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The hottest spot on Earth has a melting economy

The hottest spot on Earth has a melting economy

July was the hottest month ever recorded on the planet. The epicenter of the global heat wave was Kuwait, where the temperature in Mitribah hit 129.2 degrees, making it the hottest place on Earth.

Like other countries in the Persian Gulf sweltering from high temperatures and humidity, Kuwait is positioning its economy for a century of steadily rising heat waves so severe that parts of the Middle East may become unlivable outdoors.

By 2100, the desert cities near the Arabian Sea, including Abu Dhabi, Dubai and Doha, may regularly experience days of temperatures that feel like 165 degrees, when heat hits 95 degrees and humidity is taken into account, based on research and statements by scientists at California's Loyola Marymount University and MIT.

Even the fittest humans can't survive those temperatures for more than a few hours outside. (It's worth noting that parts of far northern climes in North America, Europe and Asia are also technically uninhabitable outside for much of the year.)

The buckle on the world's sunbelt, petro-state Kuwait is looking to cope with the trend — and perhaps capitalize on it. It has a goal to supply 15 percent of its energy with renewables by 2030, up from 1 percent last year, and to become a leader in technology that prepares for the new future.

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The country last year signed an agreement with Spain's TSK Group for a $385 million solar plant that will produce up to 50 megawatts and come online in 2017. A planned technology park in the Al Shagaya desert will also include a 10-megawatt solar photovoltaic station and 10-megawatt wind-power stations, according to Oxford Research.

But the solar power push is just one part of what Kuwait needs to do to move away from oil that accounts for about 60 percent of its GDP and about 95 percent of government revenue, according to OPEC and the IMF.

Kuwait, like other Gulf countries, has long seen the need to diversify its economy. Now the likely long-term drop in oil prices to less than $50 a barrel due to a global oversupply means it needs to move much faster.

"We are going to go bankrupt if we don't change," said Abdulaziz Al Loughani, an advisor to Kuwait's $7 billion National Fund for Small and Medium Enterprise Development (SME), aimed at investing in and spurring small businesses. "I think we have the courage not to be taken by our egos."

Lucky for Kuwait, it has a big asset to leverage: money. With one of the world's largest sovereign wealth funds, at nearly $600 billion, Kuwait is pouring cash into a three-track approach to diversify the economy: It's trying to encourage entrepreneurship, and it's investing heavily in its own infrastructure — from renewable energy plants to workforce training to hospitals. That's opening opportunities for companies from other countries.

For instance, the government is contracting with outside companies and investing $5.2 billion to build 17 hospitals. Nine of the hospitals will boost the number of available beds by 3,334 and create an estimated 15,000 new jobs, according to Oxford Research Group.

The third leg of the strategy is that Kuwait has set up sector-specific funds, including in renewable energy and life sciences, to invest in companies in other countries. It hopes to draw technological innovation home.

An example of the technology strategy is the investment by EnerTech, Kuwait's $50 million renewable energy fund, in Kinetic Renewable Energy Services, a Dubai-based developer of renewable power plants. Kinetic has a $150 million pipeline of projects, according to Abdullah Al-Mutairi, CEO of EnerTech. The renewable-energy fund has seven companies in its portfolio. If EnerTech finds a promising technology, Al-Mutairi said, Kuwait will help it set up manufacturing and distribution in Kuwait and other Gulf countries.

Overall, Kuwait's moves are showing some promise, though it has a long way to go. There is the planned renewable-energy park, a new start-up scene that is encouraging entrepreneurship and some examples of successes in growing private-sector companies.

For instance, the country's life science's fund, Kuwait Life Sciences, helped former Pfizer executives who wanted to build a platform to import drugs into the Middle East establish a venture, New Bridge Pharmaceuticals, said Mussaad M. Al-Razouki, the fund's business development officer. An Irish company, Elan Science One, purchased a majority stake in the company, now valued at more than $100 million, said Al-Razouki.

Diversification can't come too fast for Kuwait. The IMF forecasts Kuwait's GDP growth at less than 2 percent a year for 2016–2017, far below the peak levels of more than 15 percent during the oil boom of 2000–2010.

Fiscal 2016 saw a $15.3 billion budget deficit after 16 years of surpluses due to the decline in oil revenue, which led to an increase in gas prices and talk by high-ranking government officials of cuts to lavish benefits for Kuwait's 1.3 million citizens that include interest-free housing loans and free education. (The country is also home to about 2.9 million foreign workers.)

It tends to be in the middle of rankings of economic freedom. For instance, the World Economic Forum ranked it 34th for global competitiveness last year, up from 36th in 2013–2014. It has low scores on innovation and technological readiness — and it's a relatively small market.

But its pile of cash, built up during the budget surplus years, means a lot of opportunity for companies that want to do business in or with the emirate. Foreign direct investment into Kuwait is currently low, at $293 million last year, according to the UN Conference on Trade and Development. That's compared with almost $5.5 billion worth of investment Kuwait made abroad.

Kuwait hasn't taken the dramatic steps of many of the emirates in the United Arab Emirates, like eschewing most or all taxes, opening up ownership to foreigners or establishing robust-free trade zones.

One of Kuwait's biggest efforts now is its SME fund.To change the long-standing practice of young Kuwaitis to picky cushy government jobs over the trials of going into business, Kuwait is using the first $170 million of its $7 billion small-business fund to establish workforce training and business incubation programs.

Out of a workforce of about 330,000, nearly 80 percent of people are government employees, based on an analysis provided by Al Loughani. The fund has a plan to privatize 50 gas stations and find entrepreneurs willing to run convenience stores and restaurants. It is also working on training and incubation programs.

Kuwait's start-up sector is small, but more Kuwaitis are comfortable with e-commerce, Al Loughani said. On average, Kuwaitis own more than two mobile phones apiece. He is one of the rare private sector success stories in Kuwait as the former CEO of Talabat, a food-delivery company, which was purchased in 2015, about 10 years after its founding, by Berlin-based Rocket Internet.

Other companies are springing up in the same space, including one called Carriage, an online restaurant delivery service. "After three years of working, we had 2,000 transactions a day. After four months of work, Carriage has 1,500 orders a day," he said.

Kuwait has long been known as a slow-moving business culture. But the advantage of a small economy is that people can unite around a shared goal: Renewable energy and the other changes are so far being embraced.

Al-Mutairi of the renewable-energy fund says Kuwaitis are firmly behind the shifts away from its oil base. "Kuwaitis are now very supportive of renewable and becoming very familiar with it," he said. "All Kuwaiti companies and individuals are working to achieve this target by 2030."

— By Elizabeth MacBride, special to

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