Bangladesh’s economic outlook darkens after factory collapse

By Amy Kazmin

NEW DELHI — Even before Bangladesh’s Rana Plaza building collapsed this week, killing at least 300 garment workers, the country’s $19 billion clothing-export industry was feeling the pressure of a worsening confrontation between Prime Minister Sheikh Hasina and her political enemies. Since the beginning of February, Bangladesh has been virtually shut down for 33 days by strikes, protests and political violence pitting secular supporters of Hasina’s Awami League against its bitter rivals from the Bangladesh Nationalist Party (BNP) and the Islamist Jamaat-e-Islami party. While garment factories supplying Western brands try to operate normally despite the disruptions, the shutdown of transportation, including roads and ports, and government offices, including customs offices, has prevented the import of raw materials and timely shipment of finished goods. Western buyers’ patience had already begun to fray. On Monday, the Bangladesh Garment Manufacturers and Exporters Association held a news conference to complain that it had lost $3 billion in new orders and seen $500 million in existing orders redirected to neighboring India since January because of the unrest. Many garment manufacturers believe that the Rana Plaza tragedy, coupled with the threat of more disruptive political turmoil ahead, will prompt retailers such as Wal-Mart gradually to shift production away from Bangladesh, the second-largest garment exporter in the world after China. “The situation is becoming grave,” said Rubana Haq, managing director of the Mohammadi Group, a large manufacturer that supplies retailers such as H&M, Zara, Wal-Mart and Esprit. “We will start feeling the pressure from the buyers now.” Western retailers cannot abandon Bangladesh overnight, given its capacity, with more than 3.6 million workers. But Haq says she expects local garment exports to contract by at least 10 percent this year, and possibly more in the long term, as capacities grow elsewhere. “We will suffer from a serious image deficit,” she says. The numerous delayed deliveries stemming from the political turmoil have also given buyers an excuse to slash payments to manufacturers by 5 to 25 percent. “Buyers’ maximum tolerance is a two-week delay,” Haq said. “After that, they are canceling orders or imposing discounts.” The Rana Plaza tragedy comes less than five months after at least 110 people were killed in a fire at Tazreen Fashions, a factory supplying Wal-Mart, albeit without its knowledge. The two disasters have raised serious questions about the standards and management practices of Bangladesh’s garment industry. This week, thousands of angry garment workers have taken to the streets to protest poor industry conditions and to demand the arrests of the Rana Plaza owner and the owners of the factories inside. Ominously, the political violence hampering the industry even before the disasters is unlikely to abate any time soon. Bangladesh, which gained independence from Pakistan after a brutal war in 1971, remains divided between secular ethnic nationalists and Orthodox Muslims, who would have preferred to remain with Pakistan. Those simmering tensions have been reignited by a war crimes tribunal that Hasina’s government has established to try those accused of atrocities during the liberation war, mainly leaders of Jamaat-e-Islami. When the first conviction was issued in February, supporters of Hasina’s Awami League took to the streets to demand the death penalty. However, Jamaat leaders, and their ally the BNP, argue that the tribunal is overtly partisan and that Hasina is using it to destroy rivals ahead of parliamentary elections. Rival political groups have held dueling protests about the convictions and subsequent sentencing. Activists from Jamaat’s youth wing have also been accused of vandalizing train tracks, causing derailments and attacking police officers. The political violence has claimed at least 100 lives, and verdicts by the tribunal are expected in May and June, raising the prospect of further unrest. Meanwhile, a new Islamic organization, Hefajat-e-Islam, or protector of Islam, mobilized about 100,000 people for a demonstration in central Dhaka this month demanding mandatory Islamic education and a ban on women mixing freely with men — an agenda that critics say would amount to a “Talibanization” of Bangladesh. The group has set a deadline of early May for its demands to be fulfilled, threatening more protests if they are not. Ifty Islam, the managing partner of the Dhaka-based boutique consultancy Asian Tigers Capital Partners, says the country appears to be descending into chaos, which could prompt a state of emergency or a military intervention. “The deterioration of law and order is occurring at an increasingly rapid and alarming pace, with concurrent massive economic dislocations,” he wrote in a recent report. “A worrying new element in the political maelstrom is the nascent emergency of Islamic nationalism.” All this forms a gloomy backdrop for Bangladesh’s garment industry as it struggles to retain the confidence of its image-sensitive customers after two high-profile disasters. “We will probably see a phase of violence until December,” Haq said. “I’m not very optimistic.”