These are testing times for economies across the globe, and, in spite of its accumulated wealth, the Gulfregion is no exception. Yet despite the turbulent economic backdrop, Bahrain’s food and drink sector isstill attracting considerable investments, as discussed in BMI’s recently published Bahrain Food & DrinkReport for Q109. One of the most high profile of these investments was made by the Bahrain-based firmInternational Investment Bank (IIB), which in September announced its acquisition of a stake in asugar refinery that will be established in the Hidd industrial area, marking the investment bank’s firstentry into the food and drink sector.According to IIB, the estimated cost of the refinery is US$157mn and will be the first of its kind in thecountry and the third within the Gulf Cooperation Council (GCC) region. With an annual productioncapacity of 585,000 tonnes of white sugar, it is expected to be in operation within two years. Productionwill be exported throughout the Middle East, a region with a considerable sugar deficit, giving therefinery a strong competitive advantage.Global demand for sugar has been rising steadily in recent years, resulting in significant price increases.According to industry estimates, sugar demand in the Middle East is growing at around 2.5% a year,driven by population and economic growth. 'With the existing and announced projects capable of meetingonly about 60% of the total demand of the region, the proposed sugar refinery provides the idealinvestment opportunity to tap into an industry that has tremendous growth potential,' said Mohamed HadiMejai, executive director of Investment and Business development at IIB.A major factor in the rising demand for sugar in Bahrain is the growth of the confectionery and bakeryindustries. In fact, in September 2008 US-based donut chain Krispy Kreme opened its first store inBahrain. As part of its promotional plan, the company distributed 90,000 sample donuts to people acrossdifferent age groups. Krispy Kreme formed a franchise agreement with Americana and entered theMiddle East market in 2006, opening its first store in the UAE. The company plans on opening its secondstore in Bahrain in early 2009 at the City Center shopping mall, as such Western style donut shops havebecome increasingly popular in the country, which is also serving to feed the growth of coffee sales.As mentioned above, despite the poor state of the global economy, we remain broadly upbeat about theeconomic outlook for Bahrain, although the list of caveats is growing. In addition to the traditionalwarnings about inflation and labour market imbalances, we now add a serious drop in oil prices, largescalelosses for the stock market, a localised liquidity crunch and the possibility of a sharp real estatemarket correction. That said, we believe that the outlook for the Gulf is still stronger than for manyregions, even within the emerging markets category, with a large number of projects still in the pipeline, astrong business environment, generous government spending and ongoing foreign investment flows, all ofwhich will help sustain growth in the food and drink sector.