skills. On the “Global Knowledge Skills” criteria, which heavily emphasizes digital skills, Indonesia was placed 84 out of 132 countries under the “2020 Global Talent Competitiveness Index (GTCI),” which rates nations based on their capacity to develop, attract, and retain talent.

At An Accelerated Rate Of Skilling, Digitally Skilled Workers Could Contribute US$303.4 Billion To The Economy By 2030

Even though the expected value of digital skills in 2030 is based on current trends, this value may grow significantly if Indonesia accelerated its rate of digital skilling to meet the current performance of global leaders. The country’s GDP contribution from digital skills could increase even more in 2030 under this “Accelerated” scenario.

It is anticipated that in the “Accelerated” scenario, non-technology industries will continue to contribute a disproportionate amount of GDP. Workers in digital roles make up a relatively minor portion of this, with the rest workers having non-digital roles but nevertheless needing digital skills to execute their tasks.

The estimated value of digital skills in Indonesia is split down by sector and reveals some intriguing patterns. The value of digital talents in the nation will reportedly be highest in the technology industry by 2030. It is not surprising that a large portion of the nation’s digital talent may continue to be centered in the technology sector given the current nascency of digital capabilities in the employment base of Indonesia’s non-technology industries.

When industries are evaluated based on projected growth in the value of their digital capabilities between 2019 and 2030, the picture begins to look very different, with Indonesia’s non-technology sectors projected to witness some of the highest rises. This is greatest in the professional services sector, where it is anticipated that between 2019 and 2030, the relevant GDP contributions from people with digital skills in that area will increase by over 10 times. Similar to this, it is anticipated that the value of digital skills will increase by 5.5 times in the financial services sectors, outpacing the estimated expansion of this value in the technology industry.

Key Trends Observed In The Financial Services Sectors:

Indonesian businesses are making more of an effort to hire IT personnel due to rising investments in technological solutions like big data analytics and automated compliance checks. According to a study of the job market in the industry, the growth of financial technology, or “fintech,” has increased the need for “fintech specialists” in financial services companies. Employers in non-digital roles are also expected to have a minimum of entry-level digital abilities that would enable them to use these new technologies efficiently.

Three Areas Of Action Will Be Needed To Fully Unlock Indonesia’s Digital Skills Opportunity

1. Equipping The Current Workforce With Digital Skills

It is crucial to make sure that Indonesia’s current employees have access to the appropriate resources to obtain the necessary digital skills training. In particular for MSME owners and employees, these include both basic and advanced digital skills such as the use of productivity software, web browsers, and other straightforward digital interfaces. 

There is a perceived dearth of both “hard” and “soft” digital skills in the nation. Thankfully, the government is taking steps to close the gap in digital skills. The Ministry of Manpower (MOM) has boosted funding allocation for “preemployment card” to assist laid-off workers, informal workers, and MSME owners as part of the national response strategy to the COVID-19 outbreak.

These cards have credit that can be used to pay for courses that will improve or update their skills. The MOM has highlighted that this will be a crucial component of their “three-part” skilling strategy, which includes “skilling,” or providing graduates with the work-ready skills they need to find employment, “re-skilling,” or increasing the employability of long-term unemployed workers, and “up-skilling” (enhancing the career options of temporarily unemployed workers). The Ministry of Industry created a list of training courses for business leaders, public servants, and vocational educators as part of the nation’s Industry 4.0 plan; however, given that this is a pilot initiative, the distribution of these courses has not yet been scaled up nationally.

2. Preparing The Next Generation Of Workers

It is crucial to start sowing the seeds for a future generation of flexible, tech-savvy workers now. This entails creating an education system that is flexible and sensitive to the evolving technological landscape as well as an ecosystem of initiatives targeted at equipping graduates with digital skills prior to their entry into the workforce. There have already been major efforts made in this direction by the Indonesian government. The government committed 20% of its state budget to education in 2019 to assist schools in educating and preparing their students for the new digital era.

These monies will be utilized to streamline curriculums, train new instructors, and educate soft skills.  The “Digital Talent Scholarship Online Academy” is a significant government project run by the Ministry of Communication and Information Technology. The school offers financial support and capacity-building programs aimed at providing online businesses with fundamental digital competences, such as cloud computing, network engineering, chatbot programming, and digital marketing, to expedite the digitalization of MSMEs during the COVID-19 epidemic. This program seeks to train 35,000 people from various demographic groups, including recent graduates, those with vocational degrees, and teachers of coding.

3. Broadening Digital Access To All

The importance of guaranteeing everyone’s access to opportunities for digital skill development cannot be overstated. To improve these neglected populations’ employability and capacity to gain from digital skills, targeted programs must be developed that are specifically suited to their requirements. This is crucial in Indonesia, where female, young, and rural workers have historically had considerably worse labor market outcomes.

To increase the inclusion of underprivileged communities in the workforce, the government is closely collaborating with business and civil society players. The “Online Academy” is a special training program for the “Digital Talent Scholarship Program 2019” that anyone can use to learn new digital skills. For instance, the “Open Distance Learning” initiative was put in place by the Ministry of Education and Culture to increase access to education for Indonesians living in rural and remote places.

Although these initiatives are essential to creating the momentum required to spread the advantages of technologies to everyone, they are currently being carried out on a small scale, and they frequently focus primarily on a small number of geographical groups. There is therefore potential for national policy measures to provide equal access to skill-building opportunities across the nation.

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