* Nigerian factories starved of imports

* Vehicle plant halted for lack of engines

* Africa’s largest economy in first recession since 1991

* GDP contracts by 2.06 percent in second quarter

By Ulf Laessing

NNEWI, Nigeria, Aug 31 (Reuters) – At a factory in southeast Nigeria, dozens of new white buses stand at the end of the production line, apparently ready to take on some of Africa’s toughest roads.

Unfortunately for Nigeria’s main domestic vehicle assembly firm they are going nowhere for now.

In an economy starved of dollars because of the slump in oil prices, Innoson Vehicle Manufacturing (IVM) cannot buy imported components, leaving the buses without engines – a metaphor for the problems afflicting Africa’s most populous nation.

GDP figures on Wednesday confirmed that the continent’s biggest economy slid into its first recession in 25 years in the second quarter, shrinking by 2.06 percent after a 0.36 percent contraction in the first three months of the year.

The poor state of the manufacturing sector in particular is a blow to President Muhammadu Buhari, who has been pushing hard to wean Nigeria off its dependence on crude oil sales, which make up 70 percent of government revenues.

At IVM, whose products are intended to show Nigeria can export more than oil, workers have already been sent home because of a lack of parts from Japan, China and Germany, which account for much of the content of the vehicles they produce.

Production had stopped “as we are waiting for the imported items for which there is a forex issue,” chairman Innocent Chukwuma said at the firm’s plant at Nnewi, in southern Nigeria.

Launched in 2010, IVM last year raised its annual production target for 2016 from 4,000 to 6,000 vehicles due to a “Made in Nigeria” campaign that generated strong sales to the police, state agencies and churches.

Those ambitions are now looking shaky if promises of government assistance fail to materialise, Chukwuma said.

“I believe they are doing something but if they can’t do anything we’ll lay off some workers,” Chukwuma said.

“JAPAN OF AFRICA”

Nigeria’s foreign currency reserves were more than $31 billion a year ago but dropped to below $26 billion this month as the central bank stepped up its dollar sales to try to address the widespread foreign exchange shortage.

A 40 percent devaluation of the naira in June was meant to resolve that shortage by encouraging delayed inward investment and opening up the currency market.

But trade on the official market remains thin, with many of the available dollars finding their way to the black market, where they are sold at a premium of 40 percent.

For a country that imports everything from machines to milk the impact is huge.

In the southeastern city of Aba – known as the “Japan of Africa” until the 1970s – more than 2,000 shoemakers have shut because they cannot pay for imported glue or synthetic leather, whose prices has surged due to the black market dollar rate.

“We are just managing,” said Uche Okeke, who used to make 1,000 pairs of women’s shoes a month before the price of glue quadrupled, forcing him to nearly halve production and lay off half his staff.

With the inflated input costs, consumers in neighbouring Cameroon, who used to buy most of Aba’s shoes, are now opting for cheaper Chinese footwear.

Until recently, three trucks laden with shoes and bags left the city for Cameroon every week. Now it is one every fortnight, traders at the city’s almost deserted motor park said.

POTHOLES


Government officials point to a sizeable investment this year by U.S. drinks giant Coca Cola in local juice and dairy firm Chi Ltd as evidence of a turnaround in Nigeria's fortunes, but business people say promises of government support fail to materialise.

Finance Minister Kemi Adeosun said earlier this month that exporters should get tax breaks, another item in a list of proposals that have yet to make it into law.

A government source said last week that Buhari wanted parliament to grant him extra powers to speed up plans such as easing visa restrictions for potential investors.

The government under Buhari has spent 400 billion naira ($1.2 billion) on building roads or improving the power supply but that has had little impact in a country of 190 million that has suffered decades of mismanagement.

The main roads around Aba - whose shoes are said to have rivalled even Italian footwear in the decade after independence - are littered with pot-holes and in some parts are little more than dirt tracks.

"We are tired of hearing about support from the federal government. We read about it in the newspapers, hear it on television and radio. But it's just talk," said Goodluck Nmeri, head of the 6,000-strong shoemakers' association in Aba.

GogetterMD:
I thought the vehicles were exclusively made in Nigeria