SME Policy Index

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The SME Policy Index is a benchmarking tool designed for emerging economies to assess SME policy frameworks and monitor progress in policy implementation over time. The Index has been developed by the OECD in partnership with the European Commission, the European Bank for Reconstruction and Development (EBRD), and the European Training Foundation (ETF) in 2006.

The Index identifies strengths and weaknesses in policy design and implementation, allows for comparison across countries and measures convergence towards good practices and relevant policy standards. It aims to support governments in setting targets for SME policy development and to identify strategic priorities to further improve the business environment. It also helps to engage governments in policy dialogue and exchange good practices within the region and with OECD and EU members.

SME Policy Index: Western Balkans and Turkey 2016

SME Policy Index: Western Balkans and Turkey 2016

Assessing the Implementation of the Small Business Act for Europe You do not have access to this content

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28 Apr 2016
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The SME Policy Index is a benchmarking tool designed for emerging economies to assess SME policy frameworks and monitor progress in policy implementation over time. The Index has been developed by the OECD in partnership with the European Commission (EC), the European Bank for Reconstruction and Development (EBRD), and the European Training Foundation (ETF) in 2006 for the Western Balkans. The South East European Centre for Entrepreneurial Learning (SEECEL) joined as an additional partner in 2014. The SME Policy Index has since 2006 been applied in four regions and nine assessment rounds overall.

The SME Policy Index: Western Balkans and Turkey 2016 presents the results of the fourth assessment of the Small Business Act for Europe in the Western Balkans and, since 2012, Turkey. The assessment framework is structured around the ten principles of the Small Business Act for Europe (SBA). It provides a wide-range of pro-enterprise measures to guide the design and implementation of SME policies based on good practices promoted by the EU and the OECD.

The Index identifies strengths and weaknesses in policy design, implementation and monitoring. It allows for comparison across countries and measures convergence towards good practices and relevant policy standards. It aims to support governments in setting targets for SME policy development and to identify strategic priorities to further improve the business environment. It also helps to engage governments in policy dialogue and exchange good practices within the region and with OECD and EU members.

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  • Foreword and Acknowledgements

    Small and medium-sized enterprises (SMEs) are major contributors to job creation and inclusive economic growth worldwide. In particular, dynamic and growth-oriented SMEs integrated into global value chains are key to boosting productivity, innovation and competitiveness. In the seven EU pre-accession economies (Albania, Bosnia and Herzegovina, Kosovo,* the Former Yugoslav Republic of Macedonia, Montenegro, Serbia, and Turkey), SMEs represent the vast majority of firms, account for three-quarters of total employment and contribute to over 60% of total private-sector value added. As the governments of the region move towards higher levels of EU accession and market integration, the South East European (SEE) economies have been undertaking significant efforts to converge towards best policy practices and global standards.

  • Abbreviations and acronyms
  • Executive summary

    The development of a dynamic and vibrant SME sector is of paramount importance for the seven EU pre-accession economies: Albania, Bosnia and Herzegovina, Kosovo, the Former Yugoslav Republic of Macedonia, Montenegro, Serbia, and Turkey. The region’s productive structure is predominately composed of small and medium-sized enterprises (SMEs), which on average contribute to 75% of total employment and over 60% of total private-sector value added. Nevertheless, important challenges remain to transform the SME sector into a driver of economic growth and employment and to address persistent structural challenges such as high unemployment rates and the per capita income gap. However some of the conditions to leverage growth are already in place.

  • Overview

    The SME Policy Index has been jointly developed by the Organisation for Economic Co-operation and Development (OECD), the European Commission, the European Training Foundation (ETF) and the European Bank for Reconstruction and Development (EBRD) as a benchmarking tool for emerging economies to monitor and evaluate progress in SME development policies (see Annex B). The SME Policy Index is structured around the ten principles of the Small Business Act for Europe (SBA; see the Policy Framework and Assessment chapter). The SBA provides for a wide range of pro-enterprise measures to guide the design and implementation of SME policies based on good practices promoted by the EU and the OECD.

  • 2016 SME Policy Index scores for the Western Balkans and Turkey

    The SME Policy Index is a benchmarking tool (Box 0.1) to help emerging economies monitor and evaluate progress in policies that support small and medium-sized enterprises (SMEs). The index was developed in 2006 by the OECD in partnership with the European Commission, the European Bank for Reconstruction and Development (EBRD), and the European Training Foundation (ETF). The South East European Centre for Entrepreneurial Learning (SEECEL) joined the SBA assessment in 2015 (these make up the "partner organisations"; see Annex C). It has been applied to several regions which fall under the Enlargement Policy and the European Neighbourhood Policy: the Western Balkans (in 2006, 2009 and 2012, when Turkey was included for the first time); the Easter Partner (EaP) economies (in 2012 and 2016); and the Middle East and North Africa (in 2008 and 2014). In addition, the SME Policy Index framework and methodology were adapted and applied in the ten Association of Southeast Asian Nations (ASEAN) member countries for the first time in 2014 (in co-operation with the ASEAN Secretariat and the Economic Research Institute for ASEAN and East Asia)...

  • Policy framework and assessment process

    The SME Policy Index assessment framework aims to assess, independently and rigorously, SME-related policy settings and reforms against European Union (EU) and international best practice, and to provide guidance for policy reform and development.

  • Economic context and the role of SMEs in the Western Balkans and Turkey

    The purpose of this section is to provide background information on the structure and recent economic trends of the economies covered by the report and profile the SME sector in each one.

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  • Expand / Collapse Hide / Show all Abstracts Small Business Act assessment: Findings by SBA dimension

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    • Entrepreneurial learning and women's entrepreneurship (Dimension 1) in the Western Balkans and Turkey

      Create an environment in which entrepreneurs and family businesses can thrive and entrepreneurship is rewarded (Small Business Act Principle 1)

      Entrepreneurial learning and women’s entrepreneurship are important policy areas in the European Union’s 2020 strategy. Promoting entrepreneurship across the education system – particularly in schools – is a key part of building competitive, job-creating economies. Fully integrating women into the entrepreneurship drive will also boost the economy and jobs. For entrepreneurial learning, the assessment found a reinforced policy commitment in all the economies of the Western Balkans and Turkey to lifelong entrepreneurial learning but system-based monitoring and evaluation remains underdeveloped. The biggest challenge is in translating policy into the concrete reforms needed at school level to address entrepreneurship as a key competence – particularly the curriculum and teacher-training requirements. New developments within the European Union on the entrepreneurship key competence provide a further policy incentive for economies to pay entrepreneurial learning more concerted attention. Higher education’s engagement with and contribution to the Small Business Act assessment process remains underdeveloped. For women’s entrepreneurship, the main challenges are to increase awareness of the economic value of women’s entrepreneurship and to deploy effective policy partnership instruments and resources to achieve sustainable change in the medium term. Training and access to finance for women entrepreneurs need more co-ordination for better impact among women’s start-ups and growing firms.

    • Bankruptcy and second chance for SMEs (Dimension 2) in the Western Balkans and Turkey

      Ensure that honest entrepreneurs who have faced bankruptcy quickly get a second chance (Small Business Act Principle 2)

      Realistically, policy makers understand that many SMEs will not succeed, and thus need bankruptcy laws to help them exit the market in an orderly fashion. These laws need to protect the rights of both creditors (repayment of loans, legal recourse due to firm failures) and debtors (maximising the preservation of assets, providing options to reorganise or liquidate an enterprise, and potentially restarting). Just as importantly, governments should promote a positive attitude towards second chances, encouraging honest entrepreneurs to start a new business after failure. Most economies in the Western Balkans and Turkey have established sound insolvency laws, with clearly defined procedures for distressed firms, with the exception of Kosovo which is drafting a new law. However, most economies still have procedural delays and lack some institutional support mechanisms such as early warning systems to identify distressed companies before they need to enter formal bankruptcy procedures. Discouragingly, not one economy has a programme in place to promote second chances after bankruptcy, thus exacerbating the stigma associated with failed entrepreneurs.

    • Institutional and regulatory framework for SME policy making (Dimension 3) in the Western Balkans and Turkey

      Design rules according to the "think small first" principle (Small Business Act Principle 3)

      The "think small first" principle requires public authorities to take SMEs’ interests into consideration early on in the policy-making process. It takes a comprehensive and coherence policy and institutional framework to ensure that laws and regulations are SME friendly and that public initiatives effectively address the needs of SMEs. This dimension therefore assesses three inter-related aspects of the SME policy process: 1) the institutional frameworks themselves; 2) the adoption of legislative simplification and regulatory impact analysis tools to ensure SME needs are incorporated into existing and future laws and regulations; and 3) the existence of participatory platforms for public-private consultations on SME-related topics. This assessment found that the economies of the Western Balkans and Turkey are demonstrating increasingly sophisticated SME policy development, moving beyond initial institution building towards tracking policy implementation and monitoring. On the other hand, the limited availability of good-quality statistical data on the SME sector and limited consideration of SMEs’ particular needs in regulatory reviews remain major obstacles to effective SME policy making in the region.

    • Operational environment for SMEs (Dimension 4) in the Western Balkans and Turkey

      Make public administrations responsive to SMEs’ needs (Small Business Act Principle 4)

      Lengthy and costly administrative procedures can be a major constraint on doing business and their impact is most heavily felt by micro and small-sized enterprises. Dimension 4 assesses progress towards simplifying regulations and reducing compliance costs and procedures for SMEs, with a focus on business registration and e-government systems. The economies of the Western Balkans and Turkey have continued to streamline business regulation to lower market entry barriers and reduce transaction costs for businesses in their interaction with government agencies. However, progress has slowed down since the assessment in 2012. E-government portals and services have been expanded in most WBT economies, one-stop shops for starting a business are currently operative throughout the region and business registration has been simplified. Despite this, starting a business in the WBT region remains on average more costly and involves more procedures than in OECD countries. WBT economies should keep up their momentum by streamlining company registration procedures, increasing awareness about e-services amongst SMEs, and improving the integration of government databases to further reduce transaction costs. Governments might also consider reducing other administrative barriers to business, such as licences and permits, which continue to be a major constraint in certain economic sectors.

    • Support services for SMEs and start-ups, and public procurement (Dimensions 5a and 5b) in the Western Balkans and Turkey

      Adapt public policy tools to SME needs (Small Business Act Principle 5)

      The idiosyncrasies of SMEs mean they need specific support from public policy tools and government interventions to overcome market imperfections which prevent them from accessing particular markets and developing their skills. Dimension 5 is divided into two parts: Dimension 5a assesses government efforts to encourage the development of business support services for SMEs as an instrument to improve SME competitiveness, while Dimension 5B assesses efforts to adapt public procurement frameworks to make it easier for SMEs to participate on an equal footing, giving them access to the significant opportunities offered by public contracts. Overall, the economies of the Western Balkans and Turkey have become marginally more proactive in both of these areas. A combination of public and donor-funded programmes offer support services for SMEs and start-ups across the region. Nonetheless, more efforts are required to address the needs of specific SME segments, such as start-ups, growth-oriented medium-sized firms or exporters. Services do not gather sufficient feedback from SMEs, and more could be done to develop comprehensive and stringent monitoring and evaluation frameworks. In public procurement, governments have made progress in improving the legislative framework and have started to develop e-procurement systems, making it easier for SMEs to participate in public tenders. However, price is still commonly used as the contract criterion to the detriment of quality considerations. Policy makers should now concentrate on ensuring qualification criteria and financial requirements are proportionate for SMEs and take the next steps towards developing e-procurement so as to take full advantage of the efficiency benefits it offers.

    • Access to finance for SMEs (Dimension 6) in the Western Balkans and Turkey

      Facilitate SMEs’ access to finance and develop a legal and business environment supportive to timely payments in commercial transactions (Small Business Act Principle 6)

      Access to finance is an important challenge for many SMEs in the Western Balkans and Turkey. According to the latest Business Environment and Enterprise Performance Survey (BEEPS V), obtaining credit is one of the top five challenges to doing business. This chapter focuses on government policies that can help SMEs access financing of different types, in line with Principle 6 of the Small Business Act for Europe. Bank lending remains the main source of financing for SMEs even though access to bank loans has been tightened as banks reduce their leverage and lending is held back by high levels of non-performing loans. Some governments provide support programmes but they tend to be based on interest rate subsidies rather than more commercially viable tools such as credit guarantees. Alternative non-bank sources of finance such as leasing and microcredit are generally available but not used to their full potential. Adequate legal frameworks might support their wider use. Generally the legal frameworks for secured transactions are reasonably well developed across the region, but enforcement can still be an issue and some economies lack out-ofcourt mechanisms. Financial literacy levels are relatively low and programmes to raise them could benefit from further co-ordination and focus.

    • Standards and technical regulations (Dimension 7) in the Western Balkans and Turkey

      Help SMEs to benefit more from the opportunities offered by the single market (Small Business Act Principle 7)

      Technical barriers to trade can severely distort trade by preventing market access, protecting domestic producers and discriminating between domestic and foreign producers. They thus represent one of the most important obstacles to the liberalisation of trade between the European Union and the EU pre-accession countries. Dimension 7 analyses government efforts to eliminate technical barriers to trade in the area of industrial products. The implementation of standards and technical regulations in particular has the potential to ease access to the Single Market and liberalise trade between the EU and the Western Balkans and Turkey. All the economies of the Western Balkans and Turkey have been working on aligning their technical regulations and standards with international and European rules. The Former Yugoslav Republic of Macedonia, Montenegro, Serbia and Turkey are candidates for accession to the EU, and have gone through the process of screening their legislation in the area of free movement of goods. Albania has also acquired candidate status, and Bosnia and Herzegovina and Kosovo have potential candidate status. Stabilisation and Association Agreements have entered into force between the EU and Albania, Bosnia and Herzegovina, the Former Yugoslav Republic of Macedonia, Montenegro, and Serbia, and the one with Kosovo was signed in 2015. The EU and Turkey have long been joined with a Customs Union agreement.

    • Enterprise skills and innovation (Dimensions 8a and 8b) in the Western Balkans and Turkey

      Promote the upgrading of skills in SMEs and all forms of innovation (Small Business Act Principle 8)

      Skills and innovation are crucial drivers of productivity and SME growth in today’s knowledge-driven economy. Principle 8 of the Small Business Act provides the framework for analysing and evaluating innovation and enterprise skills policies in two areas: 1) building enterprise skills; and 2) innovation policy. As the European Union pulls out of a prolonged recession, it is also giving renewed policy consideration to training and the creation of a digital single market. The SME training environments in the Western Balkans and Turkey could benefit from more co-ordinated data on existing training provision and SME training needs. Training for start-ups has improved, but economies could do more to combine training and mentoring with more diversified financial support, particularly for high-potential start-ups. More sustained effort is needed to develop training for growth-oriented businesses, including ensuring SMEs are ready for online activities. E-training is underdeveloped in most of the economies in the region. Policy makers will also need to pay more attention to quality assurance in training, particularly in the five EU membership candidates. In innovation policy, some economies have made progress in establishing innovation policies and the infrastructure needed to implement them but progress has been uneven. Future challenges will include developing the right governance structure for innovation, promoting innovation, and enabling collaboration between academia and the private sector.

    • SMEs in a green economy (Dimension 9) in the Western Balkans and Turkey

      Enable SMEs to turn environmental challenges into opportunities (Small Business Act Principle 9)

      Policy makers are becoming increasingly concerned about how to achieve sustained economic growth without harming the environment. As SMEs often account for a large proportion of all enterprises within an economy, policy makers throughout the world are working to design policies which help them transition towards environmentally friendly and sustainable practices. Sound environmental policies should also offer environmentally innovative SMEs incentives to develop eco-friendly products or processes. The economies of the Western Balkans and Turkey have made little progress in targeting green policies at SMEs, often exhibiting a disconnection between their environment policies and SME development. The lack of information and tools on environmental issues makes it hard for SMEs to adopt environmentally friendly practices. Moreover, policy makers have limited resources to offer regulatory and financial incentives to help SMEs with the greening of their enterprises.

    • Internationalisation of SMEs (Dimension 10) in the Western Balkans and Turkey

      Encourage and support SMEs to benefit from the growth of markets (Small Business Act Principle 10)

      Accessing international markets and integrating into global value chains can enhance SMEs’ growth and productivity and lead to higher employment, innovation, knowledge and skills transfer, and improved business networks. Internationalisation brings greater competition with foreign firms, which is particularly valuable for most of the economies of the region which have a relatively small domestic market. This chapter assesses the policy areas defined under SBA Principle 10, measuring trade performance and governments’ approach to helping SMEs to access international markets and integrate into global value chains. It considers the removal of regulatory barriers to trade, implementation of export promotion strategies, government export promotion programmes and agencies, and specific measures to promote integration into global value chains. As in the previous SBA assessment 2012, the Western Balkans and Turkey perform relatively well in this dimension. The costs and bureaucracy involved in importing and exporting are falling and moving closer to the OECD average although performances vary across the region. In general, all economies have export promotion programmes with various activities in place and, except in Bosnia and Herzegovina, they are all linked with export promotion strategies. The level of implementation varies among the economies, however. The remaining challenges are the lack of programmes targeting SMEs’ integration into global values chains, weak monitoring, and limited staff and budget for export promotion agencies.

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  • Expand / Collapse Hide / Show all Abstracts Small Business Act assessment: Western Balkans and Turkey country profiles

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    • Albania

      Albania has been proactive in strengthening its institutional, regulatory and operational environment for SME development since the 2012 SBA Assessment. The Business Investment and Development Strategy for 2014-2020 frames the country’s policy for promoting the SME sector. Albania has introduced a new e-government portal which eases business operations and launched a new tax filing system which allows for the online filing of all taxes. The National Business Centre acts as central one-stop shop for businesses. In addition, Albania has improved its policy framework for entrepreneurial learning. Going forward, the government should pay particular attention to formalising its regulatory impact analysis and developing a proportional approach to its use. It should strengthen the institutional support mechanisms for bankruptcy by developing an early warning system and second chance programmes. The Albanian government authorities should ensure that actions outlined in its strategies are systematically implemented, monitored and evaluated. Developing the necessary infrastructure and financial instruments will be necessary to promote innovation within SMEs. Targeted support services would help SMEs acquire the skills to move into knowledge-intensive sectors. Non-banking sources of finance remain limited and should be broadened.

    • Bosnia and Herzegovina

      Bosnia and Herzegovina has made incremental progress since the 2012 assessment, but its business environment continues to be cumbersome and it still lags behind its regional neighbours in small and medium-sized enterprise (SME) policy development. The weak co-ordination between public institutions at state and entity levels not only leads to the creation of disconnected policies but also impedes their implementation. More positively, a new public procurement law was adopted in 2014. The signing of the Stabilisation and Association Agreement with the European Union established access to EU public procurement markets. The country has made efforts to promote entrepreneurial skills with the introduction of a nationwide entrepreneurial learning strategy, and introducing entrepreneurial skills into school curricula. Bosnia and Herzegovina continues to face severe issues with bureaucratic procedures such as company registration and business licensing, which currently have to be performed twice, once in each respective entity, creating serious market distortions within the country. SMEs and start-ups would benefit from a strategic approach to innovation and financial instruments to promote it. Access to finance remains a major obstacle for SME development. These challenges, and others, highlight the growing need for increased policy co-ordination between the state and entities and the need to introduce a nationwide SME development strategy.

    • Kosovo

      Kosovo has made significant progress since the 2012 assessment, in particular in improving its institutional environment for SME development through launching its new Private Sector Development Strategy 2013-2017. It has improved the business environment through simplifying company registration procedures and by introducing one-stop shops across Kosovo. Access to finance has been improved through a strengthened legal and regulatory framework but lending remains constrained by a challenging economic environment with high levels of informality. The implementation of the entrepreneurship and skills agenda has mainly involved higher education. Kosovo now needs to finally adopt its innovation strategy and help SMEs make better use of technology, research and innovation. The government should further expand e-services and raise awareness of them among the business community. The market for non-banking finance should be deepened and broadened. Export finance tools should be developed to help export-oriented SMEs expand into foreign markets. Finally, mechanisms to stabilise lifelong learning partnerships among public, private and civil society should be put in place.

    • Former Yugoslav Republic of Macedonia

      The Former Yugoslav Republic of Macedonia is one of the most advanced economies in the region in promoting its SME sector. Its institutional framework and operational environment continues to have a high level of EU SME policy convergence. Although it has a fairly solid policy framework in place, it needs to make further efforts to ensure the proper delivery of services meeting the needs of SMEs. Its innovation framework for SMEs has been significantly improved by the introduction of a strategy, law and fund, building the foundations for the promotion of innovation among SMEs. The banking regulatory framework has been further strengthened by aligning it more closely with Basel II principles. Technical standards and regulations are fairly well aligned with the European Union. The e-procurement system has been further developed since 2012 and the entrepreneurship promotion and skills agenda is being successfully implemented. Moving forward, SME development policy should be anchored in a higher level national strategy, allowing these reforms and programmes to continue to effectively promote SME development. Regular monitoring of activities and light evaluation of support programmes should be encouraged to ensure that the needs of SMEs are met and to justify government funding. Sources of non-banking financing should be encouraged, to diversify the financial base for SMEs and ease their access to finance.

    • Montenegro

      Montenegro has made some improvements in the institutional, regulatory and operational environment for SMEs since 2012, although SMEs still face challenges resulting from an uneven economic recovery. Its technical standards are now largely harmonised with the EU acquis, business registration requirements have been further eased and e-government services have expanded. Tax payment procedures have further been simplified and made available electronically, with the double benefit of increasing tax compliance and curtailing informal economy activity. The government has also made considerable efforts to harmonise entrepreneurial learning across different national strategies. It has established an institutional infrastructure and financial instruments to promote innovation in SMEs. However, although the country has relatively well-developed microfinance products, access to finance continues to be a major constraint for SMEs. Montenegro should now consider further steps to enhance access to finance: among them to facilitate the establishment of a private credit bureau and initiatives to enhance financial literacy. The government should increase its efforts to provide horizontal and targeted business support services, particularly in the key areas of supporting SME access to foreign markets and providing financial and nonfinancial support for innovation. Montenegro might also consider integrating the entrepreneurship key competence into the curricula.

    • Serbia

      With its small internal market dominated by services and a still intrinsically consumption-driven economy, Serbia’s key policy priorities are economic competitiveness and export-led growth. Building on a well-developed institutional framework for SME policy with a forward-looking SME development strategy, Serbia has improved its operational environment for SMEs, particularly on company registration and e-government services. Serbia’s strong focus on SME training needs analysis represents a further major step forward. It has further progressed in promoting innovation within SMEs, allowing entrepreneurs being more actively involved in international collaboration programmes. Going forward, a key medium-term priority should be the establishment of a monitoring system tracking progress in the implementation of its SME policies and measuring their effectiveness on the ground. Access to finance for SMEs should be strengthened by broadening options for non-bank financing. The government further needs to address burdensome regulations in key areas such as permits and licences. Environmental policies for SMEs have not been implemented yet and SME policy is not yet considered as an integral part of environmental policies.

    • Turkey

      Building on a solid track record and starting from a high base, Turkey has strengthened its SME-related policies since 2012, and provides an extensive range of support services. Despite an initial slowdown in GDP growth after the global financial crisis, Turkey has recovered and its businesses have proven fairly resilient to the crisis. Turkey has made noticeable efforts to implement its innovation strategy, putting in place substantial financial instruments and schemes to directly support innovative SMEs. Currently, Turkey is attempting to reduce delays in its bankruptcy system by introducing streamlining reforms such as eliminating multiple enforcement offices in the same location. The promotion of lifelong entrepreneurial learning has been supported by the establishment of a National Entrepreneurship Strategy and Action Plan. Despite encouraging signs of continued progress, Turkey still has cumbersome and costly registration procedures for businesses. Informal market activity remains high in part due to the burdensome bureaucratic system and the Action Plan of Strategy for Fight against Informal Economy 2011-2013 has yet to be renewed. Although access to finance has generally improved, Turkey still needs to establish a legal microfinance framework and to help improve the capacity of financial institutions to offer the sort of long-term funding options to SMEs which are currently often only available to large corporations.

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