By Zeba Siddiqui, Ruma Paul and Serajul Quadir

DHAKA (Reuters) - Emdadul Islam's three-decade career in Bangladesh's garment trade has seen the industry hit by riots, labor unrest, power shortages and safety scandals, but he had never lost faith in its ability to weather the latest crisis and continue to grow.

Now, after a group of radicalised young Bangladeshis killed about 20 people, including 18 foreigners, in an attack on an upscale Dhaka restaurant claimed by Islamic State, he fears for the future of the $28 billion sector.

"I thought it impossible for this to happen in Bangladesh," said Islam, a director of Babylon Group, which makes garments for the likes of H&M and Tesco. "It was just a nightmare. This is not Afghanistan, or Pakistan, or something."

Bangladesh relies on garments for more than 80 percent of its exports and roughly 4 million jobs. It ranks behind only China as a clothing supplier to developed markets in Europe and the United States.

But the July 1 attack has confronted the industry with its biggest image crisis since the collapse of the Rana Plaza factory building in 2013, with some fearing security worries could cripple a sector that is the lifeblood of the economy.

"I never thought Islamic extremism would be a big threat to the industry directly, and I never thought it would happen quite like this," said Rubana Huq, managing director at the Mohammadi Group, which owns a string of garment factories and other businesses.

Foreign companies, including Japan's Uniqlo, have suspended all but critical travel to the country since the attack, although there are no signs yet of big players moving orders elsewhere. The government says it has stepped up security for foreign business travelers, investors and diplomats.


Despite a long history of turbulent domestic politics that often spills onto the streets, Islam said the relative stability of Bangladesh compared with rival manufacturing bases had been an important factor in the rise of its garment sector.

"When we started in the 1980s, Sri Lanka at that time was in a very volatile situation, so companies came to us. They wanted Bangladesh to produce - that's how we grew," said Islam, 60, one of the founding partners of garment maker Babylon Group back in 1986.

Islamic State and al Qaeda have made competing claims for a series of killings of liberals and members of Bangladesh's religious minorities in the past year.

But the July 1 attack signaled a far more sophisticated threat from those seeking to replace the mainly Muslim country's secular democracy with strict Islamic rule.

"On that night, we lost the identity of our country," said Mesbha Uddin Ali, chairman of garment maker Wega Group.

What has been particularly shocking to many middle class Bangladeshis is that the attackers mostly came from well-to-do backgrounds and appear to have been radicalised only recently.

"One of my friends called it 'Black Friday', which I think was pretty accurate," said an American in the garment industry, who has been living in Bangladesh for seven years.

"Bangladesh has such a strong family culture, and yet the fact that these young, educated boys chose to leave that and do something like this is shocking."

Many of the victims of the latest attack worked in the garment trade, and the U.S. executive, who declined to be identified due to personal safety concerns, said it had prompted him to take extra precautions.

"I don't walk anymore," he said. "I don't take the rickshaws anymore. And I'm not a man who likes to waste time, or money, so I did take a rickshaw for short distances. Now I just lay low."

Some local executives have taken more robust measures.

"Earlier I had this pistol, but it was never loaded and I did not carry it," said Mohsin Uddin Ahmed Niru, a director of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA). "Now I carry it every day."


There had been warning signs that the radicalisation threat in Bangladesh was growing.

An Italian aid worker was shot dead in Dhaka's diplomatic quarter in September 2015, in the same week masked gunmen killed a Japanese farmer in northern Bangladesh.

In response, the government deployed paramilitary soldiers on night-time patrols in the diplomatic quarter and a number of companies stepped up security for visiting executives.

More protection has been promised in the wake of the July 1 killings.

"We have already re-arranged security measures all over the country after the terror attack," said Industries Minister Amir Hossain Amu, who also heads the cabinet committee on law and order.

"All foreigners including diplomats, business travelers, garment buyers, investors and development partners are all covered by extra security."

Industry sources say H&M last week sent an email to all its vendors informing them about a series of upgraded security norms at its office in Bangladesh.

"We are in contact with our office in Dhaka, and none of H&M's company workers are affected," a spokesman for the Swedish fashion retailer said in an email.

"We have safety routines to assure our co-workers safety on-site. Regarding our sourcing, there are no plans in changing any sourcing, but we are following developments closely."

An official at El Corte Ingles, one of Europe's largest department store chains, said the company had moved all eight of its foreign staff out of the country and was observing a two-month "hold period" before deciding whether they would return.

All of the company's meetings in Dhaka have been canceled, and would be rescheduled in Hong Kong, said the official, who declined to be identified. El Corte did not respond to a request for comment.

One garment exporter, who also declined to be named, said he had already lost a $3.6 million order from privately-held French retailer Celio.

"They were supposed to come to Dhaka on July 13, but after the attack they canceled the visit," he said. "This meeting was vital for me. I tried to convince them to meet somewhere else, but they said they had already shifted the order to China."

Celio did not respond to a request for comment.

There are no signs yet of major buyers shifting orders away from Bangladesh, not least because the production cycle has entered the busy Christmas season and pulling out business now would be expensive and logistically challenging.

But industry players fear that, over time, security worries may prompt buyers to look to up-and-coming garment centers such as Myanmar and Ethiopia that offer similar cost advantages to Bangladesh.

"There may not be any short-term impact, but medium-to-longer term, for sure," said Mohammadi Group's Huq.

"Buyers have a right to go wherever they feel their business is more secure, and most importantly - their lives. They do not want to die in Bangladesh."

(Reporting by Zeba Siddiqui, Ruma Paul and Serajul Quadir in Dhaka; Writing by Euan Rocha; Editing by Alex Richardson)