Islamic finance is experiencing a resurgence in the Arab World as a result of the recession, according to Alex MacGillivray, Senior Partner at AccountAbility, one of the co-authors of a new report titled Responsible Competitiveness in the Arab World 2009.

There is a new buzz in the Arab World about Islamic finance, which tended to have a reputation of being "nice" yet offering "lower returns", he says. Today, argues MacGillivray, Islamic finance is being viewed as a safer and better bet for investors than the "Western casino style" of financial investment.

"It's not just steady – it's outperformed a lot of Western banks and therefore the sort of idea that Arabic versions of financial management were kind of dozy but required for good Muslims – that preconceived notion has been disproved. So the essays in the report from financial houses Abraaj and National Commercial Bank are quite 'gung ho' about the role Islamic finance can play, and about the role the Arabic version of corporate governance can play. So where many Western investors would have said a year ago, 'well governance is a bit lacking and they are a bit risk adverse compared to Western finance' – you won't hear that now."

"And put that together with Saudi Arabia joining the G20 as an active player in global leadership and you see quite a different image coming out of the Arab World. They want to be part of the solution."

MacGillivray concedes, however, there are topics that parts of the Arab World are not so enthusiastic about – such as low carbon solutions. But he says he is pleased there is nevertheless some discussion about the subject.

"What you find is that, where some of the major oil producers may not see anything in it for them at all, you also have countries like Egypt which are going to be very vulnerable to climate change – they have large amounts of land and populations that are going to be displaced by sea level rise – and don't have energy security."

"So you actually have a group of countries in the Arab World that are very interested in renewable energy and in dealing early with climate change to reduce the impacts of sea level rise. So there is a discussion that can happen there."

Abu Dhabi has embarked on building the world's first carbon-neutral, zero-waste city called Masdar. It will be powered primarily by solar energy and house 50,000 people. There will be no cars, and residents will commute via 'travel pods' that run on magnetic tracks. It is a good example, states MacGillivray, of an Arab country looking ahead – trying to plan for 50 years in the future.

The masterplan for Masdar has been drawn up by the British architectural firm Foster + Partners and, according to MacGillivray, while there have been attempts in some parts of the world to build green cities, you would really struggle to find one in an OECD state.

The Abu Dhabi initiative has caused quite a stir in the region. MacGillivray points out that, due to competitiveness and peer pressure in the Arab World, when there is a good initiative, it does have a big impact.

Nevertheless, for oil-producing countries, he maintains that an important question remains whether they can envisage the pathway to a future low-carbon economy, where they are not left sitting on huge reserves of oil they cannot sell in 30 years' time.

"How would you engage the oil-producing countries in climate change negotiations in Copenhagen? That's a big issue. There's a tendency among climate negotiators to think it's an unwinnable proposition."

And yet, he says, when you look at an economy such as Saudi Arabia's it actually has a significant non-oil sector that includes a big financial centre and a large food processing industry.

Civil society is regarded as a really important driver of responsible competitiveness and this is now acknowledged in the Arab World, according to MacGillivray.

He says research by AccountAbility and others indicate that countries with strong civil societies are able to get the best out of business and also have a good policy environment.

"You get countries where there is more heat than light in relations between NGOs and business – in some countries in Europe there isn't an effective partnership between NGOs, business and government. You get a kind of stand-off position – particularly in Brussels, where things are quite adversarial and don't necessarily lead to much innovation."

The Arab World wants to be innovative and is looking to develop education in the region, asserts MacGillivray, but it's not going to be easy "to really scale this up".

"It's great to see Insead in the region. There are a number of other management schools getting engaged – MIT has a partnership with the Masdar initiative in Abu Dhabi and Thunderbird is interested in doing stuff."

"There is real interest there and Arab management students get a lot from studying internationally and they would also get a lot from having more home-grown offerings as well."

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