This 2017 paper provides an overview of the landscape of Indonesian education. In particular the preference of parents wanting a better education for their children has driven private education to be dominant position in terms of number of private institutions run by religious organizations (ie Muslim, Christian and Buddhist) and by independent foundations. Paper outlines opportunities for investing in education assets in Indonesia and refers to the Indonesian Governments Negative List which limits investments in some sectors. Significant opportunities for private investment in English language colleges, vocational education and training, schools and universities. Government legislation to prosecute fake institutions issuing fake qualifications.

1. Indonesia Opportunities for Education Investments
By
Tony Mitchener
Byline: Indonesia presents a number of challenges to the informed investor in education assets. The
world’s fourth most populous nation has an emerging middle class of around 130 million and a very
energetic private education sector.
Indonesia Opportunities for Education Investments
Institutions and investors considering acquiring or establishing education assets in Indonesia will be dazzled
by a number of positives that would point to excellent investment opportunities:
 A large population of 255 million, growing at 3.3 million each year, with 27.3 per cent under the age of
15 years;
 Increasing urbanization (30 per cent in 1990 and projected to reach 55 per cent this year);
 A large middle class, expected to double to 130 million by 2030;
 A large growing school population of 45 + million students and 7 million students in higher education;
 A preference for private education (43 per of secondary students study in private schools);
 Strong demand for international education (over 40,000 Indonesians study overseas each year);
 Increasing proficiency in English language skills;
 Strong social status for qualifications;
 Strong economic growth: averaging around 5-6 per cent in recent years and low external debt of less
than 34 per cent of GDP;
 Regulatory environment permits 100 per cent foreign ownership of schools, universities and up to 67
per cent of vocational training agencies;
 An internet and apps savvy population (Jakarta is the Twitter capital of the world);
Of course, there are downside considerations, including:
 Indonesian students results in PISA are among the lowest in participating countries;
 The ease of doing business, whilst improving, remains low (Indonesia is ranked 109/189 countries);
 Corruption levels are high, particularly for businesses and individuals needing to access Government
services. Transparency International’s annual Corruption Perceptions Index recently ranked Indonesia
90/176 countries.
 Private education institutions must be ‘not-for-profit’;
 There are around 4,000 institutions of higher education (ie universities, institutes, polytechnics);
 Low levels of accreditation of higher education institutions;
 Indonesian universities rank poorly in The Higher Education Top Universities in Asia: the highest ranked
Indonesian university is at 181-190, whereas Singapore, Malaysia and Thailand have universities
represented in the top 100; and
 workforce productivity is low (this is an opportunity for training providers with the right courses).
The Education Landscape
Until 2010, the Negative Investment List, which lists economic activities where foreign investment is
restricted, limited foreign investment in schools and higher education to 49 per cent. Since then, foreign
institutions and entities can now hold 100 per cent ownership in institutions of formal education, which

2. includes kindergartens, primary and secondary schools (Article 65, National Education Act 2003) as well as
universities (Article 50, Higher Education Act 2012). For vocational colleges the cap is 67 per cent.
Schools
Indonesia has over 190 ‘international’ schools (since 2014 they cannot be called ‘international’) and around
100 national plus schools (ie schools teaching the Indonesian curriculum plus additional subjects from
overseas education systems, usually in English). Indonesian nationals are generally unable to attend the
international schools, but could attend national plus schools. The preference for private schools will
continue due to perceptions of poor quality government schools. The phasing-in of 12 years of compulsory
school education since 2013, is also providing the impetus to the establishment of private upper secondary
schools (SMAs).
Despite the challenge that schools must be ‘not-for-profit’ there are opportunities for international
investors satisfied with enlarging their international footprint, raising brand awareness and revenue
streams through management fees, use of intellectual property (ie curriculum) et al. There are already
some overseas schools that have already done this including Academic Colleges Group of New Zealand,
(owned by Pacific Equity Partners, Australia) which established ACG School Jakarta. GEMS Education which
already has schools in Singapore and Malaysia announced in 2015 that it was also considering establishing
schools in Indonesia.
There are also opportunities for franchises in early childhood education with a number already established
including Koobits, Town4Kids, KidzArt, Kinderworld Montessori, Kumon and Rise Global.
English Language Colleges
The increasing demand for English language skills has seen significant growth in local and international
franchised English language colleges. This demand is driven by students seeking to improve their test
scores and ability (English is part of the school and university curriculum) and those students seeking to
study overseas. Some of the overseas franchises already operating in Indonesia include:
 Direct English (Linguaphone, UK);
 EF Colleges (Education First, Switzerland) has 65 schools and 20,000 students;
 Wall Street English (Pearsons Education).
The introduction of 12 years compulsory education is expected to provide further impetus for young
Indonesians seeking to study English: due to the increase in school students, and the consequential
increase in university students.
Vocational Education
Indonesia’s industry and services sectors suffer from a shortage of skilled workers due to budgetary
limitations in the government’s investment in skills formation, labour laws that militate against permanent
employment and a low willingness by business and young people to pay for training. This leads to very low
levels of productivity, which is of concern to the Government due to industry shifting from Indonesia and
the challenge that more productive, skilled labour from other ASEAN countries will seek to work in
Indonesia due to the establishment of the ASEAN Economic Community.
The Government makes a reasonable investment in technical high schools (SMKs) which provide academic
subjects and technical skills training for the equivalent of Years 10-12. There are, however, too few
polytechnics and institutes that provide services and technical training to equip Indonesians with the
higher level skills required in workplaces.
The main challenge for young people considering undertaking vocational training is the return on their
investment. The cost of tuition fees is perceived to be high compared to the expected return on salary

3. which is quite low. As well, from the business perspective, relatively generous severance pay entitlements
has encouraged businesses to move to fixed term contracts, temporary or outsourced workforces. In 2012,
only 46 per cent of Indonesia’s 118 million workforce were permanent employees of which only a very
small proportion would receive any company sponsored training. The remaining 54 per cent of the
workforce were informal workers who are unlikely to receive any training. This low level of training
seriously hinders productivity.
Some businesses have taken the initiative and established their own training centres and use training as a
key retention tool. Most employers, however, poach staff from competitors and/or complain about the
problem, expecting the Government to solve it for them. Analysis by KPMG in the 2016 report, Global
Demand for Skills identified the demand for training in Indonesia as:
 Very strong industry demand: Construction;
 Strong industry demand: basic manufacturing, child care, retail and wholesale trade, transport and
logistics;
 Moderate industry demand: agriculture, advanced manufacturing, hotels and accommodation, aged
care, food and beverage, tourism, health services;
The level of skills shortages indicates there are opportunities for foreign institutions and investors in the
vocational space where they have the right product, with the right price points and access to the
employers. As in other countries, more business will progressively appreciate the benefits of training
which will increase demand for international standard training. International vocational colleges operating
in Indonesia include:
 La Salle College (Jakarta and Surabaya): owned by LCI Education Network of Canada and offers design
courses up to Advance Diploma level;
 Raffles Institutes of Higher Education (Jakarta, Surabaya and Medan): owned by Raffles Education
Group and offers design (digital, fashion, visual communication and interior), marketing, management,
tourism and hospitality;
Unlike schools and higher education, the legislation is silent on whether vocational colleges can be ‘for-
profit’, but foreign investors can only control up to 67 per cent of the venture.
Higher Education
The intent of the Higher Education Act 2012 was to expand access to higher education for Indonesians
while increasing standards and choice for students by enhancing institutional autonomy, accountability and
internationalising a sector which had been inward looking, nationalist and isolationist. The legislation gave
universities (particularly state universities) greater autonomy in their management and allocation of
resources, but also made them more accountable to students for academic results and required them to
allocate 20 per cent of places for economically disadvantaged students.
The introduction of compulsory 12 years of schools education will increase the number of high school
graduates seeking to attend higher education.
The Government has been envious of Malaysia’s and Singapore’s success in attracting foreign universities
to establish campuses and are concerned about the US$1 billion drained from the economy each year
(tuition and cost of living) for the 40,000 or more students seeking an international education. The
establishment of a competitive education market place with foreign universities establishing campuses in
Indonesia is seen as one way to stem the number of Indonesians studying overseas and to significantly
increase the number of international students studying in Indonesia (up from around 6,000 students). The
Minister Muhammad Nasir has also indicated that he wants to recruit Rectors from overseas to run
Indonesian universities and expand the compulsory teaching of English language.

4. Foreign universities, however, have yet to establish formal campuses in Indonesia to deliver undergraduate
and/or postgraduate degrees. The main f reasons for this including the regulatory environment:
 ‘for-profit’ education institutions are prevented from being established and must be not-for-profit; and
 Foreign institutions can only operate in specified locations and offer a limited range of courses, but the
Indonesian Government has yet to issue regulations confirming the locations and courses (regulations
are to be issued this year).
There are international campuses in Indonesia offering foundation programs prior to undergraduate entry
at overseas universities, including:
 Deakin International College (subsidiary of Deakin University, Australia);
 Monash International College (affiliated with Monash University, Australia);
 Raffles College (affiliated with Raffles Education Group) offers foundation programs and first year
undergraduate studies for students to continue into second year at Australian, Singaporean and British
universities;
 Uni Sadhu Guna: delivers a foundation program for a number of Australian universities (joint venture
between University of New South Wales, Australia and alumni from Institute of Technology, Bandung).
Indonesia already has a saturated higher education market with over 4,000 institutes and some 7 million
students: only 130 institutes are government owned with around 57 per cent of all students. Some 4,000
private institutes have around 43 per cent of students: ie an average of only 750 students each. Private
higher education institutions are ineligible for government funding to support teaching and are almost
entirely dependent on tuition fees for income.
Since the early 2000s the Government has limited the establishment of new private higher education
institutions, except where there was clear market niche not being met by existing universities. By 2013 this
policy had moved to revoking the licences of problematic private higher education institutions that it
considered ‘unsound’. In May 2014, there were 576 ‘unsound’ universities and in 2015, the Minister
announced the Government would close a further 243 universities which were not-active and had not
complied with ongoing registration requirements.
Importantly, distance education in Indonesia can only be offered by Universitas Terbuka. A number of
institutions have been issued compliance notices for offering distance education and are likely to face
sanctions. While the Ministry cannot close down distance education or online courses offered from
outside Indonesia, the Government refuses to recognise overseas qualifications gained through online
study for the purpose of civil service employment. Many large private sector companies follow the
Government’s policy so they are not seen to be ‘out-of-step’.
The Indonesian desire for social status has manifested itself in a strong push by people obtaining
qualifications which are legitimate, are from local or overseas institutions of dubious quality or are fake.
The former Vice-President of Indonesia Dr Hamzah Haz openly acknowledged that he paid US$2,000 in
1998 for his title of 'Dr' with a qualification from American World University.
The current Minister has lead raids on fake universities with legitimate sounding names, on Indonesian
universities issuing qualifications in exchange for money (‘diploma mills’) and print shops. The National
Education Act 2003 (Article 67) and the Higher Education Act 2012 (Article 93) specify it is a criminal
offence for individuals and institutions to issue bogus qualifications and specify 10 years jail and/or IDR 1
billion fine (ie around US$75,000). The National Education Act 2003 (Article 69) also specifies it is a
criminal offence to obtain and use bogus qualifications with the sanction of five years jail and/or IDR 0.5
billion fine.
Summary

5. There are opportunities for overseas institutions and investors in schools, English language colleges,
vocational training and universities.
Despite the not-for-profit status of universities, foreign institutions, of course, are able to charge a range of
fees to recognise their costs involved in managing and operating campuses in Indonesia and as a means of
ensuring that their investment is appropriately recognised. These fees could include recognition for roles
in managing the Indonesian campus, recruiting and supervising academics, use of intellectual property (ie
curriculum licensing), invigilation, monitoring of assessments and standards and awarding of qualifications.
For overseas universities and vocational colleges the main option would be establishing joint programs
with similar Indonesian institutions in niche fields. These joint programs could include teaching an
international qualification at the Indonesian institute or where students commence their Indonesian
qualification for one to two years and then transfer to the overseas university to complete their studies
and be awarded an overseas qualification.
There are significant advantages to this approach instead of incurring the costs of establishing their own
campuses, including the Indonesia partner using their own:
 local knowledge to overcome any regulatory impediments;
 facilities for teaching;
 experience in recruiting students in its catchment area;
 student administration system;
 access academics in the relevant field of study to teach the course.
The challenge is that there are only 26 Indonesian institutions accredited at ‘A’ level (a further 95 are
accredited at ‘B’ and 25 at ‘C’ level), with whom overseas universities can partner with due to regulatory
limitations.
Indonesia offers significant opportunities, despite the challenges set out above for the discerning investor
and overseas institutions.
This article first appeared in 2017 in EducationInvestor Global, a UK based online magazine which provides
market-leading intelligence resource for investors, operators, lenders and advisors focused on the global
business of education and training. If you are interested you can subscribe here:
https://educationinvestor.co.uk/
If your business or investment fund is interested in education market analysis, Tony Mitchener can be
contacted on tony@mitchener.com.au