Rana Plaza collapse in Bangladesh: A Fine Margin

Like many others the owners of the textile factories in the Rana Plaza had little money and lucrative, but risky business model. Everything went well for twenty years. Then it all came crashing down.

Buried beneath the Rana Plaza's rubble is a risky business model.   Bild: dpa

Two hours after his factories were reduced to rubble, Mahmudur Rahman called a fellow garments factory owner. “I've lost everything, my life is over”, he lamented. He was crying on the telephone, the friend remembers, and saying that he would probably never recover his losses.

On April 24th the walls of the factory building named Rana Plaza, located in a small town north of Bangladesh's capital Dhaka, came crashing down. Mahmudur Rahman and his business partner Bazlus Samad owned textile factories on three floors there. But since that day they no longer have factories. Just three million Euros in liabilities. Both are now in jail and will possibly face a charge of criminal negligence.

Two hours after the collapse 19-year-old textile worker Akhi also believed that her life was over. The ceiling of the second floor hung so low, that she could barely sit upright, she remembers. Dust settled in a thin layer over her clothes, her hair, her skin. Around her lay the remains of Mahmudur Rahman's factory: smashed sewing machines, squashed bales of cloth. And the corpses of workers.

At the time of the collapse at least 3,500 people were inside the eight stories of the Rana Plaza. Most were workers in the five textile factories across six floors. During the following three weeks 1,129 of them were recovered from the rubble dead, 2,438 were rescued alive.

The pictures of the destroyed factory building have made their way around the world. The tragedy especially also touched people as far away as Europe and North America: Many wear clothes that may have been produced in the Rana Plaza. Cotton shirts by Benetton, trousers by Primark, polo shirts by Mango and a special fashion collection by Kik.

To be able to sell the clothes cheap in developed countries, workers are exploited in Bangladesh. Bargain deals on clothes in shops in Berlin and Brussels are paid for in sweat by people thousands of kilometers away. Sometimes they pay in blood.

The Rana Plaza collapse isn't the first disaster the textile industry in Bangladesh has faced, but it is the largest single incident. And: it won't be the last. The industry is one of the most profitable in the country, but also extremely risky. With luck factory owners make fantastic margins and so it has attracted many with little money and in search of a fortune.

Some were lucky and are now millionaires, but most face volatile business conditions. Sometimes they do well, sometimes worse. Some survive, some go bankrupt. And some, like Rahman and Samad, are unlucky and the risk inherent to their business model becomes reality and causes it to collapse. Much like the Rana Plaza did.

A promising future

One day before the collapse Rahman and Samad faced a promising future. On Tuesday, April 23rd, women like Akhi were sewing clothes for the two businessmen in two factories the Rana Plaza. One, on the second floor, was named New Wave Bottoms. The other, on the sixth and seventh floors, was called New Wave Style.

Their customers were brands from the USA and Europe, two shipments were due two days later, one a shipment for the irish brand Primark worth several hundred thousand Euros. According to the registry of the Bangladesh Garments Manufacturers and Exporters Association (BGMEA) around 1,600 people worked for Rahman and Samad. And they wanted to expand: On the eighth floor hundreds of sewing machines were waiting to be unpacked and put to work.

There are few pictures of Rahman and Samad available publicly. Two are in the BGMEA's internal voting list, while newer photographs show the two men on the day of their arrest, around ten years later. Today both have graying hair. Rahman has a precisely shaved beard, Samad is going bald. As he is led away by the police Samad looks into one of the journalist's cameras, his eyes defiant.

The story of the two men is hardly unique, it is the story of hundreds of businessmen in Bangladesh's textile industry. Mahmudur Rahman completed his studies at college in the early nineties. His father was a teacher, a well paid job. His family owns a multi-storied residential building in Dhaka.

In the preceding years Bangladesh's textile industry had begun to take off, in the nineties it began to boom. As wages in countries like South Korea and Taiwan rose, European and US companies moved their businesses to keep costs low. They moved to the Indian Subcontinent: Pakistan, Sri Lanka and Bangladesh became their countries of choice.

A booming industry

Together with Bazlus Samad, a friend from college, Rahman opened a first textile factory on the upper floors of his family's house. Their entry into the business was financed with a loan, probably from Samad's father, a former bureaucrat, whose influence also probably smoothed the way for the new company's registration. During the next ten years they produced clothing mainly for the European market and in 2003 invested 110.000 Euros in another factory. They named it New Wave Style.

In those years they moved to a multistorey building located between a slum, government staff quarters and the army's cantonment in the industrial area of Mirpur in northern Dhaka. Their company expanded as the textile industry as a whole did: While Bangladesh exported garments worth 800 million Dollars in the mid nineties, that value rose to 5 billion Dollars fifteen years later.

But that was only the beginning. Thanks to continuing low wages for workers the annual revenue tripled by the year 2012. And even after the disaster the exports continued rising: during the fiscal year ending in June 2013 the Bangladeshi textile industry exported 21.5 billion Dollars worth of garments up from 18 billion the year before.

Then in 2008 the owner of the building in Mirpur wanted to open a hospital and asked his tenants to move out. Moving a whole factory is an expensive enterprise, because production comes to a halt for weeks. Businessmen with enough money try to avoid the costs by buying buildings or constructing them themselves. Only those who can't afford to buy, rent factories. People like Rahman and Samad.

The move to Rana Plaza

Not far from that building is the corporate office of the Rising Group. The company's CEO, Mahmud Hasan Khan, owns a number of factories, employs 7,000 people and is an influential member of the BGMEA. He has known Samad and Rahman for years. His office on the eighth floor looks out over the flat roofs of the Mirpur's factories.

A nervous assistant sits at his table, holding rolls of technical drawings. “I've ordered all the building plans of my factories to be reviewed”, Khan says. “We never expected such a tragedy.” This is surprising, since in 2005 another factory, Spectrum Sweaters, had collapsed killing 64 workers. Since the Rana Plaza collapse factory owners are digging through their documents: Many buildings are converted residential or commercial buildings, many are so old that their documents have been lost and often buildings are so old that they were built before the building legislation in place today. Inspections by a technical university and the BGMEA show that every tenth textile factory in Bangladesh could be unsafe.

Khan waves away his assistant. He tells the story of Rahman and Samad's factory move in 2008. “I told them to take the opportunity and buy a building of their own”, he says. But Rahman and Samad decided to rent once again. This time the building they chose was located 40 kilometers outside Dhaka, in the small town of Savar. The building was new, constructed only the year before. Its name: Rana Plaza. Building safety is something they didn't even consider, after all the building was brand new.

The first two floors of the building contained shops, a mosque and a bank. Then one factory was stacked above another. Rahman and Samad invested 100.000 Euros and founded another company named New Wave Bottoms, which they moved into the second floor. New Wave Style moved into the sixth and seventh floors.

A regular workday

Tuesday, April 23rd, one day before the collapse, was a regular workday for Akhi. She left the one room apartment she shares with her parents around 7:15 AM. Her father drives a rickshaw van, her mother, once a textile worker herself, is now chronically ill. Their room is one of six opening onto a common courtyard. Kitchen and Toilets are shared among all the families. Thousands of textile workers, who work in the hundreds of factories in Savar, live under similar conditions. Many live in tin sheds and some, like Akhi and her family, in brick houses.

To get to the Rana Plaza Akhi walked along a narrow dirt lane. During the monsoon rains the ground becomes soft and the rickshaws plying the small roads leave deep tracks that dry into narrow channels. The walk to the factory took Akhi about ten minutes. Shifts began at 8 AM, but many workers arrived early. They entered the Rana Plaza through a back entrance, waved a proximity card in front of a box at the entrance. When a light blinked green and a screen displayed their card number they were been logged in for the day. Hundreds of women and men squeezed their way up the narrow staircase each morning.

At New Wave Bottoms, where Akhi worked as a machinist, the workers were divided into four units. About seventy workers and machines sitting in a row of tables make up one unit. The production process was broken down into simple actions and all the workers of a unit contributed towards producing a single item of clothing. They repeated the same simple actions hundreds of times a day.

Akhi's unit sewed trousers. At one end of the column of workers the front of the trousers were sewn, the back of the trousers started at the other end. Every worker did their part of the process and passed the trousers on towards the middle where they were joined to make the finished product. Akhi sat at the far end of one column and was responsible for sewing on pockets.

The hall had no fans and the workers were forbidden to speak. Two women who talked while working were dragged to the middle of the room, other workers remember, and made to stand on a table while a supervisor ridiculed them. Working days ended in the evening after ten, twelve or fourteen hours. It was dark when Akhi waved her card to log out for the day. When she reached home she seldom had time to do more than eat and sleep. Only once a month did she get a whole day off.

Rahman and Samad usually spent every day in their office at the factory, on the same floor as New Wave Bottoms. Sometimes they walked through the rows of working seamstresses, but seldom spoke with them. The workers describe them as being “good bosses”, despite the working conditions. Wages were paid on time and overtime calculations were fair, they say. Samad, some remember, once told them to come to him if they ever had any problems. But no one ever did. Rahman, they say, was a little aloof and strange, with a stinging gaze.

On that Tuesday work ended unexpectedly early. At around 10 AM the plaster started falling off a pillar beside Akhi's sewing machine. The workers became agitated and even the supervisors had no idea what to do. After calling the owners they sent the workers home: “come back after lunch”, they said. But when the workers returned at 2:30 PM they found the gate locked. They went home, wondering whether they would be paid in full for the shortened workday and whether they would still have work the day after.

Risky, yet lucrative

The office of the powerful industrial association BGMEA is in central Dhaka, not far from a five star hotel. The building is 15 stories high with a glass facade and built on a filled up pond. In March the Bangladeshi High Court ordered the government to demolish it, since it was built on illegaly occupied land, but so far that hasn't happened.

The tenth floor seems like a construction site, empty with unplastered cement making up walls and floor. In one corner, behind a glass door, is the air-conditioned office of the Creative Group. It's owner, Ferdous Perves, too is an influential garments businessman and owns several factories. He and Mahmudur Rahman go back a long way. They grew up in the same neighbourhood and attended the same sports events as schoolboys. It's a coincidence that they work in the same industry. Today, as Rahman and Samad are in prison, Perves is handling their affairs, trying to minimize their costs. He says, the two men owe about 3 million Euros.

“They had good customers”, Perves says. They regularly produced clothing for the Irish brand Primark and for the US brand “The Children's Place”. Documents recovered from the rubble of the Rana Plaza also show that the factories handled orders from the Danish company Texman and for the Italian label Benetton. In March Benetton received 40,000 shirts from New Wave Style.

Financial documents that “taz.die tageszeitung” was able to review also show that 2012 was a good year for Rahman and Samad. The turnover of both companies added up to 6.7 million Euros and earned them a net profit of 250.000 Euros. They made more money in a single year than they had initially invested into both companies. But this is also what made the business model so risky: A large part of the production process is financed via loans. The documents show: the companies have long term liabilities of 1.7 million Euros. A credit rating company gave them a medium rating saying they had “major ongoing uncertainties and exposure to adverse business or economic conditions. These companies have speculative elements, subject to substantial credit risk.”

"They invested every surplus Taka"

The business model is common, other factory owners say. Businessmen buy machines and other factory equipment with their own money and then solicit orders. The buyers give out payment guarantees for these orders, known as Letters of Credit (LC), with which the businessmen then acquire LC's from their banks to buy fabric, yarn and accessories. Essentially the money is a bank loan.

The other running costs, too, are paid for through bank loans for which the factory owners pay a whopping 18 percent in interest. Once the orders are fulfilled the LC's are redeemed, the businessmen pay their loans back and a fraction of the turnover, usually less than five percent, remains as net profit.

Much can hamper the work of the textile industry in Bangladesh: corrupt bureaucrats, late fabric shipments, frequent power failures. And general strikes, known as hartals, usually called by opposition parties to pressure the government. Since February the number of hartals has risen sharply. The factories keep working, but shipments are hard to receive and to send off.

In these cases, factory owners often have to pay the more expensive air cargo rates or offer rebates on the payment. The income from a textile factory can be volatile: In 2010 New Wave Style only made 28,000 Euros, in 2011 New Wave Bottoms made only 1,000 Euros. This volatility puts pressure on businessmen who have little money saved up.

Rahman and Samad, it seems, didn't lead luxurious lives. “I think they invested every surplus Taka they had”, says Rahmans childhood friend Ferdous Perves. Like into the new unopened factory on the eighth floor of the Rana Plaza. While many other factory owners have villas in the more expensive parts of town, with swimming pools and multiple luxury cars, Rahman lives with his wife and two children in a largely middle class neighbourhood in the north of Dhaka. When his chauffeur drove the children to school in the car, he often took the bus to the office, says Perves, the means of transport for the lower and middle classes in Bangladesh.

It all comes crashing down

On the day of the tragedy many workers refused to enter the Rana Plaza. Many had heard that the building was no longer be safe and were afraid that something serious could happen. At 7:45 Akhi and dozens of women stood at the back gate. When the supervisors failed to convince them to enter one started hurling abuse. “Do your fathers pay the wages, you sisterfuckers?”, he screamed. Akhi and some other women became scared and entered, others remember being grabbed at the neck and pushed inside. Once inside they were not allowed to leave.

In hindsight it seems that nobody really believed something would happen. “Nothing could have forced me into that building, if I had known this would happen”, one of the workers remembers. The supervisors were all present and even the factory owners were on their way to office. The shift began at 8 AM, but shortly afterward the electricity failed – nothing unusual in this part of Bangladesh. The generators on each floor were started. As they started to vibrate the pillar behind Akhi's machine began collapsing. And then gave way. “It was as if the ground beneath my feet disappeared”, Akhi remembers.

The rubble of the Rana Plaza buried Mahmudur Rahman's and Bazlus Samad's business model beneath itself: fixed capital in the shape of machines and equipment and running capital in the shape of unfulfilled orders.

At the same time liabilites stacked up: Loans and workers' wages that need to be paid, compensation for the seriously injured and the families of those who died. Millions of Euros.

Maybe this is what Mahmudur Rahman was thinking of, when he called his business acquaintance that morning. Maybe he was also thinking of those dead and injured in the rubble.

At midday Akhi, another seamstress and three men from the quality section managed to leave the ruins.

Weeks after the collapse the corpse of the abusive surpervisor still hadn't been found.

Two days after the disaster Mahmudur Rahman and Bazlus Samad surrendered to the police. Now they are waiting to be charged.