None of this makes eliminating subsidies any easier. But while the path to reform is littered with failed attempts and riots, some governments have succeeded in weaning off subsidies, and there are lessons to be gleaned from their experiences.
First, it is critical to communicate the importance and purpose of reform. Governments must take time to explain to their major stakeholders -- citizens, business groups, labor unions, and others -- the need for the painful adjustments and the benefits that will accrue from the changes. As a way of buttering up public opinion, Ghana preceded its 2005 fuel subsidy reduction by commissioning an independent study that demonstrated how society's richest benefited the most from subsidies. It also emphasized through billboards and radio spots how the poor would be compensated in other ways, such as raising the daily minimum wage and eliminating schools fees. Through these measures, it was able to avoid the large street protests that had undermined earlier reform efforts.
Iran, too, laid the groundwork for its 2010 subsidy reform through an extensive public relations campaign. The government explained its goal was not to eliminate subsidies for the poor, but to move from a grossly inefficient system based on products (cheap energy) to one based on households (through cash transfers). For months prior to the reform, the government printed electricity bills showing the true cost versus the subsidized rates households and businesses were paying as another way to educate the public.
In Egypt's case, the government needs to launch a concerted public relations campaign that exposes the wastefulness and corruption in the current subsidy system, and that also explains the potential in reallocating funds to more productive investments and targeted assistance to the poor. Cleaner air and less clogged streets should also have some appeal for urban elites.
Second, governments must present a comprehensive reform program that matches concrete benefits with subsidy reductions. Iran, for example, deposited cash compensation into household bank accounts in the weeks leading up to its subsidy reductions. Although these deposits were frozen until the day of the price increases, people were reassured knowing the money was actually there. According to an IMF assessment of Iran's subsidy reform program, in the first 12 months of the program the government replaced some $50-60 billion in energy subsidies with $30 billion in cash transfers to households and another $15 billion in support to industries to help them make investments in greater energy efficiency.
In contrast, Nigeria hiked fuel prices in January 2012, with only vague promises to channel the savings into future infrastructure spending in return. Given the government's sorry track record in meeting its commitments, the public was duly skeptical. Not surprisingly, widespread strikes and riots occurred, forcing the government to back down.