Global survey reveals artificial intelligence’s growing adoption in investment decisions.

Some 77% of large firms are using artificial intelligence (AI) to help guide their investment decisions, a recent survey of 516 global business leaders has found.

Kearney’s latest Foreign Direct Investment (FDI) Confidence index, reveals the growing adoption of AI among large firms to help inform their FDI decisions. The respondents, which represent companies with more than $500m in annual revenues and are headquartered in 30 different countries, cite the top benefits as time and cost savings, improved investment returns and more accurate analysis of target markets. The AI use cases include stress-testing potential investments, predictive analytics to inform market outlook, and creating overviews of market trends.

Over the next three years, 64% of respondents expect to increase their use of AI when making investment decisions. However they are exercising caution. “Investors are … mindful of the potential AI risks. They specifically cite concerns around cybersecurity, misinformation, bias and bad or incomplete data when using AI in making investment decisions,” said Erik Peterson, Kearney partner and the report’s co-author.

More than four-fifths say that AI policies and regulations will influence their strategies. And while the headline figures suggest adoption rates are high, today only one-third of respondents are using the technology ‘all or most of the time’ in investment decisions.

Increased use of AI underlies another key takeaway from Kearney’s report: firms’ prioritisation of operational and regulatory efficiencies across their FDI activities. Respondents say technological and innovation capabilities is the top factor they look for when choosing an investment destination, up from second place last year. Meanwhile the efficiency of legal processes and capital movement climb to second and third place, respectively.

The focus on regulatory frameworks follows an uptick in government intervention in FDI, including via tariffs and national security screening. Indeed, 31% of respondents expect a more restrictive business regulatory environment in developed markets over the coming year. “The rise of industrial policies and trade restrictions could lead to a more heavy-handed regulatory environment across markets that investors will need to address,” said Mr Peterson in a statement accompanying the report.

Kearney’s FDI Confidence Index acts as a barometer of investor sentiment, and this year’s edition paints a positive outlook for FDI flows. Some 88% of respondents expect to increase their FDI over the next three years, up from 82% in last year’s index.

The report’s ranking of the countries expected to attract the most FDI over the next three years shows little movement at the top of the table. The US extends its stint in pole position to 12 years, followed by Canada in second. China (including Hong Kong) climbs to third place up from seventh last year, while the UK and Germany place fourth and fifth, respectively.

The biggest movers are two Middle Eastern petro-states pursuing deep economic reforms. The UAE and Saudi Arabia jumped 10 places in this year’s ranking to reach eighth and 14th, respectively. Both are working to diversify and open their oil-dependent economies — Saudi Arabia through its ambitious Vision 2030 plan, and the UAE through policies targeting digitisation and clean technology plus a series of legal reforms that give foreigners greater remit to invest in the country.

“Investors tell us that they prioritise investment destinations with strong technological and innovation capabilities as well as efficient legal and regulatory processes,” said Mr Peterson. “Given this, the Saudi Arabia and UAE reforms aimed at making foreign investment easier and boosting technology capabilities are likely key drivers of this increase in FDI attractiveness.”

Meanwhile, further down the rankings Latin America’s biggest economies have staged a comeback. Buoyed by a nearshoring boom, Mexico reentered the top-25 ranking in 21st place after a five-year hiatus. Brazil reappeared in 19th after slipping out of the main index last year, and Argentina took 24th place after not appearing in the top 25 in more than a decade.