Is Indonesia’s Education Budget Keeping Up with Industry 4.0?

President Joko Widodo Launch Making Industry 4.0 - Photo by Industry Ministry

JAKARTA (TheInsiderStories)— While the Indonesian government had set a 20 per cent mandatory allocation of the state budget to education, it remains to be seen whether this will have a meaningful impact on the ambition to ride on the fourth industrial revolution.

Indonesia always relies on the cheap labors in attracting investment means the country is not yet on the same ground as such high-value-added economies such as Thailand, South Korea, and Taiwan. After the country realizing the cheap labors alone insufficient to lure investment, Indonesia since early 2017 started promoting the use of technologies such as big data, autonomous robots, cloud, and augmented reality in manufacturing or Industry 4.0.

Indonesia launched Industry 4.0 roadmap in April 2018, which will be used as guideline and reference for the policymakers and industry players to achieve the digital economy.

The roadmap focus on five areas namely food and beverages, textiles, automotive, electronics, and chemicals. The government expected to drive Indonesian economic growth of 1-2 percent per year from currently in the range 5 to 7 percent in 2018-2030. Furthermore, the manufactures will contribute around 21-26 percent of GDP by 2030. In addition, Indonesia targeted to improve the ratio of net export to GDP from 3 percent to 5-10 percent and create 7-19 million employment in both manufacturing and non-manufacturing sectors by 2030.

However, this roadmap has no clear technical guideline to achieve the goals. The government should put more effort in Industry 4.0, considering the country is lagging behind Southeast Asia peers on implementing industry 4.0.

Singapore clearly leads the ASEAN countries in terms of initiatives for comprehensive Industry 4.0 strategy focusing on capability development, industry transformation, and re-skilling workforce. Singapore is among the 25 countries best positioned to benefit from Industry 4.0, according to a report from the World Economic Forum. The country planned to invest SG$3.3 billion over four years for research and development in advanced manufacturing and engineering and allocate SG$4.5 billion to develop individual transformation roadmaps for 23 industries across 6 clusters.

Thailand and Malaysia also already become a leader in the legacy initiative to improve fourth industrial revolution. Thailand already entered early stage implementation of Industry 4.0 in 2016 and created a fund of 280 million baht to sponsor and support local startups. Malaysia already has an agreement with Chinese and German investors for investments in robotics and manufacturing.

One of the essential focus the government forgot is to increase the education and research budget, a key success to Industry 4.0. Indonesia has never allocated an education budget of more than 3.5 per cent of GDP, according to World Bank data. The country allocates Rp444,1 trillion for the education budget in 2018, up 5.8 per cent from Rp419.8 trillion in 2017.

It was extremely low compared to the other countries that become leaders in the Industry 4.0 such as Germany that always allocates education budget for almost 5 per cent from GDP. As well as Indonesia’s peers in emerging market such as Thailand which always allocate more than 4 per cent of GDP since 2011 for education and Vietnam which allocated 5.6 per cent of GDP to education in 2013.

Indonesia’s low budget is riddled by the allocation of the budget that mostly for salaries. One example in 2017, when the education budget reached Rp419 trillion, consisting of Rp261 trillion of local transfers and Rp155 trillion of education ministries budget. A total of Rp247 trillion allocated for the personnel expenditures.

The budget for school construction, renovation, and rehabilitation only reached Rp7.7 trillion resulted in many schools especially in the remote areas should study in poor condition.

Furthermore, Indonesia’s research budget that will be a key role in the Industry 4.0 is only 0.1 per cent of GDP, extremely low compared to other countries. Malaysia’s current research budget is 1.25% of GDP, China (2.20%), Japan (3.60%), South Korea (4.0%), Germany (2.90%), Sweden (3.20%), and the United States (2.75%).

In 2018, the government allocated Rp24.9 trillion for research budget, but only Rp10.9 trillion purposed for the real research. Another Rp10.9 trillion allocated to other activities that do not produce real research such as focus group discussion, seminars, official travels, and purchasing tools that not related to the research.

The government also cut the Indonesian Institute of Science by Rp1 trillion in 2018 to Rp1.3 trillion from the initial proposal of Rp2.3 trillion, even though the government realizes this institution should be the backbone of Indonesia’s technology research.

The government pushed Indonesian Institute of Science and other government research institution to be creative in looking for the research fund. One option is cooperating with the local and foreign private companies. The research institutions could do that kind of cooperation but should be careful because for strategic research they have to do it themselves without foreign intervention.

Indonesia does not need to beg to the developed countries for the technology transfer. On the other hand, developed countries are reluctant to share their technology to developing countries as it will hurt their competitiveness.

European nations conduct most of the research and development in the world and own most of the world’s intellectual property rights, but they failed to transfer technology to developing countries. Even though they already committed to the 1994 Trade Related Intellectual Property Rights (TRIPS) agreement that obliges developed countries to support technological advancement by transfer technology to the developing countries.

For the sake of realizing the dream of Industry 4.0, the government should be brave enough to increase the education and research budget. In the end, it will sharpen Indonesia’s competitiveness over other countries to win Industry 4.0.