Dhaka attacks casts long shadow over business in Bangladesh

NEW DELHI – The bloody weekend attack by Bangladeshi militants that left more than two dozen dead was also an attack on the country's vital garment industry.

Clothing manufacturing, the Southeast Asian nation's top export industry, had been recovering after a disastrous factory collapse three years ago shook up the industry, forcing workshops producing for foreign brands to improve working conditions.

Now, the industry, which is reliant on foreign investment, is in turmoil again after Friday's attack, in which armed extremists besieged an upscale restaurant, taking dozens of diners hostage and later killing 20 in an attack that targeted foreigners. Among the dead were a group of Italian designers and buyers for European stores.

The fallout has been almost immediate. On Monday, as people returned to work, companies were rethinking travel plans to the garment manufacturing hub.

Japanese "fast-fashion" clothing brand Uniqlo halted all non-essential travel to Bangladesh through the end of July and would continue to monitor the situation, said Aldo Liguori, a spokesman for corporate parent Fast Retailing, which has about 10 Japanese employees in Bangladesh who oversee manufacturing by local factories and supervise its four shops.

"The attacks could have significant economic impact — which may well have been in part, the intention," said Gareth Price of the Asia Programme at Chatham House, London.

"The decision by Uniqlo to suspend travel to Bangladesh would, if replicated by other companies, have a devastating effect on the economy," Price wrote in an op-ed piece in the Indian Express newspaper on Wednesday.

Bangladeshi factory owners are bracing for the worst.

"It is a disaster for us. For the trade, it will be very tough to overcome this situation," said Mobasher Ali Mir, CEO of the Horizon Group, a garment exporter in Bangladesh.

Mir, who spoke over telephone from Dhaka, said garment manufacturers in Bangladesh were already under pressure from Western buyers over concerns about worker safety after several fatal accidents in makeshift buildings.

Bangladesh, long one of Asia's poorest countries, earns about $26 billion annually from garment exports mainly to the United States and Europe. The garment industry employs about 4 million workers, mostly women from rural areas, who earn about $72 a month — among the lowest minimum wages in the world.

With low labor and infrastructure costs guaranteeing huge margins, Bangladesh has become the world's biggest workshop after China, for the production of the full range of clothing — from mass produced T-shirts to high-end designer wear.

However, the high death toll in the April 2013 collapse of Rana Plaza, a multistoried building outside Dhaka housing five garment factories, raised ethical questions about global brands outsourcing manufacturing to Bangladesh with its appalling work conditions.

Over the last two years, the Bangladeshi government and garment factory owners, under pressure from those global brands, stepped up safety and work conditions, and business was once again on an upswing.

Bangladesh's economy has maintained a robust 6 percent growth on average over the past two decades, making the country an attractive investment destination.

But tempering that confidence have been growing concerns about the resurgence of Islamic militancy in the country, with the past two years seeing a sharp rise in fatal violence by Islamic fundamentalists against secular bloggers, foreign aid workers and religious minorities in the traditionally moderate Muslim-majority nation.

The weekend's attack on the restaurant "marked a significant escalation in the scale of atrocities against foreigners, with previous atrocities having singled out individual foreigners," said Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight.

The militant attacks in Bangladesh have also set off alarms in Japan, with more than 240 Japanese companies operating in the country.

Japan is also one of Bangladesh's biggest aid donors, having contributed billions of dollars assistance last year to build roads, railways and bridges, and improve water and sanitation.

But the deaths of seven Japanese aid workers in the attack will force the Japanese government and companies to reevaluate their roles in Bangladesh at a time when many Japanese companies are considering setting up production facilities in Bangladesh as labor costs rise in China.

Japanese nationals in Bangladesh have already been warned to avoid places that attract foreigners because such places may become targets, said Hiromitsu Sho, spokesman for the Japan External Trade Organization.

It was too early to see if any companies will decide to leave Bangladesh but Japanese have been instructed to stay indoors either at home or in the office, Sho said. "We are looking into risk management measures that may be needed," he said. "It is possible that companies may become cautious about investment in the future."

Other Japanese companies are also voicing caution.

Toshiba spokeswoman Midori Hara said it is suspending business travel to Bangladesh until July 10. The electronics giant, which opened an office in Dhaka last year to study the country's infrastructure needs, said it would then reassess the situation.

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Associated Press writers Yuri Kageyama in Tokyo and Kelvin Chan in Hong Kong contributed to this report.