NW's business ties to Mideast feel winds of change

When tourism declines in Egypt, Washington apple growers feel the bite.

Travel and trade have forged complex and growing relationships between companies in the Northwest and customers in the Middle East.

Architects here are designing universities and hospitals in Saudi Arabia; Washington farmers are selling wheat and apples to Egypt and Yemen; and Boeing and other aerospace companies are building or outfitting opulent jets for heads of state and government airlines throughout the region.

All are closely monitoring political upheavals in the Middle East and North Africa, and some already are feeling some fallout.

"We're looking at markets which are in the process of developing and expanding their economic participation, if not political participation," said Stephen Wood, chief market strategist at Seattle's Russell Investments. "That also comes with a lot of volatility."

One of the first effects has been on food. Washington apple growers' shipments to Egypt in a two-month period reversed earlier gains. Shipments to Egypt were on track to increase up to 20 percent over last year but had fallen about 4 percent by Jan. 31, according to the Washington Apple Commission.

Meanwhile, exports of Northwest's soft white wheat continues to thrive, possibly at a faster rate, as governments there attempt to shore up food supplies, experts say. But the wheat costs almost double what it did a year ago, driven in part by rising oil prices and demand.

In the long term, "we're very optimistic about the Middle East; however, recent events are leading to caution by most shippers, because we don't know what's going to happen," said Todd Fryhover, the apple commission's president.

Top 3 markets

Airplanes and agricultural products, the main exports from Washington, fuel travel and feed populations in the region, where the top three markets are the United Arab Emirates, Qatar and Egypt. But almost every country does business with the state, including Libya, which buys apples, and Algeria, a major buyer of wheat.

In 2010, Washington exported $2.88 billion worth of goods to the Middle East, according to the U.S. Department of Commerce.

Starbucks has more than 300 stores in the region, including 22 in Egypt, 68 in Kuwait and 69 in Saudi Arabia.

Microsoft opened its Dubai-based Middle East office 20 years ago. It has 500 employees in the region and four subsidiaries overseeing 18 countries, including Kuwait, Bahrain, Qatar, the U.A.E., Oman, Yemen, Saudi Arabia, Egypt, Algeria, Tunisia and Libya.

Technology companies consider such markets a source of future growth. Computer sales in emerging countries are growing twice as fast as in developed markets, Microsoft Chief Financial Officer Peter Klein said in the company's January earnings report.

"A lot of the businesses we have in the Middle East are the kinds that help connect the world and build civil societies," said Sam Kaplan, vice president of the Trade Development Alliance of Greater Seattle.

Political uprisings have targeted authoritarian leaders of nations rich with resources, but where wealth is unevenly distributed and young people lack jobs and a voice in government.

"There is a youthful energy and a profound impatience and disappointment with conditions that exist around them," said Resat Kasaba, director of the University of Washington's Jackson School of International Studies. "All of them are going through a transformation, and at the end of the day we're likely to have a more participatory, more democratic and more open regime emerge in these countries."

Considering the oil and natural resources of Libya, Egypt, Tunisia and Algeria, Kasaba said, "there's no reason why these countries need to be poor."

Looking optimistically, political overhauls should bring more opportunities and better economic prospects for a growing middle class.

Yet, if widespread unrest strikes major oil-producing countries, which Kasaba and others say is still unlikely, the global economic recovery could be derailed.

Analysts are paying close attention, particularly to the impact on commodities and consumer spending. Coffee prices, for example, already steep because of poor harvests, reached their highest point in 14 years in February.

Stock markets have been on a roller-coaster ride as investors react to changing conditions.

"If you think markets are hard to forecast," Russell Investments' Wood said, "try forecasting for political outcomes. Then when you try to look at forecasting for regime change it becomes very dicey."

Rising food prices also have triggered protests, and competition for land and water has intensified. Countries in the region import much of their food, including wheat, the most popular staple.

Washington wheat

Egypt and Yemen are big purchasers of Washington wheat, combining to buy about 20 percent of the state's exports this year, said Glen Squires, vice president of the Washington Grain Alliance.

"While the turmoil is going on, people still eat and countries are increasing their purchases of wheat this year," Squires said. "Hopefully, markets will continue to be able to function so people can access goods and trade, which is good for the common person both here and there."

Squires, who recently returned from Oman, said Saudi Arabia is ramping up purchases to stock a year's worth of wheat, and flour millers from Iran told him they also hope to gain access to Washington wheat, which they consider ideal for flatbreads and phyllo dough.

Although apple sales are in flux, demand outstrips supply, so a drop in business from Egypt can be filled elsewhere, Fryhover said.

The growing ambitions of Middle East airlines have boosted Washington state's other big export — planes. Airlines from the U.A.E. and Qatar dramatically increased their fleets in the past decade in an effort to attract global travelers, said Lee Monson, former president of Boeing Business Jets and now an aviation consultant focusing on the Gulf region.

Air travel has been growing at a record pace in many Arab countries, and Boeing said it expects to deliver 1,580 new airplanes, worth $260 billion, to the Middle East over the next 20 years.

Attracting business for government-owned carriers is part of an overall economic-development strategy that includes building up cities as destinations, putting places such as Dubai on the map for Western travelers, Monson said.

He said he believes the region's long-term trajectory and business prospects remain positive.

However, some impacts are being felt. Etihad, a large Middle Eastern airline from Abu Dhabi in the United Arab Emirates, canceled orders for four Boeing 787 Dreamliners last month.

Political unrest and rising oil prices led the International Air Transport Association to downgrade its 2011 profit outlook for the airline industry to $8.6 billion from its $9.1 billion estimate in December.

Boeing said the Mideast is also a main growth market for its military aircraft, including C-17 cargo planes and helicopters. The company said last month it expected orders for 15 C-17 planes from the Persian Gulf region this year.

For Greenpoint Technologies in Kirkland, the best prospects for its work customizing aircraft interiors for governments and heads of state are found in the Middle East, which has been an even better market than Asia, said Bret Neely, vice president of sales.

The slow economic turnaround has made it difficult to attract individual buyers. But government projects are budgeted and planned for many years.

It's too early to say how current upheavals will affect sales, Neely said.

Unlike Libya, where oil has done little but enrich a corrupt regime, other countries in the region are spending heavily on infrastructure to expand education and economic development — and to stave off unrest.

Investments in Saudi Arabia and Qatar, for example, offer opportunities for American firms in engineering, architecture, health care and clean-energy technology, said Nohl Martin, CEO of Kirkland-based IgniteBiz, which builds partnerships between North America and the Middle East.

"Countries are recognizing they need to find pathways so that business advancement and opportunity can be much more of a meritocracy and be afforded to everyone who is capable," she said.

Kristi Heim: 206-464-2718 or kheim@seattletimes.com