Automation pace compels gov’t of Indonesia to prep its labour force

As the Indonesian government pushes ways to equip jobseekers with the necessary skills for employment, the need for automation in industries is growing amid a slow workforce growth rate, a new study has found.

Indonesia’s automation pace has the potential to contribute five quadrillion rupiah ($351.6 billion) to the nation’s gross domestic product (GDP) over 11 years, Australia-based advisory firm Alpha Beta and the Australia-Indonesia Partnership for Economic Development Prospera projected in a July report.

Currently the pace is estimated to stand at 3.2 quadrillion rupiah between this year and 2030.

In 2015, 28 per cent of Indonesian manufacturing companies reported that they were automating manual processes, lower than Cambodia, Vietnam and Malaysia, which had about 35 per cent of their companies invested in automation within the same year, according to a World Bank study.

“Indonesia’s labour force growth rate is slowing, which means that it will need to rely more heavily on productivity gains like those that automation provides,” the Alpha Beta-Prospera researchers wrote.

Statistics Indonesia data show that Indonesia’s workforce growth has stagnated at less than one per cent annually since 2011.

The study had only estimated gains from automation’s labour productivity, while factors like education and skills investments would likely lead to stronger productivity growth.

University of Indonesia labour law expert Aloysius Uwiyono saw problems in attempting to propel the country’s automation growth, as technologising tasks would force more workers to lose their jobs as they don’t possess the required skills.

Nearly 75,000 workers were laid off between 2015 and last year, according to the Manpower Ministry’s data, albeit gradually decreasing in number year by year.

The data clashes with that of Labour Institute Indonesia, which calculated that at least 100,000 workers last year alone were fired due to increasing digitalisation in various sectors.

Aloysius urged the government to compel businesses to provide skill training schemes after laying off their workers. Among other ways, lawmakers could include such a provision in a revision of the 2003 law on manpower.

“Digital economic developments leave no choice for businesses to shift to automation,” Aloysius said. “But those who are laid off should be educated so that they can get a better job than the one they had before.”

Indonesia had earmarked a relatively low budget for education compared to its peers, the Alpha study noted. Even with a similar relatively low budget proportion to Vietnam and Malaysia, the country has fared worse educational outcomes in core subjects like math, based on the World Bank and the Organisation for Economic Cooperation and Development (OECD) report in 2015.

Industry stakeholders continue to report mismatches between the breadth and quality of skills they need and the skills taught in vocational and other educational institutions, a section of the Alpha Beta study states.

“There is a sense among stakeholders that the government has focused on controlling the skills supply rather than preparing a skills system that can respond quickly to demand,” the researchers wrote.

“This creates structural inflexibility, which generates graduates who are not suited for the positions available.”

Alpha Beta said decision-makers could partner with businesses to develop technical and vocational training needed for automation.

The efforts should then be accompanied by opening doors for foreign education and training investments while simplifying coordination between ministries.

The government has recently applied both recommendations, as President Joko “Jokowi” Widodo introduced major tax deductions earlier this month for enterprises that invest in skills training as well as research and development.

The ministries have also joined heads with the world’s technology behemoths to roll out digital training programmes in Indonesia as the country’s digital economy is projected to be the largest in Southeast Asia with a value of $100 billion by 2025, according to a study by Google and Singaporean holding company Temasek.

As part of the president’s campaign, the government will disburse 10.3 trillion rupiah for pre-employment training to equip jobseekers with skills necessary for work.

The funds are expected to be disbursed through cards for one million jobseekers, with one million more to be allocated for those looking for work in the digital sector.

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