Economic impact of COVID-19 on the total revenue of the textile and apparel export industry in Sri Lanka

Abstract

Textile and apparel exports play a vital role in economic development in Sri Lanka. It’s approximately 44% of total exports in the country by 2024. The apparel sector has become complicated in recent times because of economic instability followed by COVID-19. The purpose of this study is to quantify the revenue impact caused by COVID-19 on the textile and apparel export industry in order to address this significant issue. This will facilitate plans by textile and apparel exporters more appropriately. The COVID-19 period has resulted a negative impact on the Sri Lankan textile and apparel industries. If the industry faces such an unfortunate epidemic in the future, it is beneficial to know the impact of COVID- 19 on the industry. Thus, the decision-makers and experts in the industry will be able to make sound decisions and plan effectively to reduce the impact. This study has considered monthly export revenues from January 2009 to April 2024. Data were collected from the Joint Apparel Association Forum Sri Lanka (JAAFSL). The revenue data before the COVID-19 period, from January 2009 to December 2019, was considered in the model-building process. First, the preliminary transformation, including the log transformation, first differencing, and seasonal differencing, were applied to obtain a stationary data set. Then, fifteen candidate models were selected based on the Akaike Information Criteria (AIC). ARIMA (0,1,1) (0,1,1)12 model has been selected, which has the lowest AIC value and MAPE value of 1.29%. Further, the model diagnosis was checked using a residual analysis. The p-value of the LjungBox Q-test is 0.148, which confirmed that the residuals are white noise. After that, the monthly revenue was predicted for the COVID-19 period using the fitted model. To quantify the impact of COVID-19 two curves were fitted to the actual revenue and the predicted revenue after COVID-19. The difference between areas under both curves was then computed. The impact has been estimated as a percentage of this difference to the predicted revenue. The results of this study arrived at the high impact of an 11.92% decrease in export revenue due to the COVID-19 pandemic on the textile and apparel export industry, with the estimated loss equivalent to 1899.1291 million USD. This figure underscores the significant impact on the export industry and the country's economy. Such understanding will assist experts and decision-makers in evolving their strategies to move out of such situations in the future, providing fresh mechanisms to avoid this kind of impact.