Nicholas Woode-Smith argues that South Africa can learn valuable economic lessons from Argentina’s recovery under President Javier Milei. By cutting public spending, reducing government ministries, and prioritising market reforms, Milei revived Argentina’s economy. Woode-Smith suggests South Africa needs similar fiscal discipline and transparency to address its growing deficit and economic challenges.
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By Nicholas Woode-Smith*
South Africa could learn many valuable lessons from Argentina and its economic revival at the hands of President Javier Milei. Most notably, the government needs to pay careful attention to how Milei slashed Argentina’s public spending and delivered a budget surplus in a country once thought to be doomed to bankruptcy and economic delinquency.
As of October 2024 South Africa’s deficit is projected to be 5% of GDP. The 2024/2025 financial year saw a tax shortfall of R22.3 billion. Despite a reprieve from rolling blackouts and temporary jubilation following the establishment of the Government of National Unity, the economy is faltering. Investors are once again losing confidence. Something needs to be done.
Argentina before Milei was an economic basket case. While endowed with many natural advantages in the form of vast agricultural land, large reserves of natural gas, substantial lithium deposits and other valuable mineral resources, the country has repeatedly fallen victim to populists and socialist ideologues devastating its economy with ill-thought policies, regulations and overspending.
Prior to Milei’s reforms, as of December 2023, Argentina’s inflation rate was 211.4% – the highest in 32 years. After his reforms, as of October 2024, the monthly inflation rate had dropped to 2.7%.
While the poverty rate initially spiked from 41.7% (prior to reforms) to 52%, it is now sitting at around 38.9%.
Argentina had been running a consistent deficit since 2011, averaging around 4.03% of GDP (similar to South Africa’s). But after the reforms, Argentina has been running a budget surplus.
GDP forecasts have grown from a 2% increase to an 8.5% increase, as opposed to the 3.4% contraction seen prior.
Overall, Milei’s shock therapy has worked. Initial pains have paid off, and Argentina has quickly fixed much of its economic malaise and is on the path to becoming a successful economy. But how did Milei accomplish this?
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Milei has always been transparent. He was clear and honest about the initial pains of austerity and what will need to be done to fix things. He did not sugarcoat his strategies and trusted in his voters to be patient. And they were, mirroring his trust and allowing Milei to implement budget cuts, public sector lay-offs and the shutting down of vast swathes of unnecessary and costly government departments.
Milei halved the number of ministries from 18 to 9, dissolving and merging ministries to streamline their operations. He was able to reduce government spending by around 30%. 80% of public infrastructure projects were cancelled. 74,000 government workers were laid-off, reducing the public payroll by around 20%.
While this move may not be nice for the laid-off government workers, it has allowed Argentina’s economy to stabilise and grow. Argentina’s government, like South Africa’s, was bloated, ineffective and corrupt. The vast majority of its government workers were useless and ineffective – merely extracting wealth from productive taxpayers and giving little to nothing in return.
South Africa can learn from Milei. Firstly, honesty and transparency can go a long way. Voters should be treated like adults. Not children to be manipulated or tricked by honey-coated false promises.
It’s better to honestly tell voters that things will be hard for a short time, but will be better in the long run. And Milei’s case shows that the suffering wasn’t even that long. In less than a year, Argentina is better than it was before (I believe poverty rates have increased). We should not hold much sympathy for corrupt and lazy officials who lost their jobs.
What South Africa needs to do is address the deficit not through ideologically motivated wealth taxes, but through spending cuts. Grandiose and foolish initiatives like NHI need to be stopped. Costly parastatals must be privatised. There needs to be a shift away from fixating on welfare, and policy reforms to enable job creation. Turn grant recipients into prosperous workers.
South Africa’s 32 ministers need to be cut down to size. The cabinet could be easily cut down to 10 positions through consolidation and scrapping of unnecessary, vanity projects.
By simultaneously cutting costs, and embracing free market policies that enable job and wealth creation, South Africa will not only balance the budget, but become increasingly more wealthy. Something that will benefit everyone.
We could become even richer than Milei’s Argentina. We only need to embrace the right policies, and learn the right lessons. Perhaps, in the future, historians will write about the South African economic miracle more than Argentina’s. But for that to happen, we must make the right decisions.
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*Nicholas Woode-Smith is a political analyst, economic historian and author. He is a senior associate of the Free Market Foundation and writes in his personal capacity.
