Bangladesh: Safety first, but diligence always

October 2016

James Owen

July turned out to be a cruel month for Bangladesh. On the evening of Friday 1 July, a group of attackers armed with blades, guns and bombs stormed into the Holey Artisan Bakery in the heart of Dhaka. By the end of the siege on the Saturday, 20 hostages – including 18 foreigners – two policemen and two bakery employees were dead.

The attack upended the security risk calculation of all foreign businesses working in or interested in Bangladesh. On the positive side of the calculation is the bright economic picture the country presents. Bangladesh has enjoyed GDP growth of 6.2% a year for over a decade and has proven an attractive investment destination for many international companies in recent years, particularly those looking to take advantage of a large, low-cost labour force and proximity to shipping hubs. The government has addressed key structural constraints in the economy and, in 2015, the country received its largest ever foreign direct investment, $2.2 billion –almost half more than the previous year.

Growth has come from oil and gas, banking and telecommunications, reflecting the diversity of the economy, and investors from the US, UK, China, Singapore and South Korea have been the most bullish. And why not? According to most estimates, the investment return in 2015 was more than 14%.

Cut back to the present. Almost all foreign companies are now urgently reviewing their security in the country. This is increasing the price of doing business in a country whose attractiveness very much depends on having a low operating cost. The focus, for now, has clearly shifted from the business of business, to protecting the physical safety of employees and assets – and understandably so.

The July attack followed on from other attacks over the last 18 months which have been aimed at those perceived to represent non-Islamic influences, including secular writers and bloggers, religious minorities and foreigners. This, alongside the fact that the security machinery in the country still appears ill-prepared to tackle the challenges posed by the rising number of attacks, makes it all the more important for organisations to focus on putting in place the right security plans, protocols and preparedness.

However, that does not mean to say that companies can afford to look away from the risks that have traditionally kept executives in Bangladesh awake at night. Underdeveloped infrastructure remains a serious operational challenge, and political instability adds uncertainty and complexity to the identification of trusted local partners or third parties, not to mention related corporate governance and compliance concerns. Added to these concerns are the country’s health, safety and environmental challenges.

Perhaps the most telling examples of these deficiencies are from the country’s $26-billion garment industry that supplies to most of the world’s largest clothing brands. Appalling health and safety management at the Rana Plaza, a garment export unit north of Dhaka, led to its collapse in April 2013 killing more than 1,000 people and injuring another 2,000. There was apparently a similar lack of oversight at the Tazreen Fashions factory, where a fire killed 111 workers in November 2012, and it would be surprising if this was not also the case at the Tampaco Foils factory on 10 September, where a boiler explosion and subsequent fire has so far claimed the lives of 39 people.  In these cases, the owners’ political connections often appear to shield them from the prompt and adequate judicial redress the victims deserved.

But nothing shielded the international companies that bought from those factories. Many of the suppliers were blacklisted as the world focused in on the garment sector’s poor health and safety infrastructure, low wages and employment of children, creating a major reputational risk for household clothing brands.  Many of these companies put in place due diligence frameworks to assess these risks. But unless the process of conducting such risk assessments is a continual one, how can they be assured that they are not working with the wrong people again? Now, more than ever, the international buyer needs to ensure that the seller is not simply subcontracting the work out to a blacklisted firm.

Making these supply chain risks more challenging is the high prevalence of fraud, bribery and corruption. Two high-profile, multi-jurisdictional investigations – by the US Department of Justice on Siemens in 2008 and by the Canadian federal police on SNC Lavlin in 2013 – concerned bribes paid to public officials in Bangladesh. The organisation tasked with controlling corruption – the Bangladesh Anti-Corruption Commission – is itself often undermined by corruption and political interference.

All these problems seem to thrive against the backdrop of the worsening political situation. The ruling Awami League and the opposing Bangladesh Nationalist Party, which is close to the Islamist Jamaat-e-Islami, are locked in a bitter feud. Their brand of highly-charged activism frequently shuts down this country of 160 million people with strikes and counter-strikes, posing an unpredictable risk to business continuity.

That is why a sound risk management approach in Bangladesh needs to straddle both the security and compliance concerns. There is a huge potential in the country, but there is also a distinct possibility that it will be lost if the government does not address the domestic grievances and external influences fuelling the rise in extremism. A more robust national security system would be a great start.

This first appeared in Business Today on 30 September 2016

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