*Commentary: Are we heading toward demographic bonus or disaster? *


   Hendarsyah Tarmizi

   The Jakarta Post

Jakarta | Mon, March 5, 2018 | 09:33 am

[image: Commentary: Are we heading toward demographic bonus or disaster?]
Pledge to the nation: Students of junior and senior high schools in Bogor,
West Java, attend the celebration of the Youth Pledge Day on Oct.28.
(Antara/Arif Firmansyah)
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Indonesia is entering the initial stage of the much-vaunted demographic
dividend, which is expected to peak within 12 years. However, as the
economy has been stagnating in the last few years, there is growing concern
that the so-called demographic bonus could instead turn into a disaster.

The manufacturing industry and service sector, which are expected to absorb
the largest part of the labor force, are shrouded in uncertainties, while
efforts to help young people enhance their skills, so as to fill the
growing job market, remain slow.

Indonesia is expected to reap from its huge working age group, which will
reach 70 percent of the total population by 2030. Theoretically, the
demographic structure will provide a window of opportunity for Indonesian
people to live happier and more prosperously because most of them will earn
quality jobs with fewer financial burdens.

However, with no solid economic recovery in sight, Indonesia may be unable
to fully tap into the benefits of a demographic dividend. As growth hovers
at around just 5 percent, Indonesia will find it difficult to provide the
gigantic labor force with enough jobs.

To achieve the bonus, as the International Monetary Fund (IMF) notes,
Indonesia will have to accelerate job creation for the working age
population (15-64 years) and lower youth unemployment, which is
significantly higher than other age groups, likely because of stringent
labor regulations, low education quality and skill mismatches.

In its latest annual policy review on Indonesia, the IMF says addressing
youth unemployment and reaping the benefits of the demographic dividend
will require implementing structural reforms to accelerate growth and
diversify the economy away from agriculture and toward industry and
services that offer higher employment elasticity.

The key is in how Indonesia revitalizes the manufacturing sector, which has
traditionally absorbed most of the workforce. Many, however, are skeptical
over the labor-intensive sector playing its part, given the fact that its
contribution to the country’s economy has declined in the last few years.

In the post-New Order era, the manufacturing industry (excluding oil and
gas) contributed a record high 29 percent to gross domestic product (GDP)
in 2001. Although it remained the main driver of the economy, its
contribution to GDP fell to little more than 24 percent in 2011 and it
further dropped to an average of 18 percent between 2012 and 2014. The
downward trend reversed during the 2015-2017 period, when it rose to
between 20 and 21 percent, although the growth rate stagnated at about 4

Apart from the positive trend in the role of the manufacturing sector in
the economy over the last three years, the latest data on the amount of
realized direct investment, especially in the industrial sector, is

The latest data from the Investment Coordinating Board (BKPM) found that
realized investment increased by 13 percent to Rp 692.8 trillion (US$53.5
billion), far exceeding the target. The significant jump occurred partly
because of a series of economic packages issued by President Joko “Jokowi”
Widodo last year as part of his bid to improve ease of doing business in
the country.

The country’s exports and imports are also growing. In 2017, the 16 percent
increase in non-oil exports and the 14.70 percent rise in the import of
capital goods and raw materials indicate that the country’s manufacturing
industry is on track to further strengthen its dominating role in the

The upward trends continued in January of this year and the recovery is
expected to accelerate in subsequent months as the government has pledged
to not only perfect the ease of doing business but also provide more tax
incentives, such as a tax holiday for labor intensive industries.

If the government fulfills its promise, there is no reason to doubt our
ability to harvest the demographic bonus. The lingering question is whether
we have prepared our huge labor force to take full advantage of the
demographic dividend.

As the IMF has suggested, the government should invest in vocational
education and training now, rather than later, to provide younger
generations with the skills demanded by the labor market. The skills will
help them take advantage of the increase in job opportunities.

The Industry Ministry has for years been involved in providing vocational
education through a “link and match” program in cooperation with industry
players and vocational schools. However, only a small number of students
can benefit from this educational concept. University graduates are also
unable to fill the vacant jobs because their skills do not meet the

A mismatch between the demand from the businesses and the pool of talent
available in the market will stand between the country and its demographic
bonus. We need an immediate breakthrough to solve the problem, or else the
projected demographic dividend will instead be a devastating disaster.

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