LC boom in Algeria

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21 April 2010

Eight months ago the Algerian government ruled that no imports could enter Algeria without a corresponding letter of credit. Sam McManus explores the reasons for the change in regulation and how banks have adapted to the new environment.

At the beginning of August 2009, the Algerian government released the ‘Complementary Finance Law 2009’ which decreed that all imports into the country, with a value exceeding $1000, would require a documentary letter of credit (LC).

Algeria is a well-rated country with significant foreign currency reserves due to its very large oil exports. Yet when the price of oil dropped to below $50 a barrel, the country needed to consolidate the balance of its imports and exports, by making it more difficult to import into the country.

Importers had predominantly been trading on an open account basis which made it difficult for the government to effectively monitor cash flows in and out of the country. Algeria needed to regulate its market in order to curb its ever-increasing outflows – due to its steadily rising unregulated imports.

Using LCs allows greater transparency and an inventory to be built up...

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